SUTTON HILL PROPERTIES, LLC, as mortgagor
 
(Borrower)
 
to
 
SOVEREIGN BANK. N.A., as mortgagee
 
(Lender)
 
AMENDED AND RESTATED MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
 
SECURITY AGREEMENT, AND FIXTURE FILING
 
Dated:                  June 28, 2012

   
Address
1001-1007 Third Avenue
Block
1414
Lot
48
County
New York

PREPARED BY AND UPON
RECORDATION RETURN TO:
 
Windels Marx Lane & Mittendorf, LLP
156 West 56th Street
New York, New York 10019
Attention: Michele Arbeeny, Esq.

INSTRUCTIONS TO REGISTER’S OFFICE:  INDEX THIS DOCUMENT AS A MORTGAGE, A
SECURITY AGREEMENT, A FIXTURE FILING AND AN ASSIGNMENT OF LEASES AND RENTS.
 
 
 
 

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

 
 
TABLE OF CONTENTS
 
 

ARTICLE 1
-GRANTS OF SECURITY 
1

  
Section 1.1.
PROPERTY MORTGAGED 
1
  
Section 1.2.
ASSIGNMENT OF RENTS 
4
  
Section 1.3.
DEFINITION OF PERSONAL PROPERTY 
4
  
Section 1.4.
PLEDGE OF MONIES HELD 
4

 ARTICLE 2
- DEBT AND OBLIGATIONS SECURED 
5

  
Section 2.1.
DEBT 
5
  
Section 2.2.
OTHER OBLIGATIONS 
5
  
Section 2.3.
DEBT AND OTHER OBLIGATIONS 
6
  
Section 2.4.
PAYMENTS 
6

 ARTICLE 3
- BORROWER COVENANTS 
6

  
Section 3.1.
INSURANCE. 
7
  
Section 3.2.
PAYMENT OF TAXES, ETC. 
13
  
Section 3.3.
CONDEMNATION 
15
  
Section 3.4.
USE AND MAINTENANCE OF PROPERTY 
15
  
Section 3.5.
WASTE 
16
  
Section 3.6.
COMPLIANCE WITH LAWS; ALTERATIONS. 
16
  
Section 3.7.
BOOKS AND RECORDS. 
16
  
Section 3.8.
PAYMENT FOR LABOR AND MATERIALS 
18
  
Section 3.9.
PERFORMANCE OF OTHER AGREEMENTS 
18
  
Section 3.10.
REPLACEMENT RESERVE. 
18

 
 ARTICLE 4
- SPECIAL COVENANTS 
18

  
Section 4.1.
PROPERTY USE 
19
  
Section 4.2.
ERISA. 
19
  
Section 4.3.
SINGLE PURPOSE ENTITY 
19
  
Section 4.4.
EMBARGOED PERSON 
22
  
Section 4.5.
OFAC 
23
  
Section 4.6.
LOAN TO VALUE 
24

 ARTICLE 5
- REPRESENTATIONS AND WARRANTIES 
24

 

 
 

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

 
 

 
Section 5.1.
BORROWER’S REPRESENTATIONS 
24
 
Section 5.2.
WARRANTY OF TITLE 
24
  
Section 5.3.
STATUS OF PROPERTY. 
24
  
Section 5.4.
NO FOREIGN PERSON 
26
  
Section 5.5.
SEPARATE TAX LOT 
26

 ARTICLE 6
- OBLIGATIONS AND RELIANCES 
26

  
Section 6.1.
RELATIONSHIP OF BORROWER AND LENDER 
26
  
Section 6.2.
NO RELIANCE ON LENDER 
26
  
Section 6.3.
NO LENDER OBLIGATIONS. 
26
  
Section 6.4.
RELIANCE 
26

 ARTICLE 7
- FURTHER ASSURANCES 
27

  
Section 7.1.
RECORDING FEES 
27
  
Section 7.2.
FURTHER ACTS 
27
  
Section 7.3.
CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS. 
27
  
Section 7.4.
CONFIRMATION STATEMENT. 
28
  
Section 7.5.
SPLITTING OF SECURITY INSTRUMENT 
28
  
Section 7.6.
REPLACEMENT DOCUMENTS 
29

 ARTICLE 8
- DUE ON SALE/ENCUMBRANCE 
29

  
Section 8.1.
LENDER RELIANCE 
29
  
Section 8.2.
NO SALE/ENCUMBRANCE. 
29
  
Section 8.3.
EXCLUDED AND PERMITTED TRANSFERS. 
30
  
Section 8.4.
NO IMPLIED FUTURE CONSENT 
32
  
Section 8.5.
COSTS OF CONSENT 
32
  
Section 8.6.
CONTINUING SEPARATENESS REQUIREMENTS 
32

 ARTICLE 9
- DEFAULT 
32

  
Section 9.1.
EVENTS OF DEFAULT 
32
  
Section 9.2.
DEFAULT INTEREST 
35

 ARTICLE 10
- RIGHTS AND REMEDIES 
35

  
Section 10.1.
REMEDIES 
35
  
Section 10.2.
RIGHT OF ENTRY 
41

 ARTICLE 11
- INDEMNIFICATION; SUBROGATION 
41

  
Section 11.1.
GENERAL INDEMNIFICATION. 
41

 
 
 
ii

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

 

 

 
Section 11.2.
ENVIRONMENTAL INDEMNIFICATION 
42
  
Section 11.3.
DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES 
44
  
Section 11.4.
SURVIVAL OF INDEMNITIES 
45

 ARTICLE 12
  - SECURITY AGREEMENT 
45

  
Section 12.1.
SECURITY AGREEMENT 
45
 
Section 12.2.
FIXTURE FILING INFORMATION 
46

 ARTICLE 13
- WAIVERS 
47

  
Section 13.1.
MARSHALLING AND OTHER MATTERS 
47
  
Section 13.2.
WAIVER OF NOTICE 
47
  
Section 13.3.
SOLE DISCRETION OF LENDER 
47
  
Section 13.4.
SURVIVAL 
47
  
Section 13.5.
WAIVER OF TRIAL BY JURY 
47
  
Section 13.6.
WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY 
48

 ARTICLE 14
- NOTICES 
48

  
Section 14.1.
NOTICES 
48

 ARTICLE 15
- APPLICABLE LAW 
49

  
Section 15.1.
GOVERNING LAW; JURISDICTION 
49
  
Section 15.2.
USURY LAWS 
49
  
Section 15.3.
PROVISIONS SUBJECT TO APPLICABLE LAW 
50

 ARTICLE 16
- SECONDARY MARKET 
50

  
Section 16.1.
TRANSFER OF LOAN 
50

 ARTICLE 17
- COSTS 
51

  
Section 17.1.
PERFORMANCE AT BORROWER’S EXPENSE 
51
  
Section 17.2.
ATTORNEY’S FEES FOR ENFORCEMENT 
51

 ARTICLE 18
- DEFINITIONS 
51

  
Section 18.1.
GENERAL DEFINITIONS 
52

 ARTICLE 19
- MISCELLANEOUS PROVISIONS 
52

  
Section 19.1.
NO ORAL CHANGE 
52
  
Section 19.2.
LIABILITY 
52
  
Section 19.3.
INAPPLICABLE PROVISIONS 
52
  
Section 19.4.
HEADINGS, ETC 
52
  
Section 19.5.
DUPLICATE ORIGINALS; COUNTERPARTS 
52

 

 
iii

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

 

 

 
Section 19.6.
NUMBER AND GENDER 
53
  
Section 19.7.
SUBROGATION 
53
  
Section 19.8.
ENTIRE AGREEMENT 
53
  
Section 19.9.
CONDITIONS TO CLOSING 
53

 ARTICLE 20
- SPECIAL STATE OF NEW YORK PROVISIONS 
54

  
Section 20.1.
INCONSISTENCIES 
54
  
Section 20.2.
TRUST FUND 
54
  
Section 20.3.
COMMERCIAL PROPERTY 
54
  
Section 20.4.
INSURANCE 
54
  
Section 20.5.
LEASES 
54
  
Section 20.6.
MAXIMUM PRINCIPAL AMOUNT SECURED 
54
  
Section 20.7.
NONJUDICIAL FORECLOSURE 
55
  
Section 20.8.
STATUTORY CONSTRUCTION 
55
  
Section 20.9.
TRANSFER TAXES. 
55
  
Section 20.10.
SATISFACTION OR ASSIGNMENT OF MORTGAGE 
56
  
Section 20.11.
AMENDMENT AND RESTATEMENT 
57

 
 
EXHIBIT A                                 (Description of Land)

 
 
iv

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

 

 
THIS AMENDED AND RESTATED MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT, AND FIXTURE FILING (this “Security Instrument”) is made as of the
28th day of June, 2012, by SUTTON HILL PROPERTIES, LLC, a Nevada limited
liability company having its principal place of business at 6100 Center Drive,
Suite 900, Los Angeles, California 90045 (“Borrower”), and SOVEREIGN BANK, N.A.
a national association, having its principal place of business at 824 North
Market Street, Suite 100, Wilmington, Delaware 19801, as mortgagee (“Lender”).
 
RECITALS:
 
WHEREAS, Borrower is the owner of that certain parcel of improved real property
known as 1001-1007 Third Avenue, New York County, State of New York, as more
particularly described in Exhibit A attached hereto and made a part hereof; and
 
WHEREAS, Lender is the holder of that certain Mortgage and Security Agreement
dated as of June 28, 2007, made by the Borrower, as borrower, in favor of
Eurohypo AG, New York Branch, as original lender, in the principal amount of
$15,000,000.00, and recorded on July 10, 2007 in the Register’s Office of the
City and State of New York as CRFN 2007000350847 (the “Original Mortgage”) which
Original Mortgage has been assigned to Lender on the date hereof; and
 
WHEREAS, the indebtedness secured by the Original Mortgage is being amended and
restated by this Security Instrument, and is evidenced by that certain Amended
and Restated Note dated the date hereof in the principal amount of Fifteen
Million and no/100 dollars ($15,000,000.00) (together with all extensions,
renewals, modifications, substitutions and amendments thereof, the “Note”)
evidencing the indebtedness of Borrower to Lender; and
 
WHEREAS, to secure the payment of the indebtedness under the Note in the
Mortgage Amount, together with interest thereon at the interest rate or rates
set forth in the Note, and together with any other sums that may become due and
payable hereunder or under the Note or the other Loan Documents (as hereinafter
defined), and to secure the performance by Borrower of its obligations
hereunder, under the Note and the other Loan Documents, Borrower has agreed to
execute and deliver to Lender this Security Instrument.
 
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
 
SECURITY AGREEMENT, AND FIXTURE FILING
 
BORROWER hereby agrees, covenants, represents and warrants with and to Lender as
follows:
 
ARTICLE 1                                - GRANTS OF SECURITY
 
Section 1.1. PROPERTY MORTGAGED.  Borrower does hereby irrevocably,
unconditionally and absolutely mortgage, grant, bargain, sell, pledge, enfeoff,
assign, warrant, transfer and convey to Lender (with power of sale), and does
hereby grant a first priority security interest to Lender in, the following
property, rights, interests and estates now owned, or hereafter acquired, by
Borrower (collectively, the “Property”):
 
 
-1-

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

 
 
(a) Land.  The real property described in Exhibit A attached hereto and made a
part hereof (collectively, the “Land”), together with additional lands, estates
and development rights hereafter acquired by Borrower for use in connection with
the development, ownership or occupancy of such real property, and all
additional lands and estates therein which may, from time to time, by
supplemental mortgage or otherwise be expressly made subject to the lien of this
Security Instrument;
 
(b) Improvements.  The buildings, structures, fixtures, additions, accessions,
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter erected or located on the Land (the “Improvements”);
 
(c) Easements.  All easements, rights-of-way or use, rights, strips and gores of
land, streets, ways, alleys, passages, sewer rights, water, water courses, water
rights and powers, air rights and development rights, and all estates, rights,
titles, interests, privileges, liberties, servitudes, tenements, hereditaments
and appurtenances of any nature whatsoever, in any way now or hereafter
belonging, relating or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Borrower
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto;
 
(d) Fixtures and Personal Property.  All machinery, equipment, goods, inventory,
fixtures (including, but not limited to, all heating, air conditioning,
plumbing, lighting, communications and elevator fixtures) and other property of
every kind and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, now or hereafter located upon the Land and the
Improvements, or appurtenant thereto, and usable in connection with the present
or future use, maintenance, enjoyment, operation and occupancy of the Land and
the Improvements and all building equipment, materials and supplies of any
nature whatsoever owned by Borrower, or in which Borrower has or shall have an
interest, now or hereafter located upon the Land and the Improvements, or
appurtenant thereto, or usable in connection with the present or future
operation and occupancy of the Land and the Improvements, and the right, title
and interest of Borrower in and to any of the Personal Property (as hereinafter
defined) which may be subject to any security interests, as defined in the
Uniform Commercial Code, as adopted and enacted by the state or states where any
of the Property is located (the “Uniform Commercial Code”), superior in lien to
the lien of this Security Instrument and all proceeds and products of the above;
 
(e) Leases and Rents.  All leases, including without limitation, Borrower’s
interest as both landlord and tenant under the Master Lease (as defined herein),
and other agreements affecting the use, enjoyment or occupancy of the Land and
the Improvements heretofore or hereafter entered into, whether before or after
the filing by or against Borrower of any petition for relief under 11 U.S.C.
§101 et seq., as the same may be amended from time to time (the “Bankruptcy
Code”) (individually, a “Lease”; collectively, the “Leases”) and all right,
title and interest of Borrower, its successors and assigns therein and
thereunder, including, without limitation, cash or securities deposited
thereunder to secure the performance by the lessees of their obligations
thereunder and all rents (including all tenant security and other deposits),
additional rents, revenues, issues and profits (including all oil and gas or
other mineral royalties and bonuses) from the Land and the Improvements whether
paid or accruing before or after the filing by or against Borrower of any
petition for relief under the Bankruptcy Code (collectively the “Rents”) and all
proceeds from the sale or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;
 
 
-2-

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

 
 
(f) Condemnation Awards.  Subject to the rights of tenants (other than Borrower
as tenant under the Master Lease), if any, all awards or payments, including
interest thereon, which may heretofore and hereafter be made with respect to the
Property, whether from the exercise of the right of eminent domain (including
but not limited to any transfer made in lieu of or in anticipation of the
exercise of the right), or for a change of grade, or for any other injury to or
decrease in the value of the Property (“Awards”);
 
(g) Insurance Proceeds.  All proceeds of and any unearned premiums on any
insurance policies covering the Property, including, without limitation, the
right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Property;
 
(h) Tax Certiorari.  All refunds, rebates or credits in connection with a
reduction in real estate taxes and assessments charged against the Property as a
result of tax certiorari or any applications or proceedings for reduction;
 
(i) Conversion.  All proceeds of the conversion, voluntary or involuntary, of
any of the foregoing including, without limitation, proceeds of insurance and
condemnation awards, into cash or liquidation claims;
 
(j) Rights.  The right, in the name and on behalf of Borrower, to appear in and
defend any action or proceeding brought with respect to Lender’s interest in the
Property and to commence any action or proceeding to protect the interest of
Lender in the Property;
 
(k) Agreements.  All agreements, contracts (including purchase, sale, option,
right of first refusal and other contracts pertaining to the Property),
certificates, instruments, franchises, permits, licenses, approvals, consents,
plans, specifications and other documents, now or hereafter entered into, and
all rights therein and thereto, respecting or pertaining to the use, occupation,
construction, management or operation of the Property (including any
Improvements or respecting any business or activity conducted on the Land and
any part thereof) and all right, title and interest of Borrower therein and
thereunder, including, without limitation, the right, upon the happening of any
default hereunder, to receive and collect any sums payable to Borrower
thereunder;
 
 
-3-

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

 
 
(l) Trademarks.  All tradenames, trademarks, servicemarks, logos, copyrights,
goodwill, books and records and all other general intangibles relating to or
used in connection with the operation of the Property;
 
(m) Accounts.  All accounts, accounts receivable, escrows (including, without
limitation, all escrows, deposits, reserves and impounds established with Lender
from time to time, documents, instruments, chattel paper, deposit accounts,
investment property, claims, reserves (including deposits) representations,
warranties and general intangibles, as one or more of the foregoing terms may be
defined in the Uniform Commercial Code, and all contract rights, franchises,
books, records, plans, specifications, permits, licenses (to the extent
assignable), approvals, actions, choses, commercial tort claims, suits, proofs
of claim in bankruptcy and causes of action which now or hereafter relate to,
are derived from or are used in connection with the Property, or the use,
operation, maintenance, occupancy or enjoyment thereof or the conduct of any
business or activities thereon (hereinafter collectively called the
“Intangibles”); and
 
(n) Other Rights.  Any and all other rights of Borrower in and to the Property
and any accessions, renewals, replacements and substitutions of all or any
portion of the Property and all proceeds derived from the sale, transfer,
assignment or financing of the Property or any portion thereof.
 
Section 1.2. ASSIGNMENT OF RENTS.  Borrower hereby absolutely and
unconditionally assigns to Lender all of Borrower’s right, title and interest in
and to all current and future Leases and Rents; it being intended by Borrower
that this assignment constitutes a present, absolute and unconditional
assignment and not an assignment for additional security only.  Nevertheless,
subject to the terms of this Section 1.2, the terms and conditions of that
certain Assignment of Rents and Leases, of even date herewith from Borrower to
Lender and any cash management agreement to which Borrower and Lender are
parties, Lender grants to Borrower a revocable license to collect and receive
the Rents, which may only be revoked upon the occurrence of an Event of Default,
which is continuing.  Borrower shall hold the Rents, or a portion thereof
sufficient to discharge all current sums due on the Debt, for use in the payment
of such sums.
 
Section 1.3. DEFINITION OF PERSONAL PROPERTY.  For purposes of this Security
Instrument, the Property identified in Subsections 1.1(d) through 1.1(n),
inclusive, shall be collectively referred to herein as the “Personal Property”
 
Section 1.4. PLEDGE OF MONIES HELD.  Borrower hereby pledges to Lender any and
all monies now or hereafter held by Lender, including, without limitation, any
sums deposited with Lender from time to time, all insurance proceeds described
in Section 3.2 and condemnation awards or payments described in Section 3.4,
subject to the rights of tenants (other than Borrower as tenant under the Master
Lease), if any, as additional security for the Obligations until expended or
applied as provided in this Security Instrument.
 
 
-4-

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

 
 
CONDITIONS TO GRANT
 
TO HAVE AND TO HOLD the above granted and described Property unto and to the use
and benefit of Lender, and the successors and assigns of Lender, forever;
 
PROVIDED, HOWEVER, these presents are upon the express condition that, if
Borrower shall fully pay to Lender the Debt at the time and in the manner
provided in the Note and this Security Instrument, shall fully perform the Other
Obligations as set forth in this Security Instrument and shall fully abide by
and comply with each and every covenant and condition set forth herein and in
the Note, these presents and the estate hereby granted shall cease, terminate
and be void; provided however, that Borrower’s obligation to indemnify and hold
harmless Lender pursuant to the provisions hereof with respect to matters
relating to any period of time during which this Security Instrument was in
effect shall survive any such payment or release.
 
ARTICLE 2                                - DEBT AND OBLIGATIONS SECURED
 
Section 2.1. DEBT.  This Security Instrument and the grants, assignments and
transfers made in Article 1 are given for the purpose of securing the following,
in such order of priority as Lender may determine in its sole discretion (the
“Debt”):
 
(a) the payment of the indebtedness evidenced by the Note in lawful money of the
United States of America;
 
(b) the payment of interest, default interest, late charges, prepayment fees and
all other sums applicable to the indebtedness, as provided in the Note, this
Security Instrument or the Other Loan Documents (as hereinafter defined);
 
(c) the payment of all other moneys agreed or provided to be paid by Borrower in
the Note, this Security Instrument or the Other Loan Documents;
 
(d) the payment of all sums advanced pursuant to this Security Instrument to
protect and preserve the Property and the lien and the security interest created
hereby; and
 
(e) the payment of all sums advanced, costs and expenses incurred, and
processing fees charged by Lender in connection with the Debt or any part
thereof, any renewal, extension, or change of or substitution for the Debt or
any part thereof, or the acquisition or perfection of the security therefor,
whether made or incurred at the request of Borrower or Lender.
 
Section 2.2. OTHER OBLIGATIONS.  This Security Instrument and the grants,
assignments and transfers made in Article 1 are also given for the purpose of
securing the following (the “Other Obligations”):
 
(a) the performance of all other obligations of Borrower contained herein;
 
(b) the performance of each obligation of Borrower contained in any other
agreement given by Borrower to Lender which is for the purpose of further
securing the obligations secured hereby, and any amendments, modifications and
changes thereto; and
 
 
-5-

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

 
 
(c) the performance of each obligation of Borrower contained in any renewal,
extension, amendment, modification, consolidation, change of, or substitution or
replacement for, all or any part of the Note, this Security Instrument or the
Other Loan Documents.
 
Section 2.3. DEBT AND OTHER OBLIGATIONS.  Borrower’s obligations for the payment
of the Debt and the performance of the Other Obligations shall be referred to
collectively herein as the “Obligations.”
 
Section 2.4. PAYMENTS.  Unless payments are made in the required amount in
immediately available funds at the place where the Note is payable, remittances
in payment of all or any part of the Debt shall not, regardless of any receipt
or credit issued therefor, constitute payment until the required amount is
actually received by Lender in funds immediately available at the place where
the Note is payable (or any other place as Lender, in Lender’s sole discretion,
may have established by delivery of written notice thereof to Borrower) and
shall be made and accepted subject to the condition that any check or draft may
be handled for collection in accordance with the practice of the collecting bank
or banks.  Acceptance by Lender of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and the failure to pay
the entire amount then due shall be and continue to be an Event of Default (as
hereinafter defined).
 
ARTICLE 3                                - BORROWER COVENANTS
 
Borrower covenants and agrees that:
 
INCORPORATION BY REFERENCE.  All the covenants, conditions and agreements
contained in (a) the Note, and (b) all and any of the documents other than the
Note or this Security Instrument now or hereafter executed by Borrower and/or
others and by or in favor of Lender in connection with the creation of the
Obligations, the payment of any other sums owed by Borrower to Lender in
connection with the Obligations or the performance of any Obligations
(collectively, together with all extensions, renewals, amendments, restatements
and modifications thereof, the “Other Loan Documents”), are hereby made a part
of this Security Instrument to the same extent and with the same force as if
fully set forth herein.  The term “Loan” as used herein shall refer to the loan
made by the Lender to the Borrower on the date hereof which is evidenced by the
Note and secured by this Security Agreement and the Other Loan Documents.  The
term “Loan Documents” as used herein shall individually and collectively refer
to the Note, this Security Instrument and the Other Loan Documents, together
with all extensions, renewals, amendments, restatements and modifications
thereof; provided, however, that notwithstanding any provision of this Security
Instrument to the contrary, the Obligations of the Borrower under that certain
Environmental Indemnity Agreement of even date herewith executed by Borrower in
favor of Lender (together with all extensions, renewals, amendments,
restatements and modifications thereof, the “Environmental Indemnity”) shall not
be deemed or construed to be secured by this Security Instrument or otherwise
restricted or affected by the foreclosure of the lien hereof or any other
exercise by Lender of its remedies hereunder or under any other Loan Document,
such Environmental Indemnity being intended by the signatories thereto to be its
(or their) unsecured obligation.  The term “Master Lease” as used herein shall
mean that certain Lease Agreement dated February 9, 1960, by and between Andrew
C. Mayer, Berna L. Osnos, Frances M. Perlman, Richard Heller, Frances H. Cahen,
and Phillis R. Rosenthal as Trustees under the Last Will and testament of Isaac
S. Heller, collectively as original landlord, and Turtle Bay Theatre
Corporation, as original tenant, which was extended and modified by that certain
Extension and Modification of Lease Agreement dated as of June 1, 2005, by and
between Richard Heller and Phillis H. Rosenthal, as Trustees under the Last Will
and testament of Isaac S. Heller, Joe L. Oppenheimer and Marc W. Boland, as
Trustees of the Trust created under Agreement dated June 8, 2001, Simon M. Osnos
and Noah M. Osnos, individually and as Trustees of the Berna Osnos Revocable
Trust, Frances Perlman Family Limited Partnership (Turtle Bay), and Wallace
Perlman, as Trustee of the Frances Perlman 1986 Trust, collectively, as
successor landlord, and Sutton Hill Capital, L.L.C., as successor tenant, which
was further amended pursuant to that certain Amendment to Lease dated May 28,
2007, by and between Borrower, as successor (and current) Landlord, and
Borrower, as successor (and current) Tenant, as the same may be hereafter
further amended, restated, supplemented or otherwise modified from time to time
with Lender’s consent in its sole and absolute discretion.
 
 
-6-

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

 
 
Section 3.1. INSURANCE.
 
(a) Borrower shall obtain and maintain, and shall pay all premiums in accordance
with Subsection 3.2(b) below for, insurance for Borrower and the Property
providing at least the following coverages:
 
(i) comprehensive all risk insurance providing “special” form coverage
(including, without limitation, riot and civil commotion, vandalism, malicious
mischief, water, fire, burglary and theft, sinkhole collapse, windstorm, hail,
smoke, aircraft or vehicles, sprinkler leakage, and damage from weight of ice or
snow)  on the Improvements and the Personal Property and in each case (A) in an
amount equal to 100% of the “Full Replacement Cost,” which for purposes of this
Security Instrument shall mean actual replacement value (exclusive of costs of
excavations, foundations, underground utilities and footings) with a waiver of
depreciation; (B) containing an agreed amount endorsement and replacement cost
endorsement with respect to the Improvements and Personal Property waiving all
co-insurance provisions; (C) providing that the deductible shall not exceed
$50,000.00; and (D)  containing Demolition Costs, Increased Cost of Construction
and “Ordinance or Law Coverage” or “Enforcement” endorsements in amounts
satisfactory to Lender if any of the Improvements or the use of the Property
shall at any time constitute legal non-conforming structures or uses or the
ability to rebuild the Improvements is restricted or prohibited.  The Full
Replacement Cost may be redetermined from time to time by an appraiser or
contractor designated and paid by Lender or by an engineer or appraiser in the
regular employ of the insurer.  No omission on the part of Lender to request any
such appraisals shall relieve Borrower of any of its obligations under this
Subsection;
 
 
-7-

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

 
 
(ii) comprehensive commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage occurring upon, in or
about the Property, such insurance (A) to be on the so-called “occurrence” form
with a combined single limit of not less than $1,000,000.00 per occurrence and
not less than $2,000,000.00 in the aggregate,; (B) to continue at not less than
the aforesaid limit until required to be changed by Lender in writing by reason
of changed economic conditions making such protection inadequate; (C) to cover
at least the following hazards:  (1) premises and operations; (2) products and
completed operations on an “if any” basis; (3) independent contractors; (4)
blanket contractual liability for all written and oral contracts; (5)
contractual liability covering the indemnities contained in Article 11 hereof to
the extent the same is available; and (D) to be without deductible;
 
(iii) business income insurance (A) with loss payable to Lender; (B) covering
losses of income and Rents derived from the Property and any non-insured
property on or adjacent to the Property resulting from any risk or casualty
whatsoever; (C) containing an extended period of indemnity endorsement which
provides that after the physical loss to the Improvements and Personal Property
has been repaired, the continued loss of income will be insured until such
income either returns to the same level it was at prior to the loss, or the
expiration of twelve (12) months from the date that the Property is repaired or
replaced and operations are resumed, whichever first occurs, and notwithstanding
that the policy may expire prior to the end of such period; and (D) in an amount
equal to 100% of the projected gross income from the Property for a period of
twelve (12) months.  The amount of such business income insurance shall be
determined by Lender prior to the date hereof and at least once each year
thereafter based on Borrower's reasonable estimate of the gross income from the
Property for the succeeding twelve (12) month period.  All insurance proceeds
payable to Lender pursuant to this Subsection 3.2(a) shall be held by Lender and
shall be applied to the obligations secured hereunder from time to time due and
payable hereunder and under the Note; provided, however, that nothing herein
contained shall be deemed to relieve Borrower of its obligations to pay the
obligations secured hereunder on the respective dates of payment provided for in
the Note except to the extent such amounts are actually paid out of the proceeds
of such business income insurance;
 
(iv) at all times during which structural construction, repairs or alterations
are being made with respect to the Improvements: (A) owner's contingent or
protective liability insurance covering claims not covered by or under the terms
or provisions of the above mentioned commercial general liability insurance
policy; and (B) the insurance provided for in Subsection 3.2(a)(i) written in a
so-called builder's risk completed value form (1) on a non-reporting basis, (2)
against all risks insured against pursuant to Subsection 3.2(a)(i), (3)
including permission to occupy the Property, and (4) with an agreed amount
endorsement waiving co-insurance provisions;
 
 
-8-

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

 
 
(v) workers' compensation, subject to the statutory limits of the state in which
the Property is located, and employer's liability insurance with a limit of at
least $1,000,000.00 per accident and per disease per employee, and $1,000,000.00
for disease aggregate in respect of any work or operations on or about the
Property, or in connection with the Property or its operation (if applicable);
 
(vi) comprehensive boiler and machinery insurance (without exclusion for
explosion), if applicable, covering all boilers or other pressure vessels,
turbines, engines, machinery and equipment located at or about the Property
(including, without limitation, electrical equipment, sprinkler systems, heating
and air conditioning equipment, refrigeration equipment and piping) for 100% of
the full replacement cost of such equipment and the building or buildings
housing same;
 
(vii) if any portion of the Improvements is currently or at any time in the
future located in a “special flood hazard area” as designated by the Federal
Emergency Management Agency or such other applicable federal agency, flood
hazard insurance in an amount equal to the greater of (A) Full Replacement Cost,
or (B) the maximum amount available under the National Flood Insurance Program;
 
(viii) umbrella liability insurance in an amount not less than Ten Million and
No/100 Dollars ($10,000,000.00) per occurrence and in the aggregate on terms
consistent with the commercial general liability insurance policy required under
Section 3.2(a)(ii) hereof;
 
(ix) intentionally omitted; and
 
(x) such other insurance and in such amounts as Lender from time to time may
reasonably request against such other insurable hazards which at the time are
commonly insured against for property similar to the Property located in or
around the region in which the Property is located, including, without
limitation, mine subsidence insurance and environmental insurance, but excluding
terrorism and earthquake insurance.
 
(b) All insurance provided for in Subsection 3.2(a) hereof shall be obtained
under valid and enforceable policies (the “Policies” or in the singular, the
“Policy”), in such forms and, from time to time after the date hereof, in such
amounts as may from time to time be reasonably satisfactory to Lender, for a
minimum policy term not less than one year, issued by financially sound and
responsible insurance companies authorized to do business in the state in which
the Property is located as admitted or unadmitted carriers which, in either
case, have been approved by Lender and which have a claims paying ability rating
of at least A or better issued by Standard & Poor's Ratings Services, a division
of the McGraw Hill Companies, Inc., or A:X by A.M. Best or with a claims paying
ability rating otherwise acceptable to Lender (each such insurer shall be
referred to below as a “Qualified Insurer”).  Such Policies shall not be subject
to invalidation due to the use or occupancy of the Property for purposes more
hazardous than the use of the Property at the time such Policies were
issued.  No Policy required under Sections 3.2(a)(i) and (iii) hereof shall
contain an exclusion from coverage under such Policy for loss or damage incurred
as a result of an act of terrorism or similar acts of sabotage.  Not less than
thirty (30) days prior to the expiration dates of the Policies theretofore
furnished to Lender pursuant to Subsection 3.2(a), certified copies of the
Policies marked “premium paid” or accompanied by evidence reasonably
satisfactory to Lender of payment of the premiums due thereunder (the “Insurance
Premiums”), shall be delivered by Borrower to Lender; provided, however, that in
the case of renewal Policies, Borrower may furnish Lender with binders therefor
to be followed by the original Policies when issued.
 
 
-9-

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

 
 
(c) Borrower shall not obtain (i) separate insurance concurrent in form or
contributing in the event of loss with that required in Subsection 3.2(a) to be
furnished by, or which may be reasonably required to be furnished by, Borrower,
or (ii) any umbrella or blanket liability or casualty Policy unless, in each
case, Lender’s interest is included therein as provided in this Security
Instrument and such Policy is issued by a Qualified Insurer.  If Borrower
obtains separate insurance or an umbrella or a blanket Policy, Borrower shall
notify Lender of the same and shall cause certified copies of each Policy to be
delivered as required in Subsection 3.2(a).  Any blanket insurance Policy shall
specifically allocate to the Property the amount of coverage from time to time
required hereunder and shall otherwise provide the same protection as would a
separate Policy insuring only the Property in compliance with the provisions of
Subsection 3.2(a).
 
(d) All Policies of insurance provided for or contemplated by Subsection 3.2(a)
shall name Lender, its successors and assigns, including any servicers, trustees
or other designees of Lender, and Borrower as the insured or additional insured,
as their respective interests may appear, and in the case of property damage,
boiler and machinery, and flood insurance, shall contain a so-called New York
standard non-contributing Lender clause in favor of Lender providing that the
loss thereunder shall be payable to Lender.
 
(e) All Policies of insurance provided for in Subsection 3.2(a) shall contain
clauses or endorsements to the effect that:
 
(i) no act or negligence of Borrower, or anyone acting for Borrower, or of any
tenant under any Lease or other occupant, or failure to comply with the
provisions of any Policy which might otherwise result in a forfeiture of the
insurance or any part thereof, shall in any way affect the validity or
enforceability of the insurance insofar as Lender is concerned;
 
(ii) the Policy shall not be materially changed (other than to increase the
coverage provided on the Property thereby) or canceled without at least thirty
(30) days’ prior written notice to Lender and any other party named therein as
an insured;
 
 
-10-

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

 
 
(iii) each Policy shall provide that the issuers thereof shall give written
notice to Lender if the Policy has not been renewed thirty (30) days prior to
its expiration; and
 
(iv) Lender shall not be liable for any Insurance Premiums thereon or subject to
any assessments thereunder.
 
(f) Borrower shall furnish to Lender within ten (10) calendar days after
Lender’s request therefor, a statement certified by Borrower or a duly
authorized officer of Borrower of the amounts of insurance maintained in
compliance herewith, of the risks covered by such insurance and of the insurance
company or companies which carry such insurance and, if requested by Lender,
verification of the adequacy of such insurance by an independent insurance
broker or appraiser reasonably acceptable to Lender.
 
(g) If at any time Lender is not in receipt of written evidence that all
insurance required hereunder is in full force and effect, Lender shall have the
right but not the obligation, on notice to Borrower, to take such action as
Lender deems necessary to protect its interest in the Property, including,
without limitation, the obtaining of such insurance coverage as Lender in its
reasonable discretion deems appropriate, and all expenses incurred by Lender in
connection with such action or in obtaining such insurance and keeping it in
effect shall be paid by Borrower to Lender within five (5) business days of
demand and from such date until paid shall be secured by this Security
Instrument and shall bear interest at the Default Rate (as hereinafter defined).
 
(h) If the Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty, Borrower shall give prompt notice thereof to Lender.
 
(i) In case of loss covered by Policies, Lender may either (1) settle and adjust
any claim without the consent of Borrower, or (2) allow Borrower to agree with
the insurance company or companies on the amount to be paid upon the loss;
provided, that Borrower may adjust losses aggregating not in excess of
$500,000.00 if such adjustment is carried out in a competent and timely manner,
and provided that in any case Lender shall and is hereby authorized to collect
and receive any such insurance proceeds; and the expenses incurred by Lender in
the adjustment and collection of insurance proceeds shall become part of the
Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon
demand (unless deducted by and reimbursed to Lender from such proceeds).
 
(ii) In the event of any insured damage to or destruction of the Property or any
part thereof (herein called an “Insured Casualty”), if (A) less than 65% of the
total floor area of the Improvements has been damaged, destroyed or rendered
unusable as a result of such Insured Casualty and in the reasonable judgment of
Lender, the Property can be restored within six (6) months after insurance
proceeds are made available and at least three (3) months prior to the Maturity
Date (as defined in the Note) to an economic unit not less valuable (including
an assessment by Lender of the impact of the termination of any Leases due to
such Insured Casualty) and not less useful than the same was prior to the
Insured Casualty, and after such restoration will adequately secure the
outstanding balance of the Debt, and (B) no Event of Default (hereinafter
defined) shall have occurred and be then continuing, then the proceeds of
insurance shall be applied to reimburse Borrower for the cost of restoring,
repairing, replacing or rebuilding the Property or part thereof subject to
Insured Casualty, as provided below; and Borrower hereby covenants and agrees
forthwith to commence and diligently to prosecute such restoring, repairing,
replacing or rebuilding; provided, however, in any event Borrower shall pay all
costs (and if required by Lender, Borrower shall deposit the total thereof with
Lender in advance) of such restoring, repairing, replacing or rebuilding in
excess of the net proceeds of insurance made available pursuant to the terms
hereof.
 
 
-11-

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

 
 
(iii) Except as provided above, the proceeds of insurance collected upon any
Insured Casualty shall, at the option of Lender in its sole discretion, be
applied to the payment of the Debt or applied to reimburse Borrower for the cost
of restoring, repairing, replacing or rebuilding the Property or part thereof
subject to the Insured Casualty, in the manner set forth below.  Any such
application to the Debt shall not be considered a voluntary prepayment requiring
payment of the prepayment consideration provided in the Note, and, except as
provided in the Note, shall not reduce or postpone any payments otherwise
required pursuant to the Note, other than the final payment on the Note.
 
(iv) If proceeds of insurance, if any, are made available to Borrower for the
restoring, repairing, replacing or rebuilding of the Property, Borrower hereby
covenants to restore, repair, replace or rebuild the same to be of at least
equal value and of substantially the same character as prior to such damage or
destruction (unless otherwise consented to by Lender in writing, such consent
not to be unreasonably withheld), all to be effected in accordance with
applicable law and plans and specifications approved in advance by Lender in
writing, such consent not to be unreasonably withheld.
 
(v) If Borrower is entitled to reimbursement out of insurance proceeds held by
Lender, such proceeds shall be disbursed from time to time upon Lender being
furnished with (1) evidence reasonably satisfactory to it (which evidence may
include inspections of the work performed) that the restoration, repair,
replacement and rebuilding covered by the disbursement has been completed in
accordance with plans and specifications approved by Lender, (2) evidence
reasonably satisfactory to it of the estimated cost of completion of the
restoration, repair, replacement and rebuilding, (3) funds, or, at Lender’s
option, assurances reasonably satisfactory to Lender that such funds are
available, sufficient in addition to the proceeds of insurance to complete the
proposed restoration, repair, replacement and rebuilding, and (4) such
architect’s certificates, waivers of lien, contractor’s sworn statements, title
insurance endorsements, bonds, plats of survey and such other evidences of cost,
payment and performance as Lender may reasonably require and approve; and Lender
may, in any event, require that all plans and specifications for such
restoration, repair, replacement and rebuilding be submitted to and approved by
Lender prior to commencement of work.  With respect to disbursements to be made
by Lender:  (A) no payment made prior to the final completion of the
restoration, repair, replacement and rebuilding shall exceed ninety percent
(90%) of the value of the work performed from time to time; (B) funds other than
proceeds of insurance which are required to complete such restoration shall be
disbursed prior to disbursement of such proceeds; and (C) at all times, the
undisbursed balance of such proceeds remaining in the hands of Lender, together
with funds deposited for that purpose or irrevocably committed to the reasonable
satisfaction of Lender by or on behalf of Borrower for that purpose, shall be at
least sufficient in the reasonable judgment of Lender to pay for the cost of
completion of the restoration, repair, replacement or rebuilding, free and clear
of all liens or claims for lien and the costs described in Subsection 3.2(h)(vi)
below.  Any surplus which may remain out of insurance proceeds held by Lender
after payment of such costs of restoration, repair, replacement or rebuilding
shall, if no Event of Default shall then exist and be continuing, be paid to
Borrower or any other party entitled thereto.  In no event shall Lender assume
any duty or obligation for the adequacy, form or content of any such plans and
specifications, nor for the performance, quality or workmanship of any
restoration, repair, replacement and rebuilding.
 
 
-12-

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

 
 
(vi) Notwithstanding anything to the contrary contained herein, the proceeds of
insurance reimbursed to Borrower in accordance with the terms and provisions of
this Security Instrument shall be reduced by the costs (if any) incurred by
Lender in the adjustment and collection thereof and in the costs incurred by
Lender of paying out such proceeds (including, without limitation, reasonable
attorneys’ fees and costs paid to third parties for inspecting the restoration,
repair, replacement and rebuilding and reviewing the plans and specifications
therefor).
 
Section 3.2. PAYMENT OF TAXES, ETC.
 
(a) Borrower shall pay all taxes, assessments, water rates, sewer rents,
governmental impositions, and other charges, including without limitation, vault
charges and license fees for the use of vaults, chutes and similar areas
adjoining the Land, now or hereafter levied or assessed or imposed against the
Property or any part thereof (the “Taxes”), all ground rents, maintenance
charges and similar charges, now or hereafter levied or assessed or imposed
against the Property or any part thereof (the “Other Charges”), and all charges
for utility services provided to the Property as same become due and
payable.  Borrower will deliver to Lender, promptly upon Lender’s request,
evidence reasonably satisfactory to Lender that the Taxes, Other Charges and
utility service charges have been so paid or are not then delinquent.  Borrower
shall not allow and shall promptly cause to be paid, discharged or bonded any
lien or charge whatsoever which may be or become a lien or charge against the
Property.  Except to the extent sums sufficient to pay all Taxes and Other
Charges have been deposited with Lender in accordance with the terms of this
Security Instrument, Borrower shall furnish to Lender paid receipts, if
available, for the payment of the Taxes and Other Charges prior to the date the
same shall become delinquent.
 
 
-13-

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

 
 
(b) After prior written notice to Lender, Borrower, at its own expense, may
contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any of the Taxes, provided that (i) no Event of Default has
occurred and is continuing under the Note, this Security Instrument or any of
the Other Loan Documents, (ii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting
the Property, (iii) such proceeding shall suspend the collection of the Taxes
from Borrower and from the Property or Borrower shall have paid all of the Taxes
under protest, (iv) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder, (v) neither the Property
nor any part thereof or interest therein will be in danger of being sold,
forfeited, terminated, canceled or lost, (vi) Borrower shall have set aside and
deposited with Lender adequate reserves for the payment of the Taxes, together
with all interest and penalties thereon, unless Borrower has paid all of the
Taxes under protest, and (vii) Borrower shall have furnished the security as may
be required in the proceeding to insure the payment of any contested Taxes,
together with all interest and penalties thereon.
 
(c) Borrower shall pay or cause to be paid to Lender on the days that monthly
installments of interest are payable under the Note, until the Note is paid in
full, a sum (hereinafter referred to as the “Funds”) equal to one-twelfth (1/12)
of the following items (hereinafter collectively referred to as the
“Impositions”): the yearly real estate taxes.  The Impositions shall be
reasonably estimated initially and from time to time by Lender on the basis of
assessments and bills and estimates thereof.  The Funds shall be held by Lender,
free of interest and free of any liens or claims on the part of creditors of
Borrower and as part of the security for the Obligations.  The Funds may be
commingled with the general funds of Lender.  Lender shall apply the Funds to
pay the Impositions with respect to which the Funds were paid to the extent of
the Funds then held by Lender and provided Borrower has delivered to Lender the
assessments or bills therefor.  The Funds are pledged as additional security for
the Obligations, and may be applied, at Mortgagee’s option and without notice to
Borrower, to the payment of the Obligations upon the occurrence of any Event of
Default hereunder.  If at any time the amount of the Funds held by Lender shall
be less than the amount deemed necessary by Lender to pay Impositions as such
become due, Borrower shall pay to Lender any amount necessary to make up the
deficiency within five (5) days after notice from Mortgagee to Borrower
requesting payment thereof.  Upon payment in full of the Obligations, Lender
shall promptly refund to Borrower any Funds held by Lender.  Borrower shall pay
all Impositions in accordance with this Security Instrument, and all other
charges, if any, attributable to the Property.  Borrower shall furnish to Lender
all bills and notices of amounts due as soon as received, and in the event
Borrower shall make payment directly, Borrower shall furnish to Lender receipts
evidencing such payments have been made when due within ten (10) days after the
dates on which such payments are due, unless applied by Lender to the extent of
Funds then held by Mortgagee as more particularly provided in this
Section.  Borrower shall within thirty (30) days after Borrower becomes aware of
any discharge (by bonding, payment or otherwise) any lien filed against the
Property and will keep and maintain the Property free from the claims of all
persons supplying labor or materials to the Property.
 
 
-14-

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

 
 
Section 3.3. CONDEMNATION.  Borrower shall promptly give Lender notice of the
actual commencement, or written threat of commencement, of any condemnation or
eminent domain proceeding and shall deliver to Lender copies of any and all
papers served in connection with such proceedings.  Lender is hereby irrevocably
appointed as Borrower’s attorney-in-fact, coupled with an interest, with
exclusive power to collect, receive and retain any award or payment for said
condemnation or eminent domain and to make any compromise or settlement in
connection with such proceeding, subject to the provisions of this Security
Instrument.  Notwithstanding any taking by any public or quasi-public authority
through eminent domain or otherwise (including but not limited to any transfer
made in lieu of or in anticipation of the exercise of such taking), Borrower
shall continue to pay the Debt at the time and in the manner provided for its
payment in the Note and in this Security Instrument and the Debt shall not be
reduced until any award or payment therefor shall have been actually received
and applied by Lender, after the deduction of expenses of collection, to the
reduction or discharge of the Debt.  Lender shall not be limited to the interest
paid on the award by the condemning authority but shall be entitled to receive
out of the award interest at the rate or rates provided herein or in the Note.
Borrower shall cause the award or payment made in any condemnation or eminent
domain proceeding, which is payable to Borrower, to be paid directly to Lender,
subject to the rights of tenants (other than Borrower as tenant under the Master
Lease).  Lender may apply any award or payment to the reduction or discharge of
the Debt whether or not then due and payable (such application to be free from
any prepayment consideration provided in the Note, except that if an Event of
Default, or an event which with notice and/or the passage of time, or both,
would constitute an Event of Default, has occurred, then such application shall
be subject to the full prepayment consideration computed in accordance with the
Note).  If the Property is sold, through foreclosure or otherwise, prior to the
receipt by Lender of the award or payment, Lender shall have the right, whether
or not a deficiency judgment on the Note shall have been sought, recovered or
denied, to receive the award or payment, or a portion thereof sufficient to pay
the Debt.
 
Section 3.4. USE AND MAINTENANCE OF PROPERTY.  Borrower shall cause the Property
to be maintained and operated in a good and safe condition and repair and in
keeping with the condition and repair of properties of a similar use, value,
age, nature and construction.  Borrower shall not use, maintain or operate the
Property in any manner which constitutes a public or private nuisance or which
makes void, voidable, or cancelable, or increases the premium of, any insurance
then in force with respect thereto.  The Improvements and the Personal Property
shall not be removed, demolished or materially altered (except for normal
replacement of the Personal Property with items of the same utility and of equal
or greater value and except as permitted under Leases (other than the Master
Lease) for approved construction and landlord or tenant fit outs) without the
prior written consent of Lender.  Borrower shall promptly repair, replace or
rebuild any part of the Property which may be destroyed by any casualty, or
become damaged, worn or dilapidated or which may be affected by any proceeding
of the character referred to in Section 3.4 hereof and shall complete and pay
for any structure at any time in the process of construction or repair on the
Land, subject to the obligations of tenants under any Leases (other than the
Master Lease).  Borrower shall not initiate, join in, acquiesce in, or consent
to any change in any private restrictive covenant, zoning law or 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 Lender which
shall not be unreasonably withheld.  If under applicable zoning provisions the
use of all or any portion of the Property is or shall become a nonconforming
use, Borrower will not cause or permit the nonconforming use to be discontinued
or abandoned without the express written consent of Lender which shall not be
unreasonably withheld.  Borrower shall not take any steps whatsoever to convert
the Property, or any portion thereof, to a condominium or cooperative form of
management.
 
 
-15-

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

 
 
Section 3.5. WASTE.  Borrower shall not commit or suffer any waste of the
Property or, without first obtaining such additional insurance as may be
necessary to cover a proposed change in use of the Property, make any change in
the use of the Property which will in any way materially increase the risk of
fire or other hazard arising out of the operation of the Property, or take any
action that might invalidate or give cause for cancellation of any Policy, or do
or permit to be done thereon anything that may in any way impair the value of
the Property or the security of this Security Instrument.  Borrower will not,
without the prior written consent of Lender, permit any drilling or exploration
for or extraction, removal, or production of any minerals from the surface or
the subsurface of the Land, regardless of the depth thereof or the method of
mining or extraction thereof.
 
Section 3.6. COMPLIANCE WITH LAWS; ALTERATIONS.
 
(a) Borrower shall promptly comply with all existing and future federal, state
and local laws, orders, ordinances, governmental rules and regulations or court
orders affecting or which may be interpreted to affect the Property, or the use
thereof, including, but not limited to, the Americans with Disabilities Act (the
“ADA”) (collectively “Applicable Laws”), unless Borrower’s compliance is being
contested in accordance with Applicable Laws and Lender has been notified in
writing of the same.
 
(b) Notwithstanding any provisions set forth herein or in any document regarding
Lender’s approval of alterations of the Property, Borrower shall not alter the
Property in any manner which would increase Borrower’s responsibilities for
compliance with Applicable Laws without the prior written approval of
Lender.  Lender’s approval of the plans, specifications, or working drawings for
alterations of the Property shall create no responsibility or liability on
behalf of Lender for their completeness, design, sufficiency or their compliance
with Applicable Laws.  The foregoing shall apply to tenant improvements
constructed by Borrower or by any of its tenants.  Lender may condition any such
approval upon receipt of a certificate of compliance with Applicable Laws from
an independent architect, engineer, or other person acceptable to Lender.
 
(c) Borrower shall give prompt notice to Lender of the receipt by Borrower of
any notice related to a violation of any Applicable Laws and of the commencement
of any proceedings or investigations which relate to compliance with Applicable
Laws.
 
(d) Borrower shall take appropriate measures to prevent and will not engage in
or knowingly permit any illegal activities at the Property.
 
 
-16-

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

 
 
Section 3.7. BOOKS AND RECORDS.
 
(a) Borrower shall keep accurate books and records of account in accordance with
generally accepted accounting principles in which full, true and correct entries
shall be promptly made with respect to Borrower, the Property and the operation
thereof, and will permit all such books and records (including without
limitation all contracts, statements, invoices, bills and claims for labor,
materials and services supplied for the construction, repair or operation to
Borrower of the Improvements) to be inspected or audited and copies made by
Lender and its representatives during normal business hours and at any other
reasonable times on at least forty-eight (48) hours advance notice.  Borrower
represents that its chief executive office is as set forth in the introductory
paragraph of this Security Instrument and that all books and records pertaining
to the Property are maintained at the Property or at its chief executive
office.  Borrower will furnish, or cause to be furnished, to Lender on or before
ninety (90) calendar days following the end of each calendar year the following
items, each certified by Borrower as being true and correct, in such format and
in such detail as Lender or its servicer may reasonably request:
 
(i) a written statement (rent roll) dated as of the last day of each such
calendar year identifying each of the Leases by the term, space occupied, rental
required to be paid (including percentage rents and tenant sales), security
deposit paid, any rental concessions, all rent escalations, any rents paid more
than one (1) month in advance, any special provisions or inducements granted to
tenants, any taxes, maintenance and other common charges paid by tenants, all
vacancies and identifying any defaults or payment delinquencies thereunder;
 
(ii) year-to-date operating statements prepared for each calendar quarter during
each such reporting period detailing the total revenues received, total expenses
incurred, total cost of all capital improvements, total debt service and total
cash flow; and
 
(iii) a current personal financial statement of each Guarantor, if applicable,
in a form satisfactory to Lender.
 
(b) Within ninety (90) calendar days following the end of each calendar year,
Borrower shall furnish a statement of the financial affairs and condition of the
Borrower and the Property including a statement of profit and loss for the
Property in such format and in such detail as Lender or its servicer may
reasonably request, and setting forth the financial condition and the income and
expenses for the Property for the immediately preceding calendar year prepared
and audited by an independent certified public accountant.  Borrower shall
deliver to Lender copies of all income tax returns, requests for extension and
other similar items contemporaneously with its delivery of same to the Internal
Revenue Service.
 
(c) Borrower will permit representatives appointed by Lender, including
independent accountants, agents, attorneys, appraisers and any other persons, to
visit and inspect on at least twenty-four hours advance notice during its normal
business hours and at any other reasonable times any of the Property or
Borrower’s chief executive office and to make photographs thereof, and to write
down and record any information such representatives obtain, and shall permit
Lender or its representatives to investigate and verify the accuracy of the
information furnished to Lender under or in connection with this Security
Instrument or any of the Other Loan Documents and to discuss all such matters
with its officers, employees and representatives.  Borrower will furnish to
Lender at Borrower’s expense all evidence which Lender may from time to time
reasonably request as to the accuracy and validity of or compliance with all
representations and warranties made by Borrower in the Loan Documents and
satisfaction of all conditions contained therein.  Any inspection or audit of
the Property or the books and records of Borrower, or the procuring of documents
and financial and other information, by or on behalf of Lender, shall be at
Borrower’s expense and shall be for Lender’s protection only, and shall not
constitute any assumption of responsibility or liability by Lender to Borrower
or anyone else with regard to the condition, construction, maintenance or
operation of the Property, nor Lender’s approval of any certification given to
Lender nor relieve Borrower of any of Borrower’s obligations.  Lender may
divulge to any Investor (as hereinafter defined) all such information, and
furnish to such Investor copies of any such reports, financial statements,
certificates, and documents obtained under any provision of this Agreement, or
related agreements and documents, provided that such information shall be
provided on a confidential basis.
 
 
-17-

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

 
 
(d) [Reserved].
 
(e) Without limiting Lender’s other rights and remedies under this Security
Instrument and the other Loan Documents, in the event that any statement or
document required to be delivered to Lender pursuant to this Section 3.8 is not
delivered within thirty (30) days of the date when the same is due “Delinquent
Reports”) upon fifteen (15) days notice to Borrower, the Interest Rate (as
defined in the Note) shall be increased by adding one quarter percent (0.25%)
per annum (i.e., 25 basis points) to the Interest Rate until such time as all
Delinquent Reports, in form and substance reasonably satisfactory to Lender,
have been delivered to Lender.
 
Section 3.8. PAYMENT FOR LABOR AND MATERIALS.  Borrower will promptly pay when
due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Property (or, if required to be paid
by tenant, will cause such tenant to so pay), and never permit to exist beyond
the due date thereof in respect of the Property or any part thereof any lien or
security interest, even though inferior to the liens and the security interests
hereof, and in any event never permit to be created or exist in respect of the
Property or any part thereof any other or additional lien or security interest
other than the liens or security interests hereof, except for the Permitted
Exceptions (as hereinafter defined).
 
Section 3.9. PERFORMANCE OF OTHER AGREEMENTS.  Borrower shall observe and
perform each and every term to be observed or performed by Borrower pursuant to
the terms of the Loan Documents, or any other agreement or recorded instrument
affecting or pertaining to the Property, or given by Borrower to Lender for the
purpose of further securing an obligation secured hereby and any amendments,
modifications or changes thereto.
 
 
-18-

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

 
 
ARTICLE 4                                - SPECIAL COVENANTS
 
Borrower covenants and agrees that:
 
Section 4.1. PROPERTY USE.  The Property shall be used primarily for the
operation of a cinema, and for no other use without the prior written consent of
Lender, which consent may be withheld in Lender’s sole but reasonable
discretion.
 
Section 4.2. ERISA.
 
(a) It shall not engage in any transaction which would cause any obligation, or
action taken or to be taken, hereunder (or the exercise by Lender of any of its
rights under the Note, this Security Instrument and the Other Loan Documents) to
be a non-exempt (under a statutory or administrative class exemption) prohibited
transaction under the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”).
 
(b) During the term of the Loan or any obligation or right hereunder, Borrower
shall not be a Plan (defined below) and none of the assets of Borrower shall
constitute assets of a Plan within the meaning of Section 29 C.F.R. §2510.3-101,
as modified by Section 3(42) of ERISA. It shall deliver to Lender such
certifications or other evidence from time to time throughout the term of the
Security Instrument, as requested by Lender in its sole discretion, that (i)
Borrower is not a Plan, or a “governmental plan” within the meaning of Section
3(32) of ERISA; (ii) Borrower is not subject to state statutes regulating
investments and fiduciary obligations with respect to governmental plans; and
(iii) one or more of the following circumstances is true:
 
(i) Equity interests in Borrower are publicly offered securities, within the
meaning of 29 C.F.R. § 2510.3-101(b)(2);
 
(ii) None of the assets of the Borrower are, with the application of 29 C.F.R.
§2510.3-101, as modified by Section 3(42) of ERISA, regarded as assets of any
Plan; or
 
(iii) Borrower qualifies as an “operating company” or a “real estate operating
company” within the meaning of 29 C.F.R. § 2510.3-101(c) or (e) or an investment
company registered under The Investment Company Act of 1940.
 
“Plan” shall mean an employee benefit plan (as defined in Section 3(3) of ERISA)
subject to Title I of ERISA or a plan or other arrangement within the meaning of
Section 4975 of the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations.
 
Section 4.3. SINGLE PURPOSE ENTITY.  Borrower covenants and agrees that it has
not and shall not:
 
(a) engage in any business or activity other than the acquisition, ownership,
operation and maintenance of the Property, and activities incidental thereto;
 
(b) acquire or own any material asset other than (i) the Property, and (ii) such
incidental Personal Property as may be necessary for the operation of the
Property;
 
 
-19-

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

 
 
(c) merge into or consolidate with any person or entity or dissolve, terminate
or liquidate in whole or in part, transfer or otherwise dispose of all or
substantially all of its assets or change its legal structure, without in each
case Lender’s consent;
 
(d) fail to preserve its existence as an entity duly organized, validly existing
and in good standing (if applicable) under the laws of the jurisdiction of its
organization or formation, or without the prior written consent of Lender which
shall not be unreasonably withheld, amend, modify, terminate or fail to comply
with the provisions of Borrower’s Partnership Agreement, Articles or Certificate
of Incorporation, Articles of Organization, Operating Agreement or similar
organizational documents, as the case may be;
 
(e) own any subsidiary or make any investment in or acquire the obligations or
securities of any other person or entity without the consent of Lender;
 
(f) commingle its assets with the assets of any of its partner(s), members,
shareholders, affiliates, or of any other person or entity or transfer any
assets to any such person or entity other than distributions on account of
equity interests in the Borrower permitted hereunder and properly accounted for;
 
(g) incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation), other than the Debt, except unsecured trade and
operational debt incurred with trade creditors in the ordinary course of its
business of owning and operating the Property in such amounts as are normal and
reasonable under the circumstances, provided that such debt is not evidenced by
a note and is paid when due and provided in any event the outstanding principal
balance of such debt shall not exceed at any one time one percent (1%) of the
original outstanding Debt;
 
(h) allow any person or entity to pay its debts and liabilities (except a
Guarantor or other affiliate) or fail to pay its debts and liabilities solely
from its own assets;
 
(i) fail to maintain its records, books of account and bank accounts separate
and apart from those of the shareholders, partners, members, principals and
affiliates of Borrower, the affiliates of a shareholder, partner or member of
Borrower, and any other person or entity or fail to prepare and maintain its own
financial statements in accordance with generally accepted accounting principles
and susceptible to audit, or if such financial statements are consolidated fail
to cause such financial statements to contain footnotes disclosing that the
Property is actually owned by the Borrower; provided, however, that Borrower’s
assets may be included in a consolidated financial statement of its affiliates
provided that (1) appropriate notation shall be made on such consolidated
financial statements to indicate the separateness of the Borrower and such
affiliates, and (2) such assets shall be listed on the Borrower’s own separate
balance sheet;
 
(j) enter into any contract or agreement with any shareholder, partner, member,
principal or affiliate of Borrower, any guarantor of all or a portion of the
Debt (a “Guarantor”) or any shareholder, partner, member, principal or affiliate
thereof, except upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an arms-length basis
with third parties other than any shareholder, partner, member, principal or
affiliate of Borrower or Guarantor, or any shareholder, partner, member,
principal or affiliate thereof;
 
 
-20-

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

 
 
(k) seek dissolution or winding up, in whole or in part;
 
(l) fail to correct any known misunderstandings regarding the separate identity
of Borrower; provided, however, that Reading International, Inc. (“RDI”), in any
of its Securities and Exchange Commission or other public filings or statements
distributed to shareholders, may refer to the Borrower and its various
subsidiaries (including, without limitation, the Borrower), generally as RDI,
the “Company” or words of similar import and without differentiation as to the
Borrower or any other subsidiary;
 
(m) hold itself out to be responsible or pledge its assets or credit worthiness
for the debts of another person or entity or allow any person or entity to hold
itself out to be responsible or pledge its assets or credit worthiness for the
debts of the Borrower (except for a Guarantor);
 
(n) make any loans or advances to any third party, including any shareholder,
partner, member, principal or affiliate of Borrower, or any shareholder,
partner, member, principal or affiliate thereof;
 
(o) fail to file its own tax returns (to the extent the Borrower is required to
file any such tax returns) or to use separate contracts, purchase orders,
stationery, invoices and checks; provided, however, that RDI or its successor
may file a consolidated federal income tax return that includes the Borrower if
permitted by law;
 
(p) fail either to hold itself out to the public as a legal entity separate and
distinct from any other entity or person or to conduct its business solely in
its own name in order not (i) to mislead others as to the entity with which such
other party is transacting business, or (ii) to suggest that Borrower is
responsible for the debts of any third party (including any shareholder,
partner, member, principal or affiliate of Borrower, or any shareholder,
partner, member, principal or affiliate thereof);
 
(q) fail to allocate fairly and reasonably among Borrower and any third party
(including, without limitation, any Guarantor) any overhead for common
employees, shared office space or other overhead and administrative expenses;
 
(r) allow any person or entity to pay the salaries of its own employees or fail
to maintain a sufficient number of employees for its contemplated business
operations;
 
(s) fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;
 
 
-21-

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

 
 
(t) file a voluntary petition or otherwise initiate proceedings to have the
Borrower or any general partner, member or manager of Borrower adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against the Borrower or any general partner, member or manager of
Borrower, or file a petition seeking or consenting to reorganization or relief
of the Borrower or any general partner, member or manager of Borrower as debtor
under any applicable federal or state law relating to bankruptcy, insolvency, or
other relief for debtors with respect to the Borrower or any general partner,
member or manager of Borrower; or seek or consent to the appointment of any
trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator
(or other similar official) of the Borrower or any general partner, member or
manager of Borrower or of all or any substantial part of the properties and
assets of the Borrower or any general partner, member or manager of Borrower, or
make any general assignment for the benefit of creditors of the Borrower or any
general partner, member or manager of Borrower, or admit in writing the
inability of the Borrower or any general partner, member or manager of Borrower
to pay its debts generally as they become due or declare or effect a moratorium
on the Borrower or any general partner, member or manager of Borrower debt or
take any action in furtherance of any such action;
 
(u) share any common logo (other than the movie theatre logo) with or hold
itself out as or be considered as a department or division of (i) any
shareholder, partner, principal, member or affiliate of Borrower, (ii) any
affiliate of a shareholder, partner, principal, member or affiliate of Borrower,
or (iii) any other person or entity or allow any person or entity to identify
the Borrower as a department or division of that person or entity; or
 
(v) conceal assets from any creditor, or enter into any transaction with the
intent to hinder, delay or defraud creditors of the Borrower or the creditors of
any other person or entity.
 
Section 4.4. EMBARGOED PERSON.  As of the date hereof and at all times
throughout the term of the Loan, including after giving effect to any Transfers
permitted pursuant to the Loan Documents, (a) none of the funds or other assets
of Borrower and, to its actual knowledge, Guarantor, constitute property of, or
are beneficially owned, directly or indirectly, by any person, entity or
government subject to trade restrictions under U.S. law, including but not
limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701
et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any
Executive Orders or regulations promulgated thereunder with the result that the
investment in Borrower, or Guarantor, as applicable (whether directly or
indirectly), is prohibited by law or the Loan made by the Lender is in violation
of law (“Embargoed Person”); (b) no Embargoed Person has any interest of any
nature whatsoever in Borrower, or Guarantor, as applicable, with the result that
the investment in Borrower or Guarantor, as applicable (whether directly or
indirectly), is prohibited by law or the Loan is in violation of law; and (c)
none of the funds of Borrower,  or Guarantor, as applicable, have been derived
from any unlawful activity with the result that the investment in Borrower or
Guarantor, as applicable (whether directly or indirectly), is prohibited by law
or the Loan is in violation of law.
 
 
-22-

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

 
 
Section 4.5. OFAC.  Borrower hereby represents and warrants that Borrower,  and,
to its actual knowledge, Guarantor, and each and every Person affiliated with
Borrower and/or Guarantor or that to Borrower’s knowledge has an economic
interest in Borrower, or, to Borrower’s knowledge, that has or will have an
interest in the transaction contemplated by this Security Instrument or in the
Property or will participate, in any manner whatsoever, in the Loan are (i) in
full compliance with all applicable orders, rules, regulations and
recommendations of The Office of Foreign Assets Control of the U.S. Department
of the Treasury; (ii) is not a Prohibited Person (as defined below); (iii) in
full compliance with the requirements of the Patriot Act and all other
requirements contained in the rules and regulations of the Office of Foreign
Assets Control, Department of the Treasury (as used in this Section only,
“OFAC”); (iv) operated under policies, procedures and practices, if any, that
are in compliance with the Patriot Act and available to Lender for Lender’s
review and inspection during normal business hours and upon reasonable prior
notice; (v) not in receipt of any notice from the Secretary of State or the
Attorney General of the United States or any other department, agency or office
of the United States claiming a violation or possible violation of the Patriot
Act; (vi) not a person who has been determined by competent authority to be
subject to any of the prohibitions contained in the Patriot Act; and (vii) not
owned or controlled by or now acting and or will in the future act for or on
behalf of any person who has been determined to be subject to the prohibitions
contained in the Patriot Act.  Borrower covenants and agrees that in the event
Borrower receives any notice that Borrower or Guarantor (or any of their
respective beneficial owners, affiliates or participants) become listed on the
Annex or any other list promulgated under the Patriot Act or is indicted,
arraigned, or custodially detained on charges involving money laundering or
predicate crimes to money laundering, Borrower shall immediately notify
Lender.  It shall be an Event of Default hereunder if Borrower, Guarantor or any
other party to any Loan Document becomes listed on any list promulgated under
the Patriot Act or is indicted, arraigned or custodially detained on charges
involving money laundering or predicate crimes to money laundering.
 
“Prohibited Person” shall mean any person or entity:

(a) a “blocked” person listed in the Annex, or otherwise subject to the
provisions of, the Executive Order Nos. 12947, 13099 and 13224 on Terrorist
Financing, effective September 24, 2001, and all modifications thereto or
thereof, and relating to Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (as used in this
Section only, the “Annex”);
 
(b) that is owned or controlled by, or acting for or on behalf of, any person or
entity that is listed to the Annex, or is otherwise subject to the provisions
of, the Annex;
 
(c) with whom Lender is prohibited from dealing or otherwise engaging in any
transaction by any terrorism or money laundering law, including the Annex;
 
(d) who commits, threatens or conspires to commit or supports “terrorism” as
defined in the Annex;
 
(e) that is named as a “specially designated national and 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 or any other list of terrorists or terrorist organizations maintained
pursuant to any of the rules and regulations of the OFAC issued pursuant to the
Patriot Act or on any other list of terrorists or terrorist organizations
maintained pursuant to the Patriot Act; or
 
 
-23-

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

 
 
(f) who is an Affiliate of or affiliated with a person or entity listed above.
 
“Patriot Act” shall mean the USA PATRIOT Act of 2001, 107 Public Law 56 (October
26, 2001) and in other statutes and all orders, rules and regulations of the
United States government and its various executive departments, agencies and
offices related to the subject matter of the Patriot Act, including Executive
Order 13224 effective September 24, 2001.
 
Section 4.6. LOAN TO VALUE.  Borrower shall maintain a Loan to Value Ratio (as
defined in the Note) of at least 50%.  Fair market value shall be determined by
Lender from time to time by reference to acceptable guides and indices and/or
appraisals or such other means as Lender, in its discretion, deems
appropriate.  In the event that Lender shall at any time determine that the Loan
to value ratio is greater than 50%, Borrower shall within thirty (30) days of
notice and demand by Lender, either reduce the Loan amount or pledge such
additional collateral as may be acceptable to Lender in order to maintain the
required Loan to value ratio.  Borrower’s failure to either reduce the Loan
balance as necessary or satisfy Lender’s demand for additional collateral
acceptable to it within thirty (30) days of notice having been given by Lender,
shall be considered an Event of Default hereunder.
 
ARTICLE 5                                - REPRESENTATIONS AND WARRANTIES
 
Section 5.1. BORROWER’S REPRESENTATIONS.  Borrower represents and warrants to
Lender that each of the representations and warranties set forth in that certain
Closing Certificate of even date herewith executed by Borrower in favor of
Lender are true and correct as of the date hereof and are hereby incorporated
and restated in this Security Instrument by this reference.
 
Section 5.2. WARRANTY OF TITLE.  Borrower represents and warrants that it has
good and marketable title to the Property and has the right to mortgage, grant,
bargain, sell, pledge, assign, warrant, transfer and convey the same and that
Borrower possesses an unencumbered fee simple absolute estate in the Land and
the Improvements and that it owns the Property free and clear of all liens,
encumbrances and charges whatsoever except for those exceptions shown in the
title insurance policy insuring the lien of this Security Instrument (the
“Permitted Exceptions”).  Borrower shall, at its sole cost and expense, forever
warrant, defend and preserve the title and the validity and priority of the lien
of this Security Instrument and shall, at its sole cost and expense, forever
warrant and defend the same to Lender against the claims of all persons
whomsoever.
 
Section 5.3. STATUS OF PROPERTY.
 
(a) No portion of the Improvements is located in an area identified by the
Secretary of Housing and Urban Development or any successor thereto as an area
having special flood hazards pursuant to the National Flood Insurance Act of
1968 or the Flood Disaster Protection Act of 1973, as amended, or any successor
law, or, if located within any such area, Borrower has obtained and will
maintain the insurance prescribed in Section 3.2 hereof.
 
 
-24-

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

 
 
(b) Borrower has obtained all necessary certificates, permits, licenses and
other approvals, governmental and otherwise, necessary for the use, occupancy
and operation of the Property and the conduct of its business (including,
without limitation, certificates of completion and certificates of occupancy)
and all required zoning, building code, land use, environmental and other
similar permits or approvals, all of which are in full force and effect as of
the date hereof and to its knowledge not subject to revocation, suspension,
forfeiture or modification.
 
(c) The Property and the present and contemplated use and occupancy thereof are
to the best knowledge of Borrower in full compliance with all Applicable Laws,
including, without limitation, zoning ordinances, building codes, land use and
environmental laws, laws relating to the disabled (including, but not limited
to, the ADA) and other similar laws, except as disclosed in the title report
(including municipal searches therein) prepared by Chicago Title Insurance
Company for the benefit of Lender in connection with the Loan.
 
(d) The Property is served by all utilities required for the current or
contemplated use thereof.  All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
 
(e) All public roads and streets necessary for service of and access to the
Property for the current or contemplated use thereof have been completed, are
serviceable and are physically and legally open for use by the public.
 
(f) The Property is served by public water and sewer systems.
 
(g) The Property is free from damage caused by fire or other casualty.  There is
no pending or, to the best knowledge of Borrower, threatened condemnation
proceedings affecting the Property or any portion thereof.
 
(h) All costs and expenses of any and all labor, materials, supplies and
equipment used in the construction of the Improvements have been paid in full
and no notice of any mechanics’ or materialmen’s liens or of any claims of right
to any such liens have been received.
 
(i) Borrower has paid in full for, and is the owner of, all furnishings,
fixtures and equipment (other than tenants’ property) used in connection with
the operation of the Property, free and clear of any and all security interests,
liens or encumbrances, except the lien and security interest created hereby.
 
(j) All liquid and solid waste disposal, septic and sewer systems located on the
Property are to the best knowledge of Borrower in a good and safe condition and
repair and in compliance with all Applicable Laws.
 
 
-25-

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

 
 
(k) All Improvements lie within the boundary of the Land or Borrower’s title
company provides affirmative insurance of same in favor of the Lender.
 
Section 5.4. NO FOREIGN PERSON.  Borrower is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended,
and the related Treasury Department regulations, including temporary
regulations.
 
Section 5.5. SEPARATE TAX LOT.  The Property is assessed for real estate tax
purposes as one or more wholly independent tax lot or lots, separate from any
adjoining land or improvements not constituting a part of such lot or lots, and
no other land or improvements is assessed and taxed together with the Property
or any portion thereof.
 
ARTICLE 6                                - OBLIGATIONS AND RELIANCES
 
Section 6.1. RELATIONSHIP OF BORROWER AND LENDER.  The relationship between
Borrower and Lender is solely that of debtor and creditor, and Lender has no
fiduciary or other special relationship with Borrower, and no term or condition
of any of the Note, this Security Instrument and the other Loan Documents shall
be construed so as to deem the relationship between Borrower and Lender to be
other than that of debtor and creditor.
 
Section 6.2. NO RELIANCE ON LENDER.  The partners, members, principals and (if
Borrower is a trust) beneficial owners of Borrower are experienced in the
ownership and operation of properties similar to the Property, and Borrower and
Lender are relying solely upon such expertise and business plan in connection
with the ownership and operation of the Property.  Borrower is not relying on
Lender’s expertise, business acumen or advice in connection with the Property.
 
Section 6.3. NO LENDER OBLIGATIONS.
 
(a) Notwithstanding the provisions of Subsections 1.1(e) and 1.1(k) or Section
1.2, Lender is not undertaking (i) any obligations under the Leases; or (ii) any
obligations with respect to such agreements, contracts, certificates,
instruments, franchises, permits, trademarks, licenses and other documents.
 
(b) By accepting or approving anything required to be observed, performed or
fulfilled or to be given to Lender pursuant to this Security Instrument, the
Note or the Other Loan Documents, including without limitation, any officer’s
certificate, balance sheet, statement of profit and loss or other financial
statement, survey, appraisal, or insurance policy, Lender shall not be deemed to
have warranted, consented to, or affirmed the sufficiency, legality or
effectiveness of same, and such acceptance or approval thereof shall not
constitute any warranty or affirmation with respect thereto by Lender.
 
Section 6.4. RELIANCE.  Borrower recognizes and acknowledges that in accepting
the Note, this Security Instrument and the Other Loan Documents, Lender is
expressly and primarily relying on the truth and accuracy of the warranties and
representations set forth in Article 5 and that certain Closing Certificate of
even date herewith executed by Borrower, without any obligation to investigate
the Property and notwithstanding any investigation of the Property by Lender;
that such reliance existed on the part of Lender prior to the date hereof; that
such warranties and representations are a material inducement to Lender in
accepting the Note, this Security Instrument and the Other Loan Documents; and
that Lender would not be willing to make the Loan and accept this Security
Instrument in the absence of the warranties and representations as set forth in
Article 5 and such Closing Certificate.
 
 
-26-

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

 
 
ARTICLE 7                                - FURTHER ASSURANCES
 
Section 7.1. RECORDING FEES.  Borrower will pay all taxes, filing, registration
or recording fees, and all expenses incident to the preparation, execution,
acknowledgment and/or recording of the Note, this Security Instrument, the Other
Loan Documents, any note or mortgage supplemental hereto, any security
instrument with respect to the Property and any instrument of further assurance,
and any modification or amendment of the foregoing documents, and all federal,
state, county and municipal taxes, duties, imposts, assessments and charges
arising out of or in connection with the execution and delivery of this Security
Instrument, any mortgage supplemental hereto, any security instrument with
respect to the Property or any instrument of further assurance, and any
modification or amendment of the foregoing documents, except where prohibited by
law so to do.
 
Section 7.2. FURTHER ACTS.  Borrower will, at the cost of Borrower, and without
expense to Lender, do, execute, acknowledge and deliver all and every such
further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Lender the property and rights hereby mortgaged, granted,
bargained, sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Borrower may be or
may hereafter become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument, or
for complying with all Applicable Laws.  Borrower, on demand, will execute and
deliver and hereby authorizes Lender on notice to Borrower to execute in the
name of Borrower or without the signature of Borrower to the extent Lender may
lawfully do so, one or more financing statements, chattel mortgages or other
instruments, to evidence more effectively the security interest of Lender in the
Property.  Borrower grants to Lender an irrevocable power of attorney coupled
with an interest for the purpose of exercising and perfecting any and all rights
and remedies available to Lender at law and in equity, including without
limitation such rights and remedies available to Lender pursuant to this Section
7.2.
 
Section 7.3. CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS.
 
(a) If any law is enacted or adopted or amended after the date of this Security
Instrument which imposes a tax, either directly or indirectly, on the Debt or
Lender’s interest in the Property, requires revenue or other stamps to be
affixed to the Note, this Security Instrument, or the Other Loan Documents, or
imposes any other tax or charge on the same, Borrower will pay the same, with
interest and penalties thereon, if any.  If Lender is advised by counsel chosen
by it that the payment of tax by Borrower would be unlawful or taxable to Lender
or unenforceable or provide the basis for a defense of usury, then Lender shall
have the option, by written notice of not less than ninety (90) calendar days,
to declare the Debt immediately due and payable.
 
 
-27-

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

 
 
(b) Borrower will not claim or demand or be entitled to any credit or credits on
account of the Debt for any part of the Taxes or Other Charges assessed against
the Property, or any part thereof, and no deduction shall otherwise be made or
claimed from the assessed value of the Property, or any part thereof, for real
estate tax purposes by reason of this Security Instrument or the Debt.  If such
claim, credit or deduction shall be required by law, Lender shall have the
option, by written notice of not less than ninety (90) calendar days, to declare
the Debt immediately due and payable.
 
Section 7.4. CONFIRMATION STATEMENT.
 
(a) After request by Lender, Borrower, within fifteen (15) days, shall furnish
Lender or any proposed assignee with a statement, duly acknowledged and
certified, confirming to Lender (or its designee) (i) the amount of the original
principal amount of the Note, (ii) the unpaid principal amount of the Note,
(iii) the rate of interest of the Note, (iv) the terms of payment and maturity
date of the Note, (v) the date installments of interest and/or principal were
last paid, and (vi) that, except as provided in such statement, there are no
defaults or events which with the passage of time or the giving of notice or
both, would constitute an event of default under the Note or this Security
Instrument; provided, however, Lender shall not be entitled hereunder to receive
more than one (1) such statement in each calendar year.
 
(b) Subject to the provisions of the Leases, Borrower shall deliver to Lender,
promptly upon request (but not more frequently than once annually so long as
Borrower is not in default hereunder), duly executed estoppel certificates from
any one or more lessees as required by Lender attesting to such facts regarding
the Lease as Lender may require, including but not limited to attestations that
each Lease covered thereby is in full force and effect, whether there are any
defaults thereunder on the part of any party, whether any Rents have been paid
more than one month in advance, and whether the lessee claims any defense or
offset against the full and timely performance of its obligations under the
Lease, and if offset is claimed, the basis of such claim and the amount so
claimed.
 
(c) Upon any transfer or proposed transfer contemplated by Section 16.1 hereof,
at Lender’s request, Borrower, and any Guarantors shall provide an estoppel
certificate to the Investor (defined in Section 16.1) or any prospective
Investor in such form, substance and detail as Lender, such Investor or
prospective Investor may require.
 
Section 7.5. SPLITTING OF SECURITY INSTRUMENT.  This Security Instrument and the
Note shall, at any time until the same shall be fully paid and satisfied, at the
sole election of Lender, be split or divided into two or more notes and two or
more security instruments, each of which shall cover all or a portion of the
Property to be more particularly described therein.  To that end, Borrower, upon
written request of Lender, shall, at no cost to Borrower, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered by Borrower to
Lender and/or its designee or designees substitute notes (and upon such
execution and delivery the note which is being replaced will be cancelled and
the original returned to Borrower) and security instruments in such principal
amounts, aggregating not more than the then unpaid principal amount of Debt, and
containing terms, provisions and clauses materially the same to those contained
herein and in the Note, and such other documents and instruments as may be
required by Lender.
 
 
-28-

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

 
 
Section 7.6. REPLACEMENT DOCUMENTS.  Upon receipt of an affidavit of an officer
of Lender as to the loss, theft, destruction or mutilation of the Note or any
Other Loan Document which is not of public record, and, in the case of any such
mutilation, upon surrender and cancellation of such Note or Other Loan Document,
Borrower, at its expense, will issue, in lieu thereof, a replacement Note or
Other Loan Document, dated the date of such lost, stolen, destroyed or mutilated
Note or Other Loan Document in the same principal amount thereof and otherwise
of like tenor.
 
ARTICLE 8                                - DUE ON SALE/ENCUMBRANCE
 
Section 8.1. LENDER RELIANCE.  Borrower acknowledges that Lender has examined
and relied on the creditworthiness of Borrower and experience of Borrower and
its partners, members, principals and (if Borrower is a trust) beneficial owners
in owning and operating properties such as the Property in agreeing to make the
Loan, and will continue to rely on Borrower’s ownership of the Property as a
means of maintaining the value of the Property as security for repayment of the
Debt and the performance of the Other Obligations.  Borrower acknowledges that
Lender has a valid interest in maintaining the value of the Property so as to
ensure that, should Borrower default in the repayment of the Debt or the
performance of the Other Obligations, Lender can recover the Debt by a sale of
the Property.
 
Section 8.2. NO SALE/ENCUMBRANCE.
 
(a) Borrower agrees that Borrower shall not, without the prior written consent
of Lender, Transfer the Property or any part thereof or permit the Property or
any part thereof to be Transferred.  Lender shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Debt immediately due and payable upon Borrower’s
Transfer of the Property without Lender’s consent.
 
(b)           As used in Section 8.2(a), “Transfer” shall mean any voluntary or
involuntary sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
assignment or transfer of all or any part of the Property or any interest
therein including, but not limited to:  (i) an installment sales agreement
wherein Borrower agrees to sell the Property or any part thereof for a price to
be paid in installments; (ii) an agreement by Borrower leasing all or a
substantial part of the Property for other than actual occupancy by a space
tenant thereunder; (iii) a sale, assignment or other transfer of, or the grant
of a security interest in, Borrower’s right, title and interest in and to any
Leases (including, without limitation, the Master Lease) or any Rents; (iv) if
Borrower, Guarantor, or any member, manager or general partner of Borrower or
Guarantor is a corporation, any Transfer of such corporation's stock (or the
stock of any corporation directly or indirectly controlling such Borrower,
Guarantor, member, manager or general partner by operation of law or otherwise)
or the creation or issuance of new stock in one or a series of transactions by
which an aggregate of forty-nine percent (49%) or more of such corporation's
stock shall directly or indirectly be vested in or pledged to a party or parties
who are not now stockholders (provided, however, in no event shall this subpart
“iv” apply to any Guarantor whose stock or shares are traded on a nationally
recognized stock exchange); (v) if Borrower, Guarantor, or any member, manager
or general partner of Borrower or Guarantor is a limited liability company or
partnership, the Transfer by which an aggregate of forty-nine percent (49%) or
more of the ownership interest in such limited liability company or forty-nine
percent (49%) or more of the partnership interests in such partnership shall
directly or indirectly be vested in or pledged to parties not having an
ownership interest as of the date of this Security Instrument; (vi) if Borrower,
any Guarantor or any member, manager or general partner of Borrower or any
Guarantor is a partnership, limited liability company or joint venture, the
change, removal or resignation of a general partner, member, manager or joint
venturer or the Transfer directly or indirectly of all or any portion of the
partnership or ownership interest of any general partner, member, manager or
joint venturer; and (vii) except as expressly permitted by Section 8.3, any
Transfer by an Original Principal, directly or indirectly, of its ownership
interest in the Borrower.
 
 
-29-

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

 
 
Section 8.3. EXCLUDED AND PERMITTED TRANSFERS.
 
(a) A Transfer within the meaning of this Article 8 shall not include (i)
transfers of ownership interests in the Borrower, any general partner, member or
manager or any Guarantor made by devise or descent or by operation of law upon
the death of a joint tenant, partner, member or shareholder, subject, however,
to all the following requirements:  (A) written notice of any transfer under
this Section 8.3, whether by will, trust or other written instrument, operation
of law or otherwise, is provided to Lender or its servicer, together with copies
of such documents relating to the transfer as Lender or its servicer may
reasonably request, (B) control over the management and operation of the
Property is retained by one or more of James J. Cotter and Michael R. Foreman
(the “Original Principals”, whether one or more) at all times prior to the death
or legal incapacity of all the Original Principals and is thereafter assumed by
persons who are acceptable in all respects to Lender in its sole but reasonable
discretion, (C) [intentionally omitted], and (D) no such transfer, death or
other event has any adverse effect either on the bankruptcy-remote status of
Borrower under the requirements of any national rating agency for the Securities
(hereinafter defined) or on the status of Borrower as a continuing legal entity
liable for the payment of the Debt and the performance of all other obligations
secured hereby, (ii) transfers otherwise by operation of law in the event of a
bankruptcy, (iii) a Lease of a portion of the Property to a space tenant in
accordance with the provisions of this Security Agreement and the Assignment of
Leases and Rents delivered by Borrower in favor of Lender on the date hereof in
connection with this Security Instrument, (iv) utility easements benefitting the
Property, or (v) transfers of the ownership interests in the Borrower as long as
Reading International, Inc. shall continue to and at all times hold, directly or
indirectly, no less than a fifty-one percent (51%) membership interest in
Borrower and shall continue to control the managing member.
 
 
-30-

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

 
 
(b) Notwithstanding any provision of this Security Instrument to the contrary,
the prohibitions in Subsection 8.2(a) shall not apply to an inter vivos or
testamentary transfer of all or any portion of ownership interests in the
Borrower, any general partner, member or manager or any Guarantor to one or more
family members of Original Principals or a trust in which all of the beneficial
interest is held by one or more family members of Original Principals or a
partnership or limited liability company in which a majority of the capital and
profits interests are held by one or more family members of Original Principals,
provided, that any inter vivos transfer of all or any portion of the ownership
interests in the Borrower, such general partner, member or manager or such
Guarantor is made in connection with Original Principals' bona fide, good faith
estate planning and that the person(s) with voting control of Borrower or the
management of the Property are (i) the same person(s) who had such voting
control and management rights immediately prior to the transfer in question, or
(ii) reasonably acceptable to Lender and provided further that no such transfer
shall have any adverse effect on the bankruptcy remote status of Borrower under
the requirements of any national rating agency for the Securities.  Lender
acknowledges that Original Principals and/or an Original Principal's spouse or
adult children are acceptable to exercise voting control of Borrower and the
management of the Property.  As used herein, “family members” shall include the
spouse, children (and children’s spouses) and grandchildren and any lineal
descendants.
 
(c) Notwithstanding the provisions of Section 8.2 above, Lender will not
unreasonably withhold its consent to one sale or transfer of the Property or
ownership interests in the Borrower, a general partner, member or manager of the
Borrower, or any Guarantor, if (but only if) no Event of Default under the Loan
Documents has occurred, and if each of the following conditions precedent have
been fully satisfied (as determined in Lender’s sole but reasonable
discretion):  (i) the grantee's or transferee's or any replacement guarantor’s
integrity, reputation, financial condition, character and management ability are
satisfactory to Lender, and all information relating thereto requested by Lender
is delivered to Lender at least 30 days prior to the proposed transfer, (ii) the
grantee's or transferee's (and its sole general partner’s, member’s or
manager’s) single purpose and bankruptcy remote character are satisfactory to
Lender, and all information relating thereto requested by Lender is delivered to
Lender at least 30 days prior to the proposed transfer, (iii) Lender has
obtained such estoppels from any proposed replacement guarantors, and such other
legal opinions regarding substantive consolidation issues, enforceability of the
assumption documents, no adverse impact on the Securities or any REMIC holding
the Note and similar matters as Lender may require, (iv) all of Lender's costs
and expenses associated with the sale or transfer (including reasonable
attorneys' fees) are paid by Borrower or the grantee or transferee, (v) the
payment of a transfer fee not to exceed 1% of the then unpaid principal balance
of the Loan evidenced by the Note and secured hereby, (vi) the execution and
delivery to Lender of a written assumption agreement and substitute guaranties
of the Borrower’s Recourse Obligations, environmental indemnity obligations and
payments under the Master Lease (or if the Master Lease is intended to be
terminated, a replacement guaranty satisfactory to Lender and providing for a
corresponding monetary obligation as the guaranty of the Master Lease payments)
and such modifications to the Loan Documents executed by such parties and
containing such terms and conditions as Lender may require in its reasonable
discretion prior to such sale or transfer, provided such modifications shall not
increase the monetary or material non-monetary obligations of Borrower or
Guarantor under the Loan Documents, and (vii) if applicable, the delivery to
Lender of an endorsement (at Borrower's sole cost and expense) to Lender's
policy of title insurance then insuring the lien created by this Security
Instrument in form and substance acceptable to Lender in its sole but reasonable
judgment.  If Lender shall have approved a replacement Guarantor in accordance
with this Section 8.3(c), Lender shall release Reading International, Inc. as
the Guarantor.
 
 
-31-

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

 
 
(d) Without limiting the foregoing, if Lender shall consent to a transfer of the
Property, the written assumption agreement described in Subsection 8.3(c)(vi)
above shall provide for the release of Borrower and Guarantor of all liability
under the Note and Other Loan Documents, but only as to acts or events
occurring, or obligations arising, after the closing of such transfer.
 
Section 8.4. NO IMPLIED FUTURE CONSENT.  Lender’s consent to one sale,
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Property shall not be deemed to be a waiver of Lender’s right to require such
consent to any future occurrence of same.  Any sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Property made in contravention
of this Article 8 shall be null and void and of no force and effect.
 
Section 8.5. COSTS OF CONSENT.  Borrower agrees to bear and shall pay or
reimburse Lender on demand for all expenses (including, without limitation, all
recording costs, reasonable in-house and outside attorneys’ fees and
disbursements and title search costs) incurred by Lender, and a processing fee
to Lender, in connection with the review, approval and documentation of any such
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer.
 
Section 8.6. CONTINUING SEPARATENESS REQUIREMENTS.  In no event shall any of the
terms and provisions of this Article 8 amend or modify the terms and provisions
contained in Section 4.3 herein.
 
ARTICLE 9                                - DEFAULT
 
Section 9.1. EVENTS OF DEFAULT.  The occurrence of any one or more of the
following events shall constitute an “Event of Default”:
 
(a) if any portion of the Debt is not paid on or before the tenth (10th)
calendar day after the day on which the same is due (without regard to any
applicable cure and/or notice period) or if the entire Debt is not paid on or
before the Maturity Date, along with applicable prepayment premiums, if any;
 
(b) if Borrower, or its general partner, member or manager, if applicable,
violates or does not comply with any of the provisions of Section 3.3, Section
4.3, or Article 8 hereof, or Article 19 of the Note, or fails to deliver any of
the reports required by Section 3.8;
 
 
-32-

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

 
 
(c) if any representation or warranty of Borrower or of its members, general
partners, principals, affiliates, agents or employees, or of any Guarantor made
herein or in the Environmental Indemnity or in any other Loan Document, in any
guaranty, or in any certificate, report, financial statement or other instrument
or document furnished to Lender shall have been false or misleading in any
material respect when made;
 
(d) if Borrower or any Guarantor shall make an assignment for the benefit of
creditors or if Borrower or any Guarantor shall admit in writing its inability
to pay, or Borrower’s or any Guarantor’s failure to pay its debts as they become
due;
 
(e) if (i) Borrower or any member or manager of Borrower, or any Guarantor shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, conservatorship or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or Borrower or any member or manager of
Borrower, or any Guarantor shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against Borrower or any member
or manager of Borrower, or any Guarantor any case, proceeding or other action of
a nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of ninety (90) calendar days;
or (iii) there shall be commenced against Borrower or any member or manager of
Borrower or any Guarantor any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of any order
for any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within ninety (90) calendar days from the entry thereof;
or (iv) Borrower or any member or manager of Borrower, or any Guarantor shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above;
or (v) Borrower or any member or manager of Borrower, or any Guarantor shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due;
 
(f) subject to Borrower’s right to contest certain liens as provided in this
Security Instrument, if the Property becomes subject to any mechanic’s,
materialman’s or other lien other than a lien for local real estate taxes and
assessments not then due and payable and the lien shall remain undischarged of
record (by payment, bonding or otherwise) for a period of forty-five (45)
calendar days after Borrower becomes aware of such lien;
 
(g) if any federal tax lien is filed against Borrower, any general partner,
member or manager of Borrower, any Guarantor or the Property and same is not
discharged of record within forty-five (45) calendar days after Borrower becomes
aware of such filing;
 
 
-33-

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

 
 
(h) except as permitted in this Security Instrument, the actual alteration,
improvement, demolition or removal of any of the Improvements, or any
construction on the Property, without the prior consent of Lender;
 
(i) Borrower’s failure to maintain the insurance required under this Security
Instrument;
 
(j) without Lender’s prior consent, which shall not be unreasonably withheld,
(i) any managing agent for the Property resigns or is removed, (ii) the
ownership, management or control of such managing agent is transferred to a
person or entity other than the general partner, member or manager of the
Borrower, or (iii) there is any material change in the property management
agreement of the Property;
 
(k) this Security Instrument shall cease to constitute a first-priority lien on
the Property (other than in accordance with its terms) and same is not cured
within forty-five (45) days of such cessation;
 
(l) seizure or forfeiture of the Property, or any portion thereof, or Borrower’s
interest therein, resulting from criminal wrongdoing or other unlawful action of
Borrower, its affiliates, or any tenant in the Property under any federal, state
or local law;
 
(m) if Borrower consummates a transaction which would cause this Security
Instrument or Lender’s exercise of its rights under this Security Instrument,
the Note or the Other Loan Documents to constitute a nonexempt prohibited
transaction under ERISA or result in a violation of a state statute regulating
governmental plans, subjecting Lender to liability for a violation of ERISA or a
state statute;
 
(n) if any default occurs under any guaranty or indemnity including the
Environmental Indemnity executed in connection herewith or any other Loan
Document, and such default continues after the expiration of applicable grace
periods, or such guaranty or indemnity or other Loan Document shall cease to be
in full force and effect, or Borrower, any guarantor or indemnitor shall deny or
disaffirm its obligations thereunder;
 
(o) if the Master Lease is terminated without the prior written consent of
Lender; and
 
(p) if Borrower or any Guarantor, as the case may be, shall continue to be in
default under any other term, covenant or condition of this Security Instrument
or any Other Loan Documents for thirty (30) calendar days after notice from
Lender; provided that if such default cannot reasonably be cured within such
thirty (30) calendar day period and Borrower (or such Guarantor as the case may
be) shall have commenced to cure such default within such thirty (30) calendar
day period and thereafter diligently and expeditiously proceeds to cure the
same, such thirty (30) calendar day period shall be extended for so long as it
shall require Borrower (or such Guarantor as the case may be) in the exercise of
due diligence to cure such default, it being agreed that no such extension shall
be for a period in excess of sixty (60) calendar days after the notice from
Lender referred to above.
 
 
-34-

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

 
 
Section 9.2. DEFAULT INTEREST.  Borrower will pay, from the date of an Event of
Default through the earlier of the date upon which the Event of Default is cured
or the date upon which the Debt is paid in full, interest on the unpaid
principal balance of the Note at a per annum rate equal to the lesser of (a) the
greater of (i) five percent (5%) plus the Prime Rate (as defined in the Note),
and (ii) five percent (5%) plus the Interest Rate (as defined in the Note), and
(b) the maximum interest rate which Borrower may by law pay or Lender may charge
and collect (the “Default Rate”).
 
ARTICLE 10                                - RIGHTS AND REMEDIES
 
Section 10.1. REMEDIES.  Upon the occurrence of any Event of Default, Borrower
agrees that Lender may take such action, without notice or demand, as it deems
advisable to protect and enforce its rights against Borrower and in and to the
Property, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Lender may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Lender:
 
(a) Right to Perform Borrower’s Covenants.  If Borrower has failed to keep or
perform any covenant whatsoever contained in this Security Instrument or the
Other Loan Documents, Lender may, but shall not be obligated to any person to do
so, perform or attempt to perform said covenant and any payment made or expense
incurred in the performance or attempted performance of any such covenant,
together with any sum expended by Lender that is chargeable to Borrower or
subject to reimbursement by Borrower under the Loan Documents, shall be and
become a part of the “Debt”, and Borrower promises, upon demand, to pay to
Lender, at the place where the Note is payable, all sums so incurred, paid or
expended by Lender, with interest from the date when paid, incurred or expended
by Lender at the Default Rate.
 
(b) Right of Entry.  Lender may, prior or subsequent to the institution of any
foreclosure proceedings, and subject to the rights of tenants (other than
Borrower as tenant under the Master Lease) enter upon the Property, or any part
thereof, and take exclusive possession of the Property and of all books,
records, and accounts relating thereto and to exercise without interference from
Borrower any and all rights which Borrower has with respect to the management,
possession, operation, protection, or preservation of the Property, including
without limitation the right to rent the same for the account of Borrower and to
deduct from such Rents all costs, expenses, and liabilities of every character
incurred by Lender in collecting such Rents and in managing, operating,
maintaining, protecting, or preserving the Property and to apply the remainder
of such Rents on the Debt in such manner as Lender may elect.  All such costs,
expenses, and liabilities incurred by Lender in collecting such Rents and in
managing, operating, maintaining, protecting, or preserving the Property, if not
paid out of Rents as hereinabove provided, shall constitute a demand obligation
owing by Borrower and shall bear interest from the date of expenditure until
paid at the Default Rate, all of which shall constitute a portion of the
Debt.  If necessary to obtain the possession provided for above, Lender may
invoke any and all legal remedies to dispossess Borrower, including specifically
one or more actions for forcible entry and detainer, trespass to try title, and
restitution.  In connection with any action taken by Lender pursuant to this
Subsection 10.1(b), Lender shall not be liable for any loss sustained by
Borrower resulting from any failure to let the Property, or any part thereof, or
from any other act or omission of Lender in managing the Property unless such
loss is caused by the willful misconduct or gross negligence of Lender, nor
shall Lender be obligated to perform or discharge any obligation, duty, or
liability under any Lease or under or by reason hereof or the exercise of rights
or remedies hereunder.  Borrower shall and does hereby agree to indemnify Lender
for, and to hold Lender harmless from, any and all liability, loss, or damage,
which may or might be incurred by Lender under any such Lease or under or by
reason hereof or the exercise of rights or remedies hereunder, and from any and
all claims and demands whatsoever which may be asserted against Lender by reason
of any alleged obligations or undertakings on its part to perform or discharge
any of the terms, covenants, or agreements contained in any such Lease unless
arising from the willful misconduct or gross negligence of Lender.  Should
Lender incur any such liability, the amount thereof, including without
limitation costs, expenses, and reasonable attorneys’ fees, together with
interest thereon from the date of expenditure until paid at the Default Rate,
shall be secured hereby, and Borrower shall reimburse Lender therefor
immediately upon demand.  Nothing in this Subsection 10.1(b) shall impose any
duty, obligation, or responsibility upon Lender for the control, care,
management, leasing, or repair of the Property, nor for the carrying out of any
of the terms and conditions of any such Lease; nor shall it operate to make
Lender responsible or liable for any waste committed on the Property by the
tenants or by any other parties, or for any hazardous substances or
environmental conditions on or under the Property, or for any dangerous or
defective condition of the Property or for any negligence in the management,
leasing, upkeep, repair, or control of the Property resulting in loss or injury
or death to any tenant, licensee, employee, or stranger.  Borrower hereby
assents to, ratifies, and confirms any and all actions of Lender with respect to
the Property taken under this subsection.
 
 
-35-

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

 
 
(c) Right to Accelerate.  Lender may, without notice demand, presentment, notice
of nonpayment or nonperformance, protest, notice of protest, notice of intent to
accelerate, notice of acceleration, or any other notice or any other action, all
of which are hereby waived by Borrower and all other parties obligated in any
manner whatsoever on the Debt, declare the entire unpaid balance of the Debt
immediately due and payable, and upon such declaration, the entire unpaid
balance of the Debt shall be immediately due and payable.
 
(d) Foreclosure-Power of Sale.  Lender may institute a proceeding or
proceedings, judicial, or nonjudicial, by advertisement or otherwise, for the
complete or partial foreclosure of this Security Instrument or the complete or
partial sale of the Property under power of sale or under any applicable
provision of law.  Lender may sell the Property, and all estate, right, title,
interest, claim and demand of Borrower therein, and all rights of redemption
thereof, at one or more sales, as an entirety or in parcels, with such elements
of real and/or personal property, and at such time and place and upon such terms
as it may deem expedient, or as may be required by applicable law, and in the
event of a sale, by foreclosure or otherwise, of less than all of the Property,
this Security Instrument shall continue as a lien and security interest on the
remaining portion of the Property.
 
 
-36-

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

 
 
(e) Rights Pertaining to Sales.  Subject to the requirements of applicable law
and except as otherwise provided herein, the following provisions shall apply to
any sale or sales of all or any portion of the Property under or by virtue of
Subsection 10.1(d) above, whether made under the power of sale herein granted or
by virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale:
 
(i) Lender may conduct any number of sales from time to time.  The power of sale
set forth above shall not be exhausted by any one or more such sales as to any
part of the Property which shall not have been sold, nor by any sale which is
not completed or is defective in Lender’s opinion, until the Debt shall have
been paid in full.
 
(ii) Any sale may be postponed or adjourned by public announcement at the time
and place appointed for such sale or for such postponed or adjourned sale
without further notice.
 
(iii) After each sale, Lender or an officer of any court empowered to do so
shall execute and deliver to the purchaser or purchasers at such sale a good and
sufficient instrument or instruments granting, conveying, assigning and
transferring all right, title and interest of Borrower in and to the property
and rights sold and shall receive the proceeds of said sale or sales and apply
the same as specified in the Note.  Lender is hereby appointed the true and
lawful attorney-in-fact of Borrower, which appointment is irrevocable and shall
be deemed to be coupled with an interest, in Borrower’s name and stead, to make
all necessary conveyances, assignments, transfers and deliveries of the property
and rights so sold, Borrower hereby ratifying and confirming all that said
attorney or such substitute or substitutes shall lawfully do by virtue
thereof.  Nevertheless, Borrower, if requested by Lender, shall ratify and
confirm any such sale or sales by executing and delivering to Lender or such
purchaser or purchasers all such instruments as may be advisable, in Lender’s
judgment, for the purposes as may be designated in such request.
 
(iv) Any and all statements of fact or other recitals made in any of the
instruments referred to in Subsection 10.1(e)(iii) given by Lender shall be
taken as conclusive and binding against all persons as to evidence of the truth
of the facts so stated and recited.
 
(v) Any such sale or sales shall operate to divest all of the estate, right,
title, interest, claim and demand whatsoever, whether at law or in equity, of
Borrower in and to the properties and rights so sold, and shall be a perpetual
bar both at law and in equity against Borrower and any and all persons claiming
or who may claim the same, or any part thereof or any interest therein, by,
through or under Borrower to the fullest extent permitted by applicable law.
 
 
-37-

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

 
 
(vi) Upon any such sale or sales, Lender may bid for and acquire the Property
and, in lieu of paying cash therefor, may make settlement for the purchase price
by crediting against the Debt the amount of the bid made therefor, after
deducting therefrom the expenses of the sale, the cost of any enforcement
proceeding hereunder, and any other sums which Lender is authorized to deduct
under the terms hereof, to the extent necessary to satisfy such bid.
 
(vii) Upon any such sale, it shall not be necessary for Lender or any public
officer acting under execution or order of court to have present or
constructively in its possession any of the Property.
 
(f) Lender’s Judicial Remedies.  Lender may proceed by suit or suits, at law or
in equity, to enforce the payment of the Debt to foreclose the liens and
security interests of this Security Instrument as against all or any part of the
Property, and to have all or any part of the Property sold under the judgment or
decree of a court of competent jurisdiction.  This remedy shall be cumulative of
any other nonjudicial remedies available to Lender under this Security
Instrument, the Note or the Other Loan Documents.  Proceeding with a request or
receiving a judgment for legal relief shall not be or be deemed to be an
election of remedies or bar any available nonjudicial remedy of Lender.
 
(g) Lender’s Right to Appointment of Receiver.  Lender, as a matter of right
unless otherwise required by law and (i) without regard to the sufficiency of
the security for repayment of the Debt and without notice to Borrower, (ii)
without any showing of insolvency, fraud, or mismanagement on the part of
Borrower, (iii) without the necessity of filing any judicial or other proceeding
other than the proceeding for appointment of a receiver, and (iv) without regard
to the then value of the Property, shall be entitled to the appointment of a
receiver or receivers for the protection, possession, control, management and
operation of the Property, including (without limitation), the power to collect
the Rents, enforce this Security Instrument and, in case of a sale and
deficiency, during the full statutory period of redemption (if any), whether
there be a redemption or not, as well as during any further times when Borrower,
except for the intervention of such receiver, would be entitled to collection of
such Rents.  Borrower hereby irrevocably consents to the appointment of a
receiver or receivers.  Any receiver appointed pursuant to the provisions of
this subsection shall have the usual powers and duties of receivers in such
matters.
 
(h) Commercial Code Remedies.  Lender may exercise any and all rights and
remedies granted to a secured party upon default under the Uniform Commercial
Code, including, without limiting the generality of the foregoing: (i) the right
to take possession of the Personal Property or any part thereof, and to take
such other measures as Lender may deem necessary for the care, protection and
preservation of the Personal Property, and (ii) request Borrower at its expense
to assemble the Personal Property and make it available to Lender at a
convenient place acceptable to Lender.  Any notice of sale, disposition or other
intended action by Lender with respect to the Personal Property sent to Borrower
in accordance with the provisions hereof at least ten (10) days prior to such
action, shall constitute commercially reasonable notice to Borrower.
 
 
-38-

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

 
 
(i) Apply Escrow Funds.  Lender may apply any sums held in escrow or otherwise
by Lender in accordance with the terms of this Security Instrument or any Other
Loan Document to the payment of the following items in any order in its
uncontrolled discretion:
 
(i) Taxes and Other Charges;
 
(ii) Insurance Premiums;
 
(iii) Interest on the unpaid principal balance of the Note;
 
(iv) Amortization of the unpaid principal balance of the Note; and
 
(v) All other sums payable pursuant to the Note, this Security Instrument and
the Other Loan Documents, including without limitation advances made by Lender
pursuant to the terms of this Security Instrument and internal costs and
expenses incurred by Lender including, without limitation, Lender’s reasonable
in-house legal fees and outside legal fees.
 
(j) Other Rights.  Lender (i) may surrender the Policies maintained pursuant to
this Security Instrument or any part thereof, and upon receipt shall apply the
unearned premiums as a credit on the Debt, and, in connection therewith,
Borrower hereby appoints Lender as agent and attorney-in-fact (which is coupled
with an interest and is therefore irrevocable) for Borrower to collect such
premiums; and (ii) may apply any funds held by Lender toward payment of the
Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Lender may have at law or in equity, or by virtue of any of the
Loan Documents, or otherwise.
 
(k) Discontinuance of Remedies.  In case Lender shall have proceeded to invoke
any right, remedy, or recourse permitted under the Loan Documents and shall
thereafter elect to discontinue or abandon same for any reason, Lender shall
have the unqualified right so to do and, in such event, Borrower and Lender
shall be restored to their former positions with respect to the Debt, the Loan
Documents, the Property or otherwise, and the rights, remedies, recourses and
powers of Lender shall continue as if same had never been invoked.
 
(l) Remedies Cumulative.  All rights, remedies, and recourses of Lender granted
in the Note, this Security Instrument and the Other Loan Documents, any other
pledge of collateral, or otherwise available at law or equity:  (i) shall be
cumulative and concurrent; (ii) may be pursued separately, successively, or
concurrently against Borrower, the Property, or any one or more of them, at the
sole discretion of Lender, to the extent permitted by applicable law; (iii) may
be exercised as often as occasion therefor shall arise, it being agreed by
Borrower that the exercise or failure to exercise any of same shall in no event
be construed as a waiver or release thereof or of any other right, remedy, or
recourse; (iv) shall be nonexclusive; (v) shall not be conditioned upon Lender
exercising or pursuing any remedy in relation to the Property prior to Lender
bringing suit to recover the Debt; and (vi) in the event Lender elects to bring
suit on the Debt and obtains a judgment against Borrower prior to exercising any
remedies in relation to the Property, all liens and security interests,
including the lien of this Security Instrument, shall remain in full force and
effect and may be exercised thereafter at Lender’s option, to the extent
permitted by applicable law.
 
 
-39-

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

 
 
(m) Bankruptcy Acknowledgment.  In the event the Property or any portion thereof
or any interest therein becomes property of any bankruptcy estate or subject to
any state or federal insolvency proceeding, then Lender shall immediately become
entitled, in addition to all other relief to which Lender may be entitled under
this Security Instrument, to obtain (i) an order from the Bankruptcy Court or
other appropriate court granting immediate relief from the automatic stay
pursuant to § 362 of the Bankruptcy Code so to permit Lender to pursue its
rights and remedies against Borrower as provided under this Security Instrument
and all other rights and remedies of Lender at law and in equity under
applicable state law, and (ii) an order from the Bankruptcy Court prohibiting
Borrower’s use of all “cash collateral” as defined under § 363 of the Bankruptcy
Code.  In connection with such Bankruptcy Court orders, Borrower shall not
contend or allege in any pleading or petition filed in any court proceeding that
Lender does not have sufficient grounds for relief from the automatic stay.  Any
bankruptcy petition or other action taken by the Borrower to stay, condition, or
inhibit Lender from exercising its remedies are hereby admitted by Borrower to
be in bad faith and Borrower further admits that Lender would have just cause
for relief from the automatic stay in order to take such actions authorized
under state law.
 
(n) Application of Proceeds.  The proceeds from any sale, lease, or other
disposition made pursuant to this Security Instrument, or the proceeds from the
surrender of any insurance policies pursuant hereto, or any Rents collected by
Lender from the Property or proceeds from insurance which Lender elects to apply
to the Debt pursuant to Article 3 hereof, shall be applied by Lender to the Debt
in the following order and priority:  (1) to the payment of all expenses of
advertising, selling, and conveying the Property or part thereof, and/or
prosecuting or otherwise collecting Rents, proceeds, premiums or other sums
including reasonable attorneys’ fees; (2) to that portion, if any, of the Debt
with respect to which no person or entity has personal or entity liability for
payment (the “Exculpated Portion”), and with respect to the Exculpated Portion
as follows: first, to accrued but unpaid interest, second, to matured principal,
and third, to unmatured principal in inverse order of maturity; (3) to the
remainder of the Debt as follows:  first, to the remaining accrued but unpaid
interest, second, to the matured portion of principal of the Debt, and third, to
prepayment of the unmatured portion, if any, of principal of the Debt applied to
installments of principal in inverse order of maturity; (4) the balance, if any
or to the extent applicable, remaining after the full and final payment of the
Debt to the holder or beneficiary of any inferior liens covering the Property,
if any, in order of the priority of such inferior liens (Lender shall hereby be
entitled to rely exclusively on a commitment for title insurance issued to
determine such priority); and (5) the cash balance, if any, to the
Borrower.  The application of proceeds of sale or other proceeds as otherwise
provided herein shall be deemed to be a payment of the Debt like any other
payment.  The balance of the Debt remaining unpaid, if any, shall remain fully
due and owing in accordance with the terms of the Note and the other Loan
Documents.
 
 
-40-

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

 
 
Section 10.2. RIGHT OF ENTRY.  Lender and its agents shall have the right to
enter and inspect the Property at all reasonable times, subject to the rights of
tenants (other than Borrower as tenant under the Master Lease).
 
ARTICLE 11                                - INDEMNIFICATION; SUBROGATION
 
Section 11.1. GENERAL INDEMNIFICATION.
 
(a) Borrower shall indemnify, defend and hold Lender harmless against:  (i) any
and all claims for brokerage, leasing, finder’s or similar fees which may be
made relating to the Property or the Debt, and (ii) any and all liability,
obligations, losses, damages, penalties, claims, actions, suits, costs and
expenses (including Lender’s reasonable attorneys’ fees, together with
reasonable appellate counsel fees, if any) of whatever kind or nature which may
be asserted against, imposed on or incurred by Lender in connection with the
Debt, this Security Instrument, the Property, or any part thereof, or the
exercise by Lender of any rights or remedies granted to it under this Security
Instrument; provided, however, that nothing herein shall be construed to
obligate Borrower to indemnify, defend and hold harmless Lender from and against
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs and expenses enacted against, imposed on or incurred by
Lender by reason of Lender’s willful misconduct or gross
negligence.  Notwithstanding the foregoing, the obligations and liabilities of
Borrower under this Section 11.1 shall not extend to matters, actions,
liabilities, conditions or circumstances which did not exist prior to, and
arising solely out of matters, actions, liabilities, conditions or circumstances
occurring after, any sale or conveyance of the Property by foreclosure of this
Security Instrument or deed-in-lieu thereof.
 
(b) If Lender is made a party defendant to any litigation or any claim is
threatened or brought against Lender concerning the secured indebtedness, this
Security Instrument, the Property, or any part thereof, or any interest therein,
or the construction, maintenance, operation or occupancy or use thereof, then
Lender shall notify Borrower of such litigation or claim and Borrower shall
indemnify, defend and hold Lender harmless from and against all liability by
reason of said litigation or claims, including reasonable attorneys’ fees
(together with reasonable appellate counsel fees, if any).  The right to such
reasonable attorneys’ fees (together with reasonable appellate counsel fees, if
any) and expenses incurred by Lender in any such litigation or claim of the type
described in this Subsection 11.1(b), whether or not any such litigation or
claim is prosecuted to judgment, shall be deemed to have accrued on the
commencement of such claim or action and shall be enforceable whether or not
such claim or action is prosecuted to judgment.  If Lender commences an action
against Borrower to enforce any of the terms hereof or to prosecute any breach
by Borrower of any of the terms hereof or to recover any sum secured hereby,
Borrower shall pay to Lender its reasonable attorneys’ fees (together with
reasonable appellate counsel fees, if any) and expenses.  If Borrower breaches
any term of this Security Instrument, Lender may engage the services of an
attorney or attorneys to protect its rights hereunder, and in the event of such
engagement following any breach by Borrower, Borrower shall pay Lender
reasonable attorneys’ fees (together with reasonable appellate counsel fees, if
any) and expenses incurred by Lender, whether or not an action is actually
commenced against Borrower by reason of such breach.  All references to
“attorneys” in this Subsection 11.1(b) and elsewhere in this Security Instrument
shall include without limitation any attorney or law firm engaged by Lender and
Lender’s in-house counsel, and all references to “fees and expenses” in this
Subsection 11.1(b) and elsewhere in this Security Instrument shall include
without limitation any fees of such attorney or law firm and any allocation
charges and allocation costs of Lender’s in-house counsel.
 
 
-41-

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

 
 
(c) A waiver of subrogation shall be obtained by Borrower from its insurance
carrier and, consequently, Borrower waives any and all right to claim or recover
against Lender, its officers, employees, agents and representatives, for loss of
or damage to Borrower, the Property, Borrower’s property or the property of
others under Borrower’s control from any cause insured against or required to be
insured against by the provisions of this Security Instrument.
 
Section 11.2. ENVIRONMENTAL INDEMNIFICATION.  Borrower shall, at its sole cost
and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses (as hereinafter defined)
imposed upon or incurred by or asserted against any Indemnified Parties (other
than those arising solely from a state of facts that first came into existence
after Lender or its designee or nominee acquired title to the Property through
foreclosure or a deed in lieu thereof), and directly or indirectly arising out
of or in any way relating to any one or more of the following:  (a) any presence
of any Hazardous Substances (as hereinafter defined) in, on, above, or under the
Property; (b) any past, present or future Release (as hereinafter defined) of
Hazardous Substances in, on, above, under or from the Property; (c) any activity
by Borrower, any person or entity affiliated with Borrower, and any tenant or
other user of the Property in connection with any actual, proposed or threatened
use, treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Property of any Hazardous Substances at any time located in, under, on or
above the Property; (d) any activity by Borrower, any person or entity
affiliated with Borrower, and any tenant or other user of the Property in
connection with any actual or proposed Remediation (as hereinafter defined) of
any Hazardous Substances at any time located in, under, on or above the
Property, whether or not such Remediation is voluntary or pursuant to court or
administrative order, including but not limited to any removal, remedial or
corrective action; (e) any past, present or threatened non-compliance or
violations of any Environmental Law (as hereinafter defined) (or permits issued
pursuant to any Environmental Law) in connection with the Property or operations
thereon, including but not limited to any failure by Borrower, any person or
entity affiliated with Borrower, and any tenant or other user of the Property to
comply with any order of any governmental authority in connection with any
Environmental Laws; (f) the imposition, recording or filing or the future
imposition, recording or filing of any Environmental Lien (as hereinafter
defined) encumbering the Property; (g) any administrative processes or
proceedings or judicial proceedings in any way connected with any matter
addressed in this Section 11.2; (h) any misrepresentation or inaccuracy in any
representation or warranty or material breach or failure to perform any
covenants or other obligations under the Environmental Indemnity of even date
executed by Borrower; and (i) any diminution in value of the Property in any way
connected with any occurrence or other matter referred to in this Section 11.2.
 
 
-42-

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

 
 
The term “Environmental Law” means any present and future federal, state and
local laws, statutes, ordinances, rules, regulations and the like, as well as
common law, relating to protection of human health or the environment, relating
to Hazardous Substances, relating to liability for or costs of Remediation or
prevention of Releases of Hazardous Substances or relating to liability for or
costs of other actual or threatened danger to human health or the environment or
relating to any wrongful death, personal injury or property damage that is
caused by or related to the presence, growth, proliferation, reproduction,
dispersal, or contact with any biological organism or portion thereof, including
molds or other fungi, bacteria or other microorganisms or any etiologic agents
or materials.  The term “Environmental Law” includes, but is not limited to, the
following statutes, as amended, any successor thereto, and any regulations
promulgated pursuant thereto, and any state or local statutes, ordinances,
rules, regulations and the like addressing similar issues:  the Comprehensive
Environmental Response, Compensation and Liability Act; the Emergency Planning
and Community Right-to-Know Act; the Hazardous Substances Transportation Act;
the Resource Conservation and Recovery Act (including but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act;
the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the
Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal
Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Endangered Species Act; the National Environmental Policy Act; and the
River and Harbors Appropriation Act.  The term “Environmental Law” also
includes, but is not limited to, any present and future federal, state and local
laws, statutes, ordinances, rules, regulations and the like, as well as common
law: conditioning transfer of property upon a negative declaration or other
approval of a governmental authority of the environmental condition of the
Property; requiring notification or disclosure of Releases of Hazardous
Substances or other environmental condition of the Property to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property; imposing conditions or requirements in
connection with permits or other authorization for lawful activity; relating to
nuisance, trespass or other causes of action related to the Property; and
relating to wrongful death, personal injury, or property or other damage in
connection with any physical condition or the presence of biological or
etiologic agents or materials or use, management, or maintenance of the
Property.
 
The term “Environmental Lien” includes but is not limited to any lien or other
encumbrance imposed pursuant to Environmental Law, whether due to any act or
omission of Borrower or any other person or entity.
 
The term “Hazardous Substances” includes but is not limited to any and all
substances, biological and etiologic agents or materials (whether solid, liquid
or gas) defined, listed, or otherwise classified as pollutants, hazardous
wastes, hazardous substances, hazardous materials, extremely hazardous wastes,
or words of similar meaning or regulatory effect under any present or future
Environmental Laws or that may have a negative impact on human health or the
environment, including but not limited to petroleum and petroleum products,
asbestos and asbestos-containing materials (“ACM”), polychlorinated biphenyls
(“PCBs”), lead, lead-based paints, radon, radioactive materials, flammables and
explosives, and any biological organism or portion thereof (living or dead),
including molds or other fungi, bacteria or other microorganisms, or any
etiologic agents or materials, but excluding substances of kinds and in amounts
ordinarily and customarily used or stored in similar properties for the purposes
of cleaning or other maintenance or operations and otherwise in compliance with
all Environmental Laws.
 
 
-43-

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

 
 
The term “Indemnified Parties” includes but is not limited to Lender, any person
or entity who is or will have been involved in originating the Loan evidenced by
the Note, any person or entity who is or will have been involved in servicing
the Loan, any person or entity in whose name the encumbrance created by this
Security Instrument is or will have been recorded, persons and entities who may
hold or acquire or will have held a full or partial interest in the Loan
(including but not limited to those who may acquire any interest in Securities,
as well as custodians, trustees and other fiduciaries who hold or have held a
full or partial interest in the Loan for the benefit of third parties), as well
as the respective directors, officers, shareholders, partners, employees,
agents, servants, representatives, contractors, subcontractors, affiliates,
subsidiaries, participants, successors and assign of any and all of the
foregoing (including but not limited to any other person or entity who holds or
acquires or will have held a participation or other full or partial interest in
the Loan or the Property, whether during the term of the Loan or as part of or
following foreclosure pursuant to the Loan) and including but not limited to any
successors by merger, consolidation or acquisition of all or a substantial part
of Lender’s assets and business.
 
The term “Losses” includes but is not limited to any claims, suits, liabilities
(including but not limited to strict liabilities), administrative or judicial
actions or proceedings, obligations, debts, damages, losses, costs, expenses,
diminutions in value, fines, penalties, charges, fees, expenses, costs of
Remediation (whether or not performed voluntarily), judgments, award, amounts
paid in settlement, foreseeable and unforeseeable consequential damages,
litigation costs, reasonable attorneys’ fees, engineer’s fees, environmental
consultants’ fees and investigation costs (including but not limited to costs
for sampling, testing and analysis of soil, water, air, building materials, and
other materials and substances whether solid, liquid or gas), of whatever kind
or nature, and whether or not incurred in connection with any judicial or
administrative proceedings.
 
The term “Release” with respect to any Hazardous Substance includes but is not
limited to any release, deposit, discharge, emission, leaking, leaching,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Substances.
 
The term “Remediation” includes but is not limited to any response, remedial,
removal, or corrective action; any activity to cleanup, detoxify, decontaminate,
contain or otherwise remediate any Hazardous Substance; any actions to prevent,
cure or mitigate any Release of any Hazardous Substance; any action to comply
with any Environmental Laws or with any permits issued pursuant thereto; any
inspection, investigation, study, monitoring, assessment, audit, sampling and
testing, laboratory or other analysis, or evaluation relating to any Hazardous
Substances or to anything referred to in this Article 11.
 
Section 11.3. DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES.  Upon
written request by any Indemnified Party, Borrower shall defend such Indemnified
Party (if requested by any Indemnified Party, in the name of the Indemnified
Party) by attorneys and other professionals approved by the Indemnified
Parties.  Notwithstanding the foregoing, any Indemnified Parties may, in their
sole and absolute discretion, engage their own attorneys and other professionals
to defend or assist them, and, at the option of Indemnified Parties, their
attorneys shall control the resolution of claim or proceeding.  Upon demand,
Borrower shall pay or, in the sole and absolute discretion of the Indemnified
Parties, reimburse, the Indemnified Parties for the payment of fees and
disbursements of attorneys, engineers, environmental consultants, laboratories
and other professionals in connection therewith.
 
 
-44-

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

 
 
Section 11.4. SURVIVAL OF INDEMNITIES.  Notwithstanding any provision of this
Security Instrument or any other Loan Document to the contrary, the provisions
of Section 11.1 and Section 11.2, and Borrower’s obligations thereunder, shall
survive (a) the repayment of the Note, (b) the foreclosure of this Security
Instrument, and (c) the release (or reconveyance, as applicable) of the lien of
this Security Instrument, provided, however, that the obligations and
liabilities of Borrower under Section 11.1 and 11.2 shall not extend to matters,
actions, liabilities, conditions or circumstances which did not exist prior to,
and arose solely out of matters, actions, liabilities, conditions or
circumstances occurring after, any sale or conveyance of the Property by
foreclosure of the Security Instrument or deed-in-lieu thereof.
 
ARTICLE 12                                - SECURITY AGREEMENT
 
Section 12.1. SECURITY AGREEMENT.  This Security Instrument is both a real
property mortgage and a “security agreement” within the meaning of the Uniform
Commercial Code.  The Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property.  Borrower by executing and delivering this Security
Instrument has granted and hereby grants to Lender, as security for the
Obligations, a security interest in the Property to the full extent that the
Property may be subject to the Uniform Commercial Code (said portion of the
Property so subject to the Uniform Commercial Code being called in this
paragraph the “Collateral”).  Borrower hereby authorizes Lender to prepare and
file, in form and substance satisfactory to Lender, such financing statements,
continuation statements, other uniform commercial code forms and shall pay all
expenses and fees in connection with the filing and recording thereof, and such
further assurances as Lender may from time to time, reasonably consider
necessary to create, perfect, and preserve Lender’s security interest herein
granted.  This Security Instrument shall also be effective as a “fixture filing”
as to Property which is or is to become fixtures.  Information concerning the
security interest herein granted may be obtained from the parties at the
addresses of the parties set forth in the first paragraph of this Security
Instrument.  If an Event of Default shall occur, Lender, in addition to any
other rights and remedies which they may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing, the right to take possession of the
Collateral or any part thereof, and to take such other measures as Lender may
deem necessary for the care, protection and preservation of the
Collateral.  Upon request or demand of Lender, Borrower shall at its expense
assemble the Collateral and make it available to Lender at a convenient place
acceptable to Lender.  Borrower shall pay to Lender on demand any and all
expenses, including legal expenses and attorneys’ fees, incurred or paid by
Lender in protecting the interest in the Collateral and in enforcing the rights
hereunder with respect to the Collateral.  Any notice of sale, disposition or
other intended action by Lender with respect to the Collateral sent to Borrower
in accordance with the provisions hereof at least ten (10) days prior to such
action, shall constitute commercially reasonable notice to Borrower.  The
proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Lender to the payment of the Obligations in such priority and
proportions as Lender in its discretion shall deem proper.  Borrower shall
promptly advise Lender of the accrual of any commercial tort claims involving
the Property.  In the event of any change in name, identity, structure, or
jurisdiction or form of organization of any Borrower, such Borrower shall notify
Lender thereof, and Lender shall be authorized to prepare and file such Uniform
Commercial Code forms as Lender may deem necessary to maintain the priority of
Lender’s lien upon and security interest in the Collateral, and Borrower shall
pay all expenses and fees in connection with such filing.  Lender shall also be
authorized to prepare and file such other additional Uniform Commercial Code
forms or continuation statements as Lender shall deem necessary, and Borrower
shall pay all expenses and fees in connection with the filing thereof, it being
understood and agreed, however, that no such additional documents shall increase
Borrower’s obligations under the Note, this Security Instrument and the Other
Loan Documents.  Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any financing or other statements signed only by Lender, as
Borrower’s attorney-in-fact, in connection with the Collateral covered by this
Security Instrument, if Borrower shall fail to promptly comply with the
provisions of this Section 12.1 after notice by Lender.  Notwithstanding the
foregoing, Borrower shall appear and defend in any action or proceeding which
affects or purports to affect the Property and any interest or right therein,
whether such proceeding affects title or any other rights in the Property (and
in conjunction therewith, Borrower shall fully cooperate with Lender in the
event Lender is a party to such action or proceeding).
 
 
-45-

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

 
 
Section 12.2. FIXTURE FILING INFORMATION.  The information in the subsections
below this paragraph is provided in connection with the filing of this Security
Instrument as a financing statement as referred to above, and the Borrower
hereby represents and warrants such information to be true and complete as of
the date of this Security Instrument.
 
(a) The Borrower is the record owner of the real estate described in this
Security Instrument.  The name and mailing address of the record owner of the
real estate described in this Security Instrument is set forth in the first
paragraph of this Security Instrument.
 
(b) For purposes of the Uniform Commercial Code, Borrower is the Debtor.  The
name, mailing address, type of organization and state of formation of the Debtor
(Borrower) is set forth in the first paragraph of this Security Instrument.  The
Organizational Identification Number of the Borrower is NV20041112149.
 
(c) For purposes of the Uniform Commercial Code, the Lender is the Secured
Party.  The name and mailing address of the Secured Party (Lender) is:
 
Sovereign Bank, N.A.
195 Montague Street
Brooklyn, New York 11201
Attention:  Commercial Mortgage Loan Servicing

(d) This document covers goods which are or are to become fixtures to the extent
owned by Borrower.
 
 
-46-

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

 
 
ARTICLE 13                                - WAIVERS
 
Section 13.1. MARSHALLING AND OTHER MATTERS.  Borrower hereby waives, to the
extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein.  Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of
each and every person acquiring any interest in or title to the Property
subsequent to the date of this Security Instrument and on behalf of all persons
to the extent permitted by applicable law.
 
Section 13.2. WAIVER OF NOTICE.  Borrower shall not be entitled to any notices
of any nature whatsoever from Lender except with respect to matters for which
this Security Instrument specifically and expressly provides for the giving of
notice by Lender to Borrower and except with respect to matters for which Lender
is required by applicable law to give notice, and Borrower hereby expressly
waives the right to receive any notice from Lender with respect to any matter
for which this Security Instrument does not specifically and expressly provide
for the giving of notice by Lender to Borrower.
 
Section 13.3. SOLE DISCRETION OF LENDER.  Wherever pursuant to this Security
Instrument Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Lender and
shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
 
Section 13.4. SURVIVAL.  The indemnifications (and the limitations thereof) made
pursuant to Article 11, shall, subject to Article 11, continue indefinitely in
full force and effect and shall survive and shall in no way be impaired by: any
satisfaction or other termination of this Security Instrument, any assignment or
other transfer of all or any portion of this Security Instrument or Lender’s
interest in the Property (but, in such case, shall benefit both Indemnified
Parties and any assignee or transferee), any exercise of Lender’s rights and
remedies pursuant hereto including but not limited to foreclosure or acceptance
of a deed in lieu of foreclosure, any exercise of any rights and remedies
pursuant to the Note or any of the Other Loan Documents, any transfer of all or
any portion of the Property (whether by Borrower or by Lender following
foreclosure or acceptance of a deed in lieu of foreclosure or at any other
time), any amendment to this Security Instrument, the Note or the Other Loan
Documents, and any act or omission that might otherwise be construed as a
release or discharge of Borrower from the obligations pursuant hereto.
 
 
-47-

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

 
 
Section 13.5. WAIVER OF TRIAL BY JURY.  BORROWER HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THIS SECURITY INSTRUMENT, THE NOTE OR THE OTHER LOAN
DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH INCLUDING, BUT NOT LIMITED TO THOSE RELATING TO (A) ALLEGATIONS THAT A
PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR PENALTIES OR
DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE
PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL REASONABLENESS,
OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR CONFIDENTIAL
RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO, INSTRUMENTALITY,
FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE,
INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH
PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER,
LIBEL OR DAMAGE TO REPUTATION.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY
EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD
OTHERWISE ACCRUE.  LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH
IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.
 
Section 13.6. WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY.  In the event of the
filing of any voluntary or involuntary petition under the Bankruptcy Code by or
against Borrower (other than an involuntary petition filed by or joined in by
Lender), the Borrower shall not assert, or request any other party to assert,
that the automatic stay under § 362 of the Bankruptcy Code shall operate or be
interpreted to stay, interdict, condition, reduce or inhibit the ability of
Lender to enforce any rights it has by virtue of this Security Instrument, or
any other rights that Lender has, whether now or hereafter acquired, against any
guarantor of the Debt.  Further, Borrower shall not seek a supplemental stay or
any other relief, whether injunctive or otherwise, pursuant to § 105 of the
Bankruptcy Code or any other provision therein to stay, interdict, condition,
reduce or inhibit the ability of Lender to enforce any rights it has by virtue
of this Security Instrument against any guarantor of the Debt.  The waivers
contained in this paragraph are a material inducement to Lender’s willingness to
enter into this Security Instrument and Borrower acknowledges and agrees that no
grounds exist for equitable relief which would bar, delay or impede the exercise
by Lender of Lender’s rights and remedies against Borrower or any guarantor of
the Debt.
 
 
-48-

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

 
 
ARTICLE 14                                - NOTICES
 
Section 14.1. NOTICES.  All notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if delivered in
person, (ii) one (1) Business Day after having been deposited for overnight
delivery with any reputable overnight courier service, or (iii) three (3)
Business Days after having been deposited in any post office or mail depository
regularly maintained by the U.S. Postal Service and sent by registered or
certified mail, postage prepaid, addressed as follows:
 
If to Borrower:
 
 
With a copy to:
Sutton Hill Properties, LLC
6100 Center Drive, Suite 900
Los Angeles, California 90045
Attention:  Andrzej Matyczynski
 
Marcus Rosenberg & Diamond LLP
488 Madison Avenue
New York, New York 10022
Attn: Jeffrey M. Diamond, Esq.
 
If to Lender:
Sovereign Bank, N.A.
195 Montague Street
Brooklyn, New York 11201
Attention: Joanne Francillon
 
With a copy to:
Sovereign Bank
Mail Code: MA1 SST 04-01
75 State Street
Boston, MA 02109
Attention:  Kathleen E.Dugan
 
With a copy to:
Windels Marx Lane & Mittendorf, LLP
156 West 56th Street
New York, New York 10019
Attention:  Michele Arbeeny, Esq.
 

or addressed as such party may from time to time designate by written notice to
the other parties.  For purposes of this subsection, the term “Business Day”
shall mean a day on which commercial banks are not authorized or required by law
to close in New York, New York.
 
Any party by notice to the other parties may designate additional or different
addresses for subsequent notices or communications.
 
ARTICLE 15                                - APPLICABLE LAW
 
Section 15.1. GOVERNING LAW; JURISDICTION.  This Security Instrument shall be
governed by and construed in accordance with applicable federal law and the laws
of the state where the Property is located, without reference or giving effect
to any choice of law doctrine, and the provisions of this Security Instrument
are subject to the limitations, if any, of applicable law.  Borrower hereby
irrevocably submits to the jurisdiction of any court of competent jurisdiction
located in the state in which the Property is located in connection with any
proceeding arising out of or relating to this Security Instrument.
 
 
-49-

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

 
 
Section 15.2. USURY LAWS.  This Security Instrument and the Note are subject to
the express condition that at no time shall Borrower be obligated or required to
pay interest on the Debt at a rate which could subject the holder of the Note to
either civil or criminal liability as a result of being in excess of the maximum
interest rate which Borrower is permitted by applicable law to contract or agree
to pay.  If by the terms of this Security Instrument or the Note, Borrower is at
any time required or obligated to pay interest on the Debt at a rate in excess
of such maximum rate, the rate of interest under the Security Instrument and the
Note shall be deemed to be immediately reduced to such maximum rate and the
interest payable shall be computed at such maximum rate and all prior interest
payments in excess of such maximum rate shall be applied and shall be deemed to
have been payments in reduction of the principal balance of the Note.  All sums
paid or agreed to be paid to Lender for the use, forbearance, or detention of
the Debt shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the Note
until payment in full so that the rate or amount of interest on account of the
Debt does not exceed the maximum lawful rate of interest from time to time in
effect and applicable to the Debt for so long as the Debt is outstanding.
 
Section 15.3. PROVISIONS SUBJECT TO APPLICABLE LAW.  All rights, powers and
remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law.  If
any term of this Security Instrument or any application thereof shall be invalid
or unenforceable, the remainder of this Security Instrument and any other
application of the term shall not be affected thereby.
 
ARTICLE 16                                - SECONDARY MARKET
 
Section 16.1. TRANSFER OF LOAN.  Lender may, at any time and at no cost to
Borrower, sell, transfer or assign the Note, this Security Instrument and the
Other Loan Documents, and any or all servicing rights with respect thereto, or
grant participations therein or issue mortgage pass-through certificates or
other securities evidencing a beneficial interest in a rated or unrated public
offering or private placement (the “Securities”).  Lender may forward to each
purchaser, transferee, assignee, servicer, participant, investor in such
Securities or any Rating Agency (as hereinafter defined) rating such Securities
(collectively, the “Investor”) and each prospective Investor, all documents and
information which Lender now has or may hereafter acquire relating to the Debt
and to Borrower, any Guarantor, and the Property, whether furnished by Borrower,
any Guarantor, or otherwise, as Lender determines necessary or desirable.  The
term “Rating Agency” shall mean each statistical rating agency that has assigned
a rating to the Securities.  Borrower and each Guarantor agree to reasonably
cooperate with Lender in connection with any transfer made or any Securities
created pursuant to this Section.  Borrower shall also promptly furnish and
Borrower and each Guarantor consent to Lender furnishing to such Investors or
such prospective Investors or Rating Agency any and all available information
concerning the Property, the Leases, the financial condition of Borrower, and
any Guarantor as may be reasonably requested by Lender, any Investor or any
prospective Investor or Rating Agency (including, but not limited to, copies of
information previously supplied to Lender) in connection with any sale, transfer
or participation interest.  In addition to any other obligations Borrower may
have under this Section 16.1, Borrower shall execute such amendments to the Loan
Documents as may be reasonably requested by the holder of the Note or any
Investor to effect the assignment of the Note and the other Loan Documents
and/or issuance of Securities including (i) bifurcating the Note into two or
more notes and/or splitting this Security Instrument into two or more mortgages,
deeds of trust or deeds to secure debt (as the case may be) of the same or
different priorities or otherwise as determined by and acceptable to Lender, or
(ii) dividing the Note into multiple components corresponding to tranches of
certificates to be issued in a Securitization each having a notional balance and
an interest rate determined by Lender; provided, however, that Borrower shall
not be required to modify or amend any Loan Document if the overall effect of
such modification or amendment would (y) change the initial weighted average
interest rate, the maturity or the amortization of principal set forth in the
Note, or (z) modify or amend any other material terms of the Note or the other
Loan Documents.  Borrower shall deliver such additional opinions in form and
substance substantially similar to the opinions delivered on the date hereof in
connection with any transfer made or any Securities created pursuant to this
Section.  Nothing contained herein or in any other Loan Document shall be
construed to obligate Lender to sell, transfer or assign the Loan in a
securitization or otherwise.  Lender may divulge to any Investor (as hereinafter
defined) all such information, and furnish to such Investor copies of any such
reports, financial statements, certificates, and documents obtained under any
provision of this Agreement, or related agreements and documents, provided that
such information shall be provided on a confidential basis.
 
 
-50-

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

 
 
ARTICLE 17                                - COSTS
 
Section 17.1. PERFORMANCE AT BORROWER’S EXPENSE.  Borrower acknowledges and
confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination (excluding the scheduled maturity of the Note) of its
loans, (b) the release or substitution of collateral therefor, (c) obtaining
certain consents, waivers and approvals with respect to the Property, (d)
reviewing leases, easements, or any other document submitted by or on behalf of
Borrower to Lender for review or approval, or (e) determining, at Borrower’s
request, Borrower’s satisfaction of any condition under the Loan Documents (the
occurrence of any of the above shall be called an “Event”).  Except as otherwise
expressly set forth herein, Borrower hereby acknowledges and agrees to pay,
immediately, upon demand, all such fees (as the same may be increased or
decreased from time to time), including Lender’s reasonable in-house legal fees,
and any additional fees of a similar type or nature which may be imposed by
Lender from time to time, upon the occurrence of any Event.
 
Section 17.2. ATTORNEY’S FEES FOR ENFORCEMENT.  (a) Borrower shall pay all
reasonable legal fees incurred by Lender in connection with (i) the preparation
of the Note, this Security Instrument and the Other Loan Documents and (ii) the
items set forth in Section 17.1 above, and (b) Borrower shall pay to Lender on
demand any and all expenses, including in-house and outside legal expenses and
attorneys’ fees, incurred or paid by Lender in protecting its interest in the
Property or Personal Property and/or collecting any amount payable or in
enforcing its rights hereunder with respect to the Property or Personal
Property, whether or not any legal proceeding is commenced hereunder or
thereunder and whether or not any default or Event of Default shall have
occurred and is continuing, together with interest thereon at the Default Rate
from the date of notice of payment or incurring by Lender until paid by
Borrower.
 
 
-51-

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

 
 
ARTICLE 18                                - DEFINITIONS
 
Section 18.1. GENERAL DEFINITIONS.  Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Security Instrument may be used interchangeably in singular or plural form
and the word “Borrower” shall mean “each Borrower and any subsequent owner or
owners of the Property or any part thereof or any interest therein,” the word
“Lender” shall mean “Lender and any subsequent holder of the Note,” the word
“Note” shall mean “the Note and any other evidence of indebtedness secured by
this Security Instrument,” the word “person” shall include an individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, the word “Property” shall include
any portion of the Property and any interest therein, and the phrases
“attorneys’ fees,” “legal fees” and “counsel fees “ shall include any and all
attorneys’, paralegal and law clerk fees and disbursements, including, but not
limited to, fees and disbursements at the pre- trial, trial and appellate levels
incurred or paid by Lender in protecting its interest in the Property, the
Leases and the Rents and enforcing its rights hereunder.
 
ARTICLE 19                                - MISCELLANEOUS PROVISIONS
 
Section 19.1. NO ORAL CHANGE.  This Security Instrument, the Note, and the Other
Loan Documents and any provisions hereof or thereof, may not be modified,
amended, waived, extended, changed, discharged or terminated orally or by any
act or failure to act on the part of Borrower or Lender, but only by an
agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
 
Section 19.2. LIABILITY.  If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several.  This Security Instrument shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns
forever.
 
Section 19.3. INAPPLICABLE PROVISIONS.  If any term, covenant or condition of
the Note or this Security Instrument is held to be invalid, illegal or
unenforceable in any respect, the Note and this Security Instrument shall be
construed without such provision.
 
Section 19.4. HEADINGS, ETC.  The headings and captions of various Sections of
this Security Instrument are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
 
Section 19.5. DUPLICATE ORIGINALS; COUNTERPARTS.  This Security Instrument may
be executed in any number of duplicate originals and each duplicate original
shall be deemed to be an original.  This Security Instrument may be executed in
several counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Security
Instrument.  The failure of any party hereto to execute this Security
Instrument, or any counterpart hereof, shall not relieve the other signatories
from their obligations hereunder.
 
 
-52-

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

 
 
Section 19.6. NUMBER AND GENDER.  Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
 
Section 19.7. SUBROGATION.  If any or all of the proceeds of the Note have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Property, then, to the extent of the funds so used, Lender shall be
subrogated to all of the rights, claims, liens, titles, and interests existing
against the Property heretofore held by, or in favor of, the holder of such
indebtedness and such former rights, claims, liens, titles, and interests, if
any, are not waived but rather are continued in full force and effect in favor
of Lender and are merged with the lien and security interest created herein as
cumulative security for the repayment of the Debt, the performance and discharge
of Borrower’s obligations hereunder, under the Note and the Other Loan Documents
and the performance and discharge of the Other Obligations.
 
Section 19.8. ENTIRE AGREEMENT.  The Note, this Security Instrument and the
Other Loan Documents constitute the entire understanding and agreement between
Borrower and Lender with respect to the transactions arising in connection with
the Debt and supersede all prior written or oral understandings and agreements
between Borrower and Lender with respect thereto.  Borrower hereby acknowledges
that, except as incorporated in writing in the Note, this Security Instrument
and the Other Loan Documents, there are not, and were not, and no persons are or
were authorized by Lender to make, any representations, understandings,
stipulations, agreements or promises, oral or written, with respect to the
transaction which is the subject of the Note, this Security Instrument and the
Other Loan Documents.
 
Section 19.9. CONDITIONS TO CLOSING.  Notwithstanding any of the foregoing,
Lender shall not be obligated to make the Loan to the Borrower until the
following conditions have been satisfied:
 
(a) there shall exist no Event of Default;
 
(b) the representations and warranties made to Lender herein, in the Note and in
the other Loan Documents and in any other document, certificate or statement
executed or delivered to Lender in connection with the Loan shall be true and
correct on and as of the date hereof;
 
(c) the Note, this Security Instrument, and the other Loan Documents shall have
been duly executed by the parties thereto;
 
(d) the Property shall not have been materially injured or damaged by fire or
other casualty;
 
(e) Borrower shall have irrevocably paid in full all amounts owing to Lender in
connection with the Loan, including without limitation, the Lender’s loan and
commitment fees, the fees of any third parties engaged by Lender in and legal
fees of Lender’s counsel;
 
 
-53-

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

 
 
(f) Lender and/or Lender’s counsel shall have received and approved all
documentation and other information required by Lender or Lender’s counsel in
connection with the Loan, including, without limitation, current financial
statements and such other financial data as Lender shall require, the policies
of insurance required by this Security Instrument, together with evidence of the
payment of the premiums therefore, a paid title insurance policy, in the amount
of the Note, in form approved by Lender or Lender’s counsel, issued by a title
insurer acceptable to Lender and Lender’s counsel, insuring this Security
Instrument to be a valid first lien on the Property free and clear of all
defects and encumbrances except those previously received and approved by Lender
or Lender’s counsel, a current survey of the Property certified to Lender and
the title insurer and acceptable to Lender and Lender’s counsel, copies of all
leases in respect of the Property, organizational and corporate or limited
liability company (as applicable) or comparable documents for the Borrower,
Guarantor and any other party requested by Lender, together with a good standing
certificate from the applicable jurisdictions for each of the foregoing, and
such other approvals, opinions or documents as Lender may reasonably request
 
ARTICLE 20                                - SPECIAL STATE OF NEW YORK PROVISIONS
 
Section 20.1. INCONSISTENCIES.  In the event of any inconsistencies between the
terms and conditions of this Article 20 and the other provisions of this
Security Instrument the terms and conditions of this Article 20 shall control
and be binding.
 
Section 20.2. TRUST FUND.  Pursuant to Section 13 of the New York Lien Law,
Borrower shall receive the advances secured hereby and shall hold the right to
receive the advances as a trust fund to be applied first for the purpose of
paying the cost of any improvement and shall apply the advances first to the
payment of the cost of any such improvement on the Property before using any
part of the total of the same for any other purpose.
 
Section 20.3. COMMERCIAL PROPERTY.  Borrower represents that this Security
Instrument does not encumber real property principally improved or to be
improved by one or more structures containing in the aggregate not more than six
residential dwelling units, each having its own separate cooking facilities.
 
Section 20.4. INSURANCE.  The provisions of subsection 4 of Section 254 of the
New York Real Property Law covering the insurance of buildings against loss by
fire shall not apply to this Security Instrument.  In the event of any conflict,
inconsistency or ambiguity between the provisions hereof and the provisions of
subsection 4 of Section 254 of the New York Real Property Law covering the
insurance of buildings against loss by fire, the provisions of this Security
Instrument shall control.
 
Section 20.5. LEASES.  Lender shall have all of the rights against lessees of
the Real Property set forth in Section 291-f of the Real Property Law of New
York.
 
Section 20.6. MAXIMUM PRINCIPAL AMOUNT SECURED.  Notwithstanding anything
contained in Part A hereof herein to the contrary, the maximum amount of
principal indebtedness secured by this Security Instrument at the time of
execution hereof or which under any contingency may become secured by this
Security Instrument at any time hereafter is $15,000,000.00, plus: (a) taxes,
charges or assessments which may be imposed by law upon the Property; (b)
premiums on insurance policies covering the Property; (c) expenses incurred in
upholding the lien of this Security Instrument, including, but not limited to:
(1) the expenses of any litigation to prosecute or defend the rights and lien
created by this Security Instrument; (2) any amount, cost or charges to which
the Lender becomes subrogated, upon payment, whether under recognized principles
of law or equity, or under express statutory authority, and (3) interest at the
default rate (or regular interest rate).
 
 
-54-

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

 
 
Section 20.7. NONJUDICIAL FORECLOSURE.  In addition to any other remedy
available to Lender under Section 9.1 of this Security Instrument or otherwise,
upon the occurrence of any Event of Default, Lender shall have the right to sell
the Property pursuant to Article 14 of the New York Real Property Actions and
Proceedings Law.
 
Section 20.8. STATUTORY CONSTRUCTION.  The clauses and covenants contained in
this Security Instrument that are construed by Section 254 of the New York Real
Property Law shall be construed as provided in those sections (except as
provided in Section 20.4). The additional clauses and covenants contained in
this Security Instrument shall afford rights supplemental to and not exclusive
of the rights conferred by the clauses and covenants construed by Section 254
and shall not impair, modify, alter or defeat such rights (except as provided in
Section 20.4), notwithstanding that such additional clauses and covenants may
relate to the same subject matter or provide for different or additional rights
in the same or similar contingencies as the clauses and covenants construed by
Section 254. The rights of Lender arising under the clauses and covenants
contained in this Security Instrument shall be separate, distinct and cumulative
and none of them shall be in exclusion of the others.  No act of Lender shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision, anything herein or otherwise to the contrary
notwithstanding. In the event of any inconsistencies between the provisions of
Section 254 and the provisions of this Security Instrument, the provisions of
this Security Instrument shall prevail.
 
Section 20.9. TRANSFER TAXES.
 
(a) In the event of any sale or transfer of the Property, or any part thereof,
including any sale or transfer by reason of foreclosure of this Security
Instrument or any prior or subordinate mortgage or by deed in lieu of any such
foreclosure, Borrower shall timely and duly complete, execute and deliver to
Lender all forms and supporting documentation required by any taxing authority
to estimate and fix any tax payable by reason of such sale or transfer or
recording of the deed evidencing such sale or transfer, including any New York
State Real Estate Transfer Tax payable pursuant to Article 31 of the New York
Tax Law and New York City Real Property Transfer Tax payable pursuant to Chapter
21, Title 11 of the New York City Administrative Code (individually, a “Transfer
Tax” and collectively, the “Transfer Taxes”).
 
(b) Borrower shall pay the Transfer Taxes that may hereafter become due and
payable with respect to any sale or transfer of the Property described in this
Article, and in default of such payment, Lender may pay the same and the amount
of such payment shall be added to the Debt secured hereby and, unless incurred
in connection with a foreclosure of this Security Instrument or deed in lieu of
such foreclosure, be secured by this Security Instrument.
 
 
-55-

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

 
 
(c) In the event that Borrower fails to execute the same and such failure
continues for more than ten (10) business days after Lender requests Borrower to
execute the same, Borrower hereby irrevocably constitutes and appoints Lender as
its attorney-in-fact, coupled with an interest, to prepare and deliver any
questionnaire, statement, affidavit or tax return in connection with any
Transfer Tax applicable to any foreclosure or deed in lieu of foreclosure
described in this Article.
 
(d) Borrower shall indemnify and hold harmless Lender against (i) any and all
liability incurred by Lender for the payment of any Transfer Tax with respect to
any transfer of the Property, and (ii) any and all expenses reasonably incurred
by Lender in connection therewith including, without limitation, interest,
penalties and reasonable attorneys’ fees.
 
(e) The obligation to pay the taxes and indemnify Lender under this Article is a
personal obligation of Borrower, whether or not Borrower is personally obligated
to pay the Debt secured by this Security Instrument, and shall be binding upon
and enforceable against the distributees, successors and assigns of Borrower
with the same force and effect as though each of them had personally executed
and delivered this Security Instrument, notwithstanding any exculpation
provision in favor of Borrower with respect to the payment of any other monetary
obligations under this Security Instrument. Notwithstanding the foregoing, the
indemnity contained in this Section 20.9(e) does not apply to any direct or
indirect member, manager, shareholder, partner, beneficiary or other owner of
beneficial ownership interest in Borrower or any director, officer, employer or
trustee of any of the foregoing.
 
(f) In the event that Borrower fails or refuses to pay a tax payable by Borrower
with respect to a sale or transfer by reason of a foreclosure of this Security
Instrument in accordance with this Article, the amount of the tax, any interest
or penalty applicable thereto and any other amount payable pursuant to
Borrower’s obligation to indemnify Lender under this Article may, at the sole
option of Lender, be paid as an expense of the sale out of the proceeds of the
mortgage foreclosure sale.
 
(g) The provisions of this Article shall survive any transfer and the delivery
of the deed affecting such transfer. Nothing in this Article shall be deemed to
grant to Borrower any greater rights to sell, assign or otherwise transfer the
Property than are expressly provided in Article 8 nor to deprive Lender of any
right to refuse to consent to any transaction referred to in this Article.
 
Section 20.10. SATISFACTION OR ASSIGNMENT OF MORTGAGE.  Upon payment in full of
all sums secured hereby in accordance with the terms and conditions of the Note,
this Security Instrument and the other Loan Documents, Lender shall, at no cost
to Lender, deliver a satisfaction or release of this Security Instrument and any
Uniform Commercial Code financing statements filed in connection with this
Security Instrument, or, at Borrower’s request to be exercised in writing, an
assignment, without representation, recourse or warranty, hereof, in either case
in proper form for recording.  As a condition to any such satisfaction or
assignment, Borrower covenants and agrees to pay Lender’s reasonable fees and
expenses (including reasonable attorneys’ fees and expenses) in connection
therewith, and all costs of recording any discharge or assignment in the proper
official records.  Upon any such satisfaction or assignment, Lender shall,
automatically and without the need for any further documentation, be absolutely
and unconditionally released from any and all claims or liabilities in
connection with the Loan.  In addition, Borrower hereby indemnifies and agrees
to hold Lender harmless from and against any and all claims and liabilities
arising out of the satisfaction or assignment hereof, such indemnification to
survive any such satisfaction or assignment.
 
 
-56-

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

 
 
Section 20.11.   AMENDMENT AND RESTATEMENT.  This Security Instrument amends and
restates the Original Mortgage.  This Security Instrument is a modification of
Borrower’s obligation under the Original Mortgage and shall not constitute a
satisfaction, termination, or discharge of the Original Mortgage or an
extinguishment of the obligation evidenced thereby.  Upon execution and delivery
of this Security Instrument, all of Borrower’s obligations under the Original
Mortgage shall be deemed evidenced by this Security Instrument and there are no
offsets, setoffs or counterclaims against payment of said amounts.
 

 
[NO FURTHER TEXT ON THIS PAGE]
 
 
 
-57-

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

 

 
IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower and
accepted by Lender effective the day and year first above written.
 
BORROWER:
 
SUTTON HILL PROPERTIES, LLC,
a Nevada limited liability company

By:          Citadel Cinemas, Inc.,
a Nevada corporation,
its managing member

By:          /s/ Andrzej
Matyczynski                                                        
Name:  Andrzej Matyczynski
Title:    Chief Financial Officer

 
ACCEPTED BY:

LENDER

 
SOVEREIGN BANK, N.A. a national association

By:    /s/ Ryan S. Ledwith  
Name: Ryan S. Ledwith
Title:   Senior Vice President
 
 
 
-58-

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

 

 
ACKNOWLEDGMENTS
 

STATE OF
CALIFORNIA                                                                           )
)           ss:
COUNTY OF LOS
ANGELES                                                                )

On June  26 , 2012 before me,   A.B. Valencia   (insert name of the officer),
Notary Public, personally appeared Andrzej Matyczynski, who proved to me on the
basis of satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.

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

WITNESS my hand and official seal.

/s/ Notary
Public                                                                                                        [Seal]
NOTARY PUBLIC

 
 
-59-

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

 

 
ACKNOWLEDGMENTS
 

 
STATE OF NEW YORK                                                      )
)           ss:
COUNTY OF NEW
YORK                                                                )

On the  27th  day of June in the year 2012 before me, the undersigned,
personally appeared Ryan S. Ledwith, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
 
/s/ Notary Public   
NOTARY PUBLIC
 
Signature and Office of Individual
 
taking acknowledgment
 
 
 
-60-

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

 

 
EXHIBIT A
 
(DESCRIPTION OF LAND)
 
All of that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being described as follows:
 
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City of New York, County of New York, State of New York,
bounded and described as follows:

BEGINNING at the point on the easterly side of Third Avenue, distant northerly
100 feet 4 inches from the corner formed by the intersection of the northerly
side of 59th Street and the easterly side of Third Avenue;

RUNNING THENCE easterly parallel with the northerly side of 59th Street and part
of the way through a party wall, 105 feet;

THENCE northerly parallel with Third Avenue, 75 feet 1/4 inch;

THENCE westerly parallel with 59th Street, 105 feet to the easterly side of
Third Avenue; and

THENCE southerly along the easterly side of Third Avenue, 75 feet 1/4 inch to
the point or place of BEGINNING.

 
-61-

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