Exhibit 10.72

 

TIAA Appl. #AAA3436

 

PROMISSORY NOTE

 

$81,000,000.00

  Del Mar, California

 

February 3, 2004

 

FOR VALUE RECEIVED, KILROY REALTY, L.P., a Delaware limited partnership
(“Borrower”), having its principal place of business at 12200 West Olympic
Boulevard, Suite 200, Los Angeles, CA 90064, promises to pay to TEACHERS
INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (“Lender”), a New York corporation,
or order, at Lender’s offices at 730 Third Avenue, New York, New York 10017 or
at such other place as Lender designates in writing, the principal sum of
Eighty-One Million and 00/100 Dollars ($81,000,000.00) (the principal sum or so
much of the principal sum as may be advanced and outstanding from time to time,
whichever is less, the “Principal”), in lawful money of the United States of
America, with interest on the Principal from and after the date advanced by
Lender at the Interest Rate (defined below) in effect from time to time and as
otherwise provided herein.

 

The Principal shall bear interest at a rate per annum equal to: (i) during the
period from and including the date hereof and through and including May 3, 2004,
two and eighty-eight one hundredths percent (2.88%); (ii) during the period from
and including May 4, 2004 and through and including July 31, 2004, the sum of
(x) the LIBOR Rate (as defined below) plus (y) 175 basis points; and (iii)
during the period from and including August 1, 2004 and through the date that
all indebtedness hereunder is paid in full, five and fifty-seven one hundredths
percent (5.57%) (the “Fixed Interest Rate,” with the interest rate in effect
from time to time pursuant to clause (i), (ii) or (iii) above, as applicable,
the “Interest Rate”). As used herein, the term “LIBOR Rate” shall mean the
average bid rate quoted for ninety (90) day LIBOR deposits on the page numbered
3750 on the Telerate system determined at 4:00 p.m. Eastern Standard Time on May
3, 2004.

 

This Promissory Note (this “Note”) evidences a loan (the “Loan”) in the original
amount of Eighty-One Million and 00/100 Dollars ($81,000,000.00). This Note is
secured by, among other things, an instrument captioned “Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing Statement”
(the “Deed of Trust”) and dated the date of this Note, made by Borrower for the
benefit of Lender as security for the Loan. All capitalized terms not expressly
defined in this Note will have the definitions set forth in the Deed of Trust.

 

Section 1. Payments of Principal and Interest.

 

(a) Borrower will make monthly installment payments (“Debt Service Payments”) as
follows:

 

(i) On March 1, 2004, and on the first Business Day of each succeeding calendar
month through and including August 1, 2004, payments of accrued interest on the
Principal at the Interest Rate; and

 

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(ii) On September 1, 2004 and on the first Business Day of each succeeding
calendar month through and including July 1, 2012, payments in the amount of
Four Hundred Sixty Three Thousand Four Hundred Seventy Two and 83/00 Dollars
($463,472.83) (subject to adjustment as provided in Section 2(b)(iii) below),
each of which will be applied first to accrued interest on the Principal at the
Interest Rate and then to the Principal.

 

(b) On August 1, 2012 (the “Maturity Date”), Borrower will pay the Principal in
full together with accrued interest at the Interest Rate and all other amounts
due under the Loan Documents.

 

(c) In addition to the foregoing, Borrower shall pay to Lender, as long as
Lender shall be required to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency funds or deposits, additional
interest on the Principal of the Loan equal to the actual costs of such reserves
allocated to the Loan by Lender (as determined by Lender in good faith, which
determination shall be conclusive), which shall be due and payable on each date
on which interest is payable on the Loan, provided Borrower shall have received
at least 15 days’ prior notice of such additional interest from Lender. If
Lender fails to give notice 15 days prior to the relevant date on which interest
is payable, such additional interest shall be due and payable on the first date
on which interest is otherwise payable under the Loan which is at least 15 days
from receipt of such notice.

 

Section 2. Prepayment Provisions.

 

(a) The following definitions apply:

 

“Discount Rate” means the yield on a U.S. Treasury issue selected by Lender, as
published in The Wall Street Journal two weeks prior to the date as of which the
applicable Prepayment Premium, Evasion Premium or Reconveyance Premium, as the
case may be, is calculated (as specified below), having a maturity date
corresponding (or most closely corresponding, if not identical) to the Maturity
Date and, if applicable, a coupon rate corresponding (or most closely
corresponding, if not identical) to the Fixed Interest Rate.

 

“Default Discount Rate” means the Discount Rate less 300 basis points.

 

“Discounted Value” means the Discounted Value of a Note Payment based on the
following formula:

 

NP

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          (1 + R/12)n    =   

Discounted Value

 

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where:

 

NP

   =   

amount of Note Payment

R

   =   

Prepayment Discount Rate, Default Discount Rate or Reconveyance Discount Rate,
as the case may be.

n

   =    the number of months between the date as of which a Prepayment Premium,
Evasion Premium or Reconveyance Premium, as the case may be, is calculated (as
specified below) and the scheduled date of the Note Payment being discounted
rounded to the nearest integer.

 

“Evasion Premium” means, with respect to any prepayment or Acceleration giving
rise to such Evasion Premium that occurs (i) prior to the Permitted Prepayment
Date (as defined below), the greater of the following, calculated as of the date
of the applicable prepayment or Acceleration: (x) an amount equal to the product
of one percent (1%) plus 300 basis points times the Prepayment Date Principal,
and (y) the amount by which the sum of the Discounted Values of the Note
Payments, determined by using the Default Discount Rate, exceeds the Prepayment
Date Principal, and (ii) on or after the Permitted Prepayment Date, an amount
equal to the Prepayment Premium. In order to calculate the amount in clause (y)
above, each remaining Note Payment will be discounted and the resulting
Discounted Values will be added together.

 

“Note Payments” means (i) the scheduled Debt Service Payments for the period
from the date as of which the Prepayment Premium, Evasion Premium or
Reconveyance Premium is calculated (as specified below) through the Maturity
Date and (ii) the scheduled repayment of Principal, if any, on the Maturity
Date.

 

“Prepayment Date Principal” means the Principal outstanding under this Note on
the date as of which a Prepayment Premium or Evasion Premium is calculated (as
specified below).

 

“Prepayment Discount Rate” means the Discount Rate plus 25 basis points.

 

“Prepayment Premium” means the greater of the following, calculated as of the
date of the applicable prepayment or Acceleration: (i) an amount equal to the
product of one percent (1%) times the Prepayment Date Principal and (ii) the
amount by which the sum of the Discounted Values of Note Payments, derived by
using the Prepayment Discount Rate, exceeds the Prepayment Date Principal. In
order to calculate the amount in clause (ii) above, each remaining Note Payment
will be discounted and the resulting Discounted Values will be added together.

 

“Reconveyance Discount Rate” means the Discount Rate plus 25 basis points.

 

“Reconveyance Premium” means the greater of the following, calculated as of the
date of such prepayment: (i) an amount equal to the product of one percent (1%)
times the applicable Allocated Loan Amount (as defined in the Deed of Trust) and
(ii) the amount by which the sum of the Discounted

 

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Values of those portions of the Note Payments that are attributable to the
Allocated Loan Amount, derived by using the Reconveyance Discount Rate, exceeds
such Allocated Loan Amount. In order to calculate the amount in clause (ii)
above, that portion of each remaining Note Payment attributable to the Allocated
Loan Amount will be discounted and the resulting Discounted Values will be added
together.

 

(b) This Note may not be prepaid in full or in part before the date (the
“Permitted Prepayment Date”) that is thirty (30) months after the first date
specified in Section 1(a)(i) above. Commencing on the Permitted Prepayment Date,
this Note may be prepaid only as follows:

 

(i) Provided there is no Event of Default, Borrower may prepay this Note in
full, but not in part, upon not less than 60 days prior notice to Lender and
upon payment in full of the Debt then due and owing on the date of such
prepayment, which will include a Prepayment Premium calculated as of the date of
such prepayment.

 

(ii) Provided there is no Event of Default, this Note may be prepaid in full,
but not in part, upon payment in full of the Debt then due and owing on the date
of such prepayment, without payment of the Prepayment Premium, during the last
90 days of the Term upon not less than 3 Business Days notice to Lender.

 

(iii) Provided there is no Event of Default, Borrower may prepay this Note, in
part, in the amount of the applicable Allocated Loan Amount pursuant to the
terms of the Section of the Deed of Trust entitled “Reconveyance Rights,” upon
payment in full of such Allocated Loan Amount and all other amounts due and
payable under this Note at the time of such prepayment, which will include a
Reconveyance Premium calculated as of the date of such prepayment. In the event
of any partial prepayment of the Note expressly permitted pursuant to the
foregoing, the monthly payments due thereafter under this Note pursuant to
Section 1(a)(ii) above shall be reduced so as to equal the monthly payment
amount which would fully amortize the then-remaining Principal at the Interest
Rate in blended level payments over the number of full calendar months between
the date of such partial prepayment and September 1, 2034, all as determined by
Lender (provided that, the foregoing provision shall in no event be interpreted
as extending the maturity date of the loan beyond the “Maturity Date” set forth
in Section 1(b) above).

 

(c) After an Acceleration or upon any other prepayment not permitted by the Loan
Documents, any tender of payment of the amount necessary to satisfy the Debt
accelerated, any judgment of foreclosure, any statement of the amount due at the
time of foreclosure (including

 

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foreclosure by power of sale) and any tender of payment made during any
redemption period after foreclosure, will include an Evasion Premium, calculated
as of the date of the Acceleration or the date of such unpermitted prepayment,
as the case may be.

 

(d) Borrower acknowledges that:

 

(i) a prepayment of this Note without payment of the Prepayment Premium,
Reconveyance Premium or Evasion Premium (the “Premiums”), as applicable, will
cause damage to Lender;

 

(ii) the Premiums are intended to compensate Lender for the loss of its
investment and the expense incurred and time and effort associated with making
the Loan, which will not be fully repaid if the Loan is prepaid without payment
of the applicable Premium;

 

(iii) it will be extremely difficult and impracticable to ascertain the extent
of Lender’s damages caused by a prepayment after an Event of Default or any
other prepayment not permitted by the Loan Documents; and

 

(iv) the Premiums represent Lender and Borrower’s reasonable estimate of
Lender’s damages for a prepayment and is not a penalty.

 

(e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND TO
BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER’S WAIVER OF ANY
RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS
NOTE IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY
DATE OF THIS NOTE, AND (2) BORROWER’S AGREEMENT, AS SET FORTH ABOVE, TO PAY
LENDER THE APPLICABLE PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE
PRINCIPAL INDEBTEDNESS EVIDENCED HEREBY FOLLOWING THE ACCELERATION OF THE
MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE DEED OF
TRUST, INCLUDING WITHOUT LIMITATION A DEFAULT ARISING FROM THE CONVEYANCE OF ANY
RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE DEED OF TRUST WHICH
IS NOT PERMITTED THEREBY, AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS
NOTE ON BORROWER’S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS
PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10. BY PLACING
ITS SIGNATURE BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL PARTNERS,
PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE KNOWLEDGEABLE REAL
ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY UNDERSTANDS THE EFFECT OF
THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY LENDER AT THE RATE SET FORTH
ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER,

 

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AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

By:

 

KILROY REALTY CORPORATION,

a Maryland corporation, its general partner

 

By:

 

/s/    Tyler H. Rose        

   

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Name:

 

Tyler H. Rose

Its:

 

Senior Vice President and Treasurer

 

By:

 

/s/    Timothy M. Schoen        

   

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

Name:

 

Timothy M. Schoen

Its:

 

Vice President – Corporate Finance

 

Section 3. Events of Default:

 

(a) It is an “Event of Default” under this Note:

 

(i) if Borrower fails to pay any amount due, as and when required, under this
Note or any other Loan Document and the failure continues for a period of 5
days; or

 

(ii) if an Event of Default occurs under (and as defined in) any other Loan
Document.

 

(b) If an Event of Default occurs, Lender may declare all or any portion of the
Debt immediately due and payable (“Acceleration”) and exercise any of the other
Remedies.

 

Section 4. Default Rate. Interest on the Principal will accrue at the Default
Interest Rate from the date an Event of Default occurs, and such interest shall
be payable upon demand.

 

Section 5. Late Charges.

 

(a) If Borrower fails to pay any Debt Service Payment when due and the failure
continues for a period of 5 days or more or fails to pay any amount then due and
payable under the Loan Documents on the Maturity Date, Borrower agrees to pay to
Lender an amount (a “Late Charge”) equal to five cents ($.05) for each one
dollar ($1.00) of the delinquent payment.

 

(b) Borrower acknowledges that:

 

(i) a delinquent payment will cause damage to Lender;

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(ii) the Late Charge is intended to compensate Lender for loss of use of the
delinquent payment and the expense incurred and time and effort associated with
recovering the delinquent payment;

 

(iii) it will be extremely difficult and impracticable to ascertain the extent
of Lender’s damages caused by the delinquency; and

 

(iv) the Late Charge represents Lender and Borrower’s reasonable estimate of
Lender’s damages from the delinquency and is not a penalty.

 

Section 6. Limitation of Liability. This Note is subject to the limitations on
liability set forth in the Article of the Deed of Trust entitled “Limitation of
Liability”.

 

Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE
DEED OF TRUST ENTITLED “WAIVERS”, BORROWER WAIVES PRESENTMENT FOR PAYMENT,
DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS,
NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF
DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN
DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE
OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE OBLIGATIONS AND TO THE
RELEASE OF ANY SECURITY FOR THIS NOTE AND AGREE THAT ADDITIONAL MAKERS MAY
BECOME PARTIES TO THIS NOTE AND ADDITIONAL INDORSERS, GUARANTORS OR SURETIES MAY
BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE LIABILITY OF THE ORIGINAL
MAKER OR ANY ORIGINAL INDORSER, SURETY OR GUARANTOR.

 

Section 8. Commercial Loan. The Loan is made for the purpose of carrying on a
business or commercial activity or acquiring real or personal property as an
investment or carrying on an investment activity and not for personal or
household purposes.

 

Section 9. Usury Limitations. Borrower and Lender intend to comply with all Laws
with respect to the charging and receiving of interest. Any amounts charged or
received by Lender for the use or forbearance of the Principal to the extent
permitted by Law, will be amortized and spread throughout the Term until payment
in full so that the rate or amount of interest charged or received by Lender on
account of the Principal does not exceed the Maximum Interest Rate. If any
amount charged or received under the Loan Documents that is deemed to be
interest is determined to be in excess of the amount permitted to be charged or
received at the Maximum Interest Rate, the excess will be deemed to be a
permitted prepayment of Principal when paid, without premium, and any portion of
the excess not capable of being so applied will be promptly refunded to
Borrower. If during the Term the Maximum Interest Rate, if any, is eliminated,
then for purposes of the Loan, there will be no Maximum Interest Rate.

 

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Section 10. Applicable Law. This Note is governed by and will be construed in
accordance with the Laws of California, without regard to conflict of law
provisions.

 

Section 11. Time of the Essence. Time is of the essence with respect to the
payment and performance of the Obligations.

 

Section 12. Cross-Default. A default under any other note now or hereafter
secured by the Loan Documents or under any loan document related to such other
note constitutes a default under this Note and under the other Loan Documents.
When the default under the other note constitutes an Event of Default under that
note or the related loan document, an Event of Default also will exist under
this Note and the other Loan Documents.

 

Section 13. Construction. Unless expressly provided otherwise in this Note, this
Note will be construed in accordance with the Exhibit attached to the Deed of
Trust entitled “Rules of Construction”.

 

Section 14. Mortgage Provisions Incorporated. To the extent not otherwise set
forth in this Note, the provisions of the Articles of the Deed of Trust entitled
“Expenses and Duty to Defend”, “Waivers”, “Notices”, and “Miscellaneous” and the
Section of the Deed of Trust entitled “General Provisions Pertaining to
Remedies” are applicable to this Note and deemed incorporated by reference as if
set forth at length in this Note.

 

Section 15. Joint and Several Liability; Successors and Assigns. This Note binds
Borrower and its successors, assigns, heirs, administrators, executors, agents
and representatives and inures to the benefit of Lender and its successors,
assigns, heirs, administrators, executors, agents and representatives.

 

Section 16. Absolute Obligation. Except for the Section of this Note entitled
“Limitation of Liability”, no reference in this Note to the other Loan Documents
and no other provision of this Note or of the other Loan Documents will impair
or alter the obligation of Borrower, which is absolute and unconditional, to pay
the Principal, interest at the Interest Rate and any other amounts due and
payable under this Note, as and when required.

 

[SIGNATURE PAGE FOLLOWS]

 

 

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IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date
first set forth above.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

By:

 

KILROYREALTY CORPORATION,

a Maryland corporation,

Its General Partner

   

By:

 

/s/    Tyler H. Rose

       

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

   

Name:

  Tyler H. Rose    

Its:

  Senior Vice President and Treasurer    

By:

 

/s/    Timothy M. Schoen

       

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

   

Name:

  Timothy M. Schoen    

Its:

  Vice President – Corporate Finance

 

S-1

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After Recordation This Deed of Trust

Should Be Returned To:

 

Mayer, Brown, Rowe & Maw LLP

350 South Grand Avenue, 25th Floor

Los Angeles, California 90071-1503

Attn: Louis P. Eatman, Esq.

 

—————————————SPACE ABOVE THIS LINE FOR RECORDER’S USE———————————

 

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING STATEMENT

 

made by

 

KILROY REALTY, L.P., a Delaware limited partnership,

 

as Borrower

 

in favor of

 

CHICAGO TITLE COMPANY,

 

as Trustee

 

for the benefit of

 

TEACHERS INSURANCE AND ANNUITY ASSOCIATION

OF AMERICA,

 

as Lender

 

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TABLE OF CONTENTS

 

          Page

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ARTICLE 1    DEFINITIONS AND RULES OF CONSTRUCTION    2 ARTICLE 2    GRANTING
CLAUSES    2 ARTICLE 3    OBLIGATIONS SECURED    5 ARTICLE 4    TITLE AND
AUTHORITY    6 ARTICLE 5    PROPERTY STATUS, MAINTENANCE AND LEASES    7 ARTICLE
6    IMPOSITIONS AND ACCUMULATIONS    9 ARTICLE 7    INSURANCE, CASUALTY,
CONDEMNATION AND RESTORATION    12 ARTICLE 8    COMPLIANCE WITH LAW AND
AGREEMENTS    18 ARTICLE 9    ENVIRONMENTAL    20 ARTICLE 10    FINANCIAL
REPORTING    22 ARTICLE 11    EXPENSES AND DUTY TO DEFEND    23 ARTICLE 12   
TRANSFERS, LIENS AND ENCUMBRANCES    24 ARTICLE 13    ADDITIONAL
REPRESENTATIONS, WARRANTIES AND COVENANTS    32 ARTICLE 14    DEFAULTS AND
REMEDIES    34 ARTICLE 15    LIMITATION OF LIABILITY    39 ARTICLE 16    WAIVERS
   41 ARTICLE 17    NOTICES    43 ARTICLE 18    MISCELLANEOUS    44 ARTICLE 19
   TRUSTEE PROVISIONS    47

 

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DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING STATEMENT

 

THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING STATEMENT is made this 3rd day of February, 2004, by KILROY
REALTY, L.P., a Delaware limited partnership (“Borrower”), having its principal
place of business at 12200 West Olympic Boulevard, Suite 200, Los Angeles, CA
90064, in favor of Chicago Title Company (“Trustee”), having an office at 925
“B” Street, San Diego, CA 92101 for the benefit of TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA (“Lender”), a New York corporation, having an
address at 730 Third Avenue, New York, New York 10017.

 

RECITALS:

 

A. Lender agreed to make and Borrower agreed to accept a loan (the “Loan”) in
the maximum aggregate principal amount of Eighty-One Million Dollars
($81,000,000).

 

B. To evidence the Loan, Borrower executed and delivered to Lender a promissory
note dated the date of this Deed of Trust (the “Note”) in the principal amount
of $81,000,000 (with such amount, or so much as is outstanding from time to time
under the Note (whichever is less), referred to as the “Principal”), promising
to pay the Principal with interest thereon to the order of Lender as
respectively set forth in Note and with the balance, if any, of the Debt then
outstanding being due and payable on August 1, 2012 (the “Maturity Date”).

 

C. To secure the Note, Borrower has executed and delivered to Lender this Deed
of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
Statement (the “Deed of Trust”). Upon any substitution as provided in the
Section of this Deed of Trust entitled “Substitution of Properties,” the
Substitute Parcel shall be considered part of the Property for all purposes.
This Deed of Trust conveys, among other things, Borrower’s fee interest in the
real property located in the County of San Diego, State of California, more
particularly described in Exhibit A (the “Land”).

 

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ARTICLE 1

DEFINITIONS AND RULES OF CONSTRUCTION

 

Section 1.1. Definitions. Capitalized terms used in this Deed of Trust are
defined in Exhibit B or in the text with a cross-reference in Exhibit B.

 

Section 1.2. Rules of Construction. This Deed of Trust will be interpreted in
accordance with the rules of construction set forth in Exhibit C.

 

ARTICLE 2

GRANTING CLAUSES

 

Section 2.1. Encumbered Property. Borrower irrevocably grants, mortgages,
warrants, conveys, assigns and pledges to Trustee in trust, WITH POWER OF SALE,
and grants to Lender a security interest in, the following property, rights,
interests and estates now or in the future owned or held by Borrower (the
“Property”) for the uses and purposes set forth in this Deed of Trust
(capitalized terms used in this Section 2.1 and not otherwise defined in this
Deed of Trust have the meaning ascribed to them in the Uniform Commercial Code):

 

  (i) the Land;

 

  (ii) all buildings and improvements located on the Land (the “Improvements”);

 

  (iii) all easements; rights of way or use, including any rights of ingress and
egress; streets, roads, ways, sidewalks, alleys and passages; strips and gores;
sewer rights; water, water rights, water courses, riparian rights and drainage
rights; air rights and development rights; oil and mineral rights; and
tenements, hereditaments and appurtenances, in each instance adjoining or
otherwise appurtenant to or benefitting the Land or the Improvements;

 

  (iv) all materials intended for construction, re-construction, alteration or
repair of the Improvements, such materials to be deemed included in the Land and
the Improvements immediately on delivery to the Land; all fixtures and personal
property that are attached to, contained in or used in connection with the Land
or the Improvements (excluding personal property owned by tenants), including:
furniture; furnishings; machinery; motors; elevators; fittings; microwave ovens;
refrigerators; office systems and equipment; plumbing, heating, ventilating and
air conditioning systems and equipment; maintenance and landscaping equipment;
lighting, cooking, laundry, dry cleaning, refrigerating, incinerating and
sprinkler systems and equipment; telecommunications systems and equipment;
computer or word processing systems and equipment; security systems and
equipment; all Goods, including Fixtures, Equipment and Consumer Goods attached
to, contained in or used in connection with the Land or the Improvements
(excluding personal property owned by Tenants); and equipment leases for any of
the property described in this subsection (the “Fixtures and Personal
Property”);

 

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  (v) all agreements, ground leases, grants of easements or rights-of-way,
permits, declarations of covenants, conditions and restrictions, disposition and
development agreements, planned unit development agreements, cooperative,
condominium or similar ownership or conversion plans, management, leasing,
brokerage or parking agreements or other material documents affecting Borrower
or the Land, the Improvements or the Fixtures and Personal Property, expressly
excluding the Leases (the “Property Documents”);

 

  (vi) all Inventory (including all Goods, merchandise, raw materials,
incidentals, office supplies and packaging materials) held for sale, lease or
resale or furnished or to be furnished under contracts of service, or used or
consumed in the ownership, use or operation of the Land, the Improvements or the
Fixtures and Personal Property, all Documents of title evidencing any part of
any of the foregoing and all returned or repossessed Goods arising from or
relating to any sale or disposition of Inventory;

 

  (vii) all General Intangibles relating to the Land, the Improvements or the
Fixtures and Personal Property, including choses in action and causes of action
(except those personal to Borrower), corporate and other business records,
Software, inventions, designs, promotional materials, blueprints, plans,
specifications, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, claims for
refunds or rebates of taxes, insurance surpluses, refunds or rebates of taxes
and any letter of credit, guarantee, claim, security interest or other security
held by or granted to Borrower to secure payment by an account debtor of any of
the accounts of Borrower arising out of the ownership, use or operation of the
Land, the Improvements or the Fixtures and Personal Property, and documents
covering all of the foregoing; all accounts, accounts receivable, documents,
instruments, money, deposit accounts, funds deposited in accounts established
with a bank, savings and loan association, trust company or other financial
institution in connection with the ownership, use or operation of the Land, the
Improvements or the Fixtures and Personal Property, including any reserve
accounts or escrow accounts, and all investments of the funds and other General
Intangibles;

 

  (viii) all awards and other compensation paid after the date of this Deed of
Trust for any Condemnation (the “Condemnation Awards”);

 

  (ix) all proceeds of and all unearned premiums on the Policies arising from or
relating to the Property (the “Insurance Proceeds”);

 

  (x) all licenses, certificates of occupancy, contracts, management agreements,
operating agreements, operating covenants, franchise agreements, permits and
variances relating to the Land, the Improvements or the Fixtures and Personal
Property;

 

  (xi) all books, records and other information, wherever located, which are in
Borrower’s possession, custody or control or to which Borrower is entitled at
law

 

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or in equity and which are related to the Property, including all computer or
other equipment used to record, store, manage, manipulate or access the
information;

 

  (xii) all deposits held from time to time by the Accumulations Depositary to
provide reserves for Taxes and Assessments, together with interest thereon, if
any (the “Accumulations”), and the account or accounts in which such deposits
are or may be held;

 

  (xiii) without limiting the above, all Goods, Accounts, Documents,
Instruments, Money, Deposit Accounts, Chattel Paper, Letter-of-Credit Rights,
Investment Property, General Intangibles and Supporting Obligations in any way
relating to any of the property described in this Section (including the design,
development, construction, improvement, equipping, furnishing, use, operation,
management, occupancy, financing or sale thereof); and

 

  (xiv) all after-acquired title to or remainder or reversion in any of the
property described in this Section; all Proceeds (excluding, however, sales or
other dispositions of Inventory in the ordinary course of the business of
operating the Land or the Improvements), replacements, substitutions, products,
accessions and increases within any one or more of the following types of
collateral: Goods, Equipment, Inventory, Instruments, Chattel Paper,
Letter-of-Credit Rights, Documents, Accounts, Deposit Accounts or General
Intangibles, all additions, accessions, and extensions to, improvements of and
substitutions or replacements in each case for any of the Property described in
this Section; and any and all additional lands, estates, interests, rights or
other property acquired by Borrower after the date of this Deed of Trust for use
in connection with the Land and Improvements, all without the need for any
additional mortgage, assignment, pledge or conveyance to Lender but Borrower
will execute and deliver to Lender, upon Lender’s request, any documents
reasonably requested by Lender to further evidence the foregoing.

 

Section 2.2. Habendum Clause. [Intentionally Deleted]

 

Section 2.3. Security Agreement.

 

(a) The Property includes both real and personal property and this Deed of Trust
is a real property deed of trust and also a “security agreement” and a
“financing statement” within the meaning of the Uniform Commercial Code. By
executing and delivering this Deed of Trust, Borrower grants to Lender, as
security for the Obligations, a security interest in the Property to the full
extent that any of the Property may be subject to the Uniform Commercial Code.

 

(b) Borrower desires and intends that this Deed of Trust also constitute a
Fixture Filing between Borrower as debtor and Lender as secured party, as
defined in Section 9102 of the California Commercial Code. To this end, Borrower
acknowledges that (i) this Deed of Trust covers goods which are or are to become
fixtures on the Land; (ii) this Deed of Trust is to be recorded; (iii) Borrower
is the record owner of such property; and (iv) products of collateral are also
covered. Except as otherwise provided in the Loan Documents and subject to any

 

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Permitted Exceptions and Permitted Liens, no financing statement in favor of any
secured party other than Lender covering the personal property described herein
or any portion thereof is on file in any public office. Borrower will not remove
or permit the removal of the collateral or any part thereof without the prior
written permission of Lender, provided that obsolete and worn-out articles may
be removed concurrently with the replacement or renewal thereof with property of
at least equal value or usefulness in the operation of the Property without
Lender’s consent. This Deed of Trust constitutes a fixture filing statement
under the Laws of the State of California and for that purpose, (x) the
following information is set forth, and (y) Borrower represents that the
following information set forth in clauses (i), (v) and (vi) is true and
correct:

 

  (i) The exact legal name and address of Debtor is: Kilroy Realty, L.P., 11220
West Olympic Boulevard, Suite 200, Los Angeles, CA, 90064.

 

  (ii) Name and address of Secured Party: Teachers Insurance and Annuity
Association of America, 730 Third Avenue, New York, NY, 10017.

 

  (iii) Description of the types (or items) of property covered by this
Financing Statement: all of the property described in subsections

 

  (ii) through (xiv), inclusive, of the Section entitled “Encumbered Property”
described or referred to herein and included as part of the Property.

 

  (iv) Description of real estate to which collateral is attached or upon which
it is located: Described in Exhibit A.

 

  (v) Federal Identification Number of Debtor: 95-4612685.

 

  (vi) Debtor’s chief executive office is located in the State of California,
and Debtor’s state of organization is the State of Delaware.

 

Section 2.4. Conditions to Grant. This Deed of Trust is made on the express
condition that if Borrower pays and performs the Obligations in full in
accordance with the Loan Documents, then unless expressly provided otherwise in
the Loan Documents, the Loan Documents will be released at Borrower’s expense.

 

ARTICLE 3

OBLIGATIONS SECURED

 

Section 3.1. The Obligations. This Deed of Trust secures the Principal, the
Interest, the Late Charges, the Prepayment Premiums, the Expenses, any
additional advances made by Lender in connection with the Property or the Loan
and all other amounts payable under the Loan Documents (the “Debt”) and also
secures both the timely payment of the Debt as and when required and the timely
performance of all other obligations and covenants to be performed under the
Loan Documents (such payment and performance, collectively, the “Obligations”).
Notwithstanding any other provision herein to the contrary, this Deed of Trust
does not secure any separate environmental indemnity provided to Lender in
connection with the Loan.

 

5

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ARTICLE 4

TITLE AND AUTHORITY

 

Section 4.1. Title to the Property.

 

(a) Subject to the conveyance effectuated by this Deed of Trust, Borrower has
and will continue to have good and marketable title in fee simple absolute to
the Land and the Improvements and good and marketable title to the Fixtures and
Personal Property, all free and clear of liens, encumbrances and charges except
the Permitted Exceptions and Permitted Liens. To Borrower’s knowledge, there are
no facts or circumstances that might give rise to a lien, encumbrance or charge
on the Property that is not a Permitted Exception or Permitted Lien.

 

(b) Borrower owns and will continue to own all of the other Property free and
clear of all liens, encumbrances and charges except the Permitted Exceptions and
Permitted Liens.

 

(c) This Deed of Trust is and will remain a valid and enforceable first lien on
and security interest in the Property, subject only to the Permitted Exceptions
and Permitted Liens.

 

Section 4.2. Authority.

 

(a) Borrower is and will continue to be (i) duly organized, validly existing and
in good standing under the Laws of the State of Delaware and (ii) duly qualified
to conduct business, in good standing, in the State of California.

 

(b) Borrower has and will continue to have all approvals required by Law or
otherwise and full right, power and authority to (i) own and operate the
Property and carry on Borrower’s business as now conducted or as proposed to be
conducted; (ii) execute and deliver the Loan Documents; (iii) grant, mortgage,
warrant the title to, convey, assign and pledge the Property to Lender pursuant
to the provisions of this Deed of Trust; and (iv) perform the Obligations.

 

(c) The execution and delivery of the Loan Documents and the performance of the
Obligations do not and will not conflict with or result in a default under any
Laws or any Leases or Property Documents and do not and will not conflict with
or result in a default under any agreement binding upon Borrower.

 

(d) The Loan Documents constitute and will continue to constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms.

 

(e) Borrower has not changed its legal name or the state of organization, as set
forth in Section 2.3, in the four (4) months prior to the date hereof, except as
Borrower has disclosed any such change to Lender in writing and delivered to
Lender appropriate Uniform Commercial Code search reports in connection
therewith.

 

(f) Borrower has not (i) merged with or into any other entity or otherwise been
involved in any reorganization or (ii) acquired substantially all of the assets
of any other entity where Borrower became subject to the obligations of such
entity, in each case for a period of one

 

6

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year ending on the date hereof, except as Borrower has disclosed any such
change, merger, reorganization or acquisition to Lender in writing and delivered
to Lender appropriate Uniform Commercial Code search reports in connection
therewith.

 

Section 4.3. No Foreign Person. Borrower is not a “foreign person” within the
meaning of Section 1445(f)(3) of the Code.

 

Section 4.4. Litigation. There are no Proceedings (other than Proceedings the
defense of which, and any liability potentially arising from which, is covered
by insurance) or, to Borrower’s knowledge, investigations against or affecting
Borrower or the Property and, to Borrower’s knowledge, there are no facts or
circumstances that Borrower has any reason to expect might give rise to a
Proceeding or an investigation against or affecting Borrower or the Property.
Borrower will give Lender prompt notice of the commencement of any Proceeding or
investigation against or affecting the Property or Borrower which could have a
material adverse effect on the Property or on Lender’s interests in the Property
or under the Loan Documents. Borrower also will deliver to Lender such
additional information relating to the Proceeding or investigation as Lender may
request from time to time.

 

ARTICLE 5

PROPERTY STATUS, MAINTENANCE AND LEASES

 

Section 5.1. Status of the Property.

 

(a) Borrower has obtained and will maintain in full force and effect all
certificates, licenses, permits and approvals that are issued or required by Law
or by any entity having jurisdiction over the Property or over Borrower or that
are necessary for the Permitted Use, for occupancy and operation of the Property
for the conveyance described in this Deed of Trust and for the conduct of
Borrower’s business on the Property in accordance with the Permitted Use.

 

(b) The Property is and will continue to be serviced by all public utilities
required for the Permitted Use of the Property.

 

(c) All roads and streets necessary for service of and access to the Property
for the current or contemplated use of the Property have been completed and are,
and to the best of Borrower’s knowledge will continue to be, serviceable,
physically open and dedicated to and accepted by the Government for use by the
public.

 

(d) The Property is free from damage caused by a Casualty.

 

(e) All costs and expenses of labor, materials, supplies and equipment used in
the construction of the Improvements and due and owing as of the date hereof
have been paid in full.

 

Section 5.2. Maintenance of the Property. Borrower will maintain the Property in
thorough repair and good and safe condition, subject to ordinary wear and tear,
suitable for the Permitted Use, including, to the extent necessary, replacing
the Fixtures and Personal Property with property at least equal in quality and
condition to that being replaced and free of liens other than Permitted
Exceptions and Permitted Liens. Borrower will not erect any new buildings,
building additions or other structures on the Land or otherwise materially alter
the Improvements

 

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without Lender’s prior consent which may be withheld in Lender’s sole
discretion. In the event Borrower does not manage the Property directly, the
Property will be managed by a property manager satisfactory to Lender pursuant
to a management agreement satisfactory to Lender and terminable by Borrower upon
30 days’ notice to the property manager.

 

Section 5.3. Change in Use. Borrower will use and permit the use of the Property
for the Permitted Use and for no other purpose.

 

Section 5.4. Waste. Borrower will not, without Lender’s prior consent which may
be withheld in Lender’s sole discretion, (i) commit or permit any waste
(excluding economic and non-physical waste), impairment or deterioration of the
Property or any alteration, demolition or (except as may be permitted by the
provisions of this Deed of Trust) removal of any of the Property, or (ii)
commit, or permit any of Borrower’s agents to commit, any economic or
non-physical waste.

 

Section 5.5. Inspection of the Property. Subject to the rights of tenants under
the Leases, Lender and its agents, attorneys, employees and contractors have the
right to enter and inspect the Property on reasonable prior notice, during
regular business hours, except during the existence of an Event of Default, when
no prior notice is necessary. Borrower shall cooperate in such entries and
inspections as Lender may request. Lender has the right to engage an independent
expert to review and report on Borrower’s compliance with Borrower’s obligations
under this Deed of Trust to maintain the Property, comply with Law and refrain
from waste, impairment or deterioration of the Property and the alteration,
demolition or removal of any of the Property except as may be permitted by the
provisions of this Deed of Trust. If the independent expert’s report discloses
material failure to comply with such obligations or if Lender engages the
independent expert after the occurrence of an Event of Default, then the
independent expert’s review and report will be at Borrower’s expense, payable on
demand.

 

Section 5.6. Leases and Rents.

 

(a) Borrower assigns the Leases and the Rents to Lender absolutely and
unconditionally and not merely as additional collateral or security for the
payment and performance of the Obligations, but subject to a license back to
Borrower of the right to collect, receive and use the Rents unless and until an
Event of Default occurs at which time the license will terminate automatically,
all as more particularly set forth in the Assignment, the provisions of which
are incorporated in this Deed of Trust by reference.

 

(b) Borrower appoints Lender as Borrower’s attorney-in-fact to execute
unilaterally and record, at Lender’s election, a document subordinating this
Deed of Trust to the Leases, provided that the subordination will not affect (i)
the priority of Lender’s entitlement to Insurance Proceeds or Condemnation
Awards or (ii) the priority of this Deed of Trust over intervening liens or
liens arising under or with respect to the Leases.

 

Section 5.7. Parking. Borrower will provide, maintain, police and light parking
areas within the Property, including any sidewalks, aisles, streets, driveways,
sidewalk cuts and rights-of-way to and from the adjacent public streets, in a
manner consistent with the Permitted Use and sufficient to accommodate, for the
exclusive use of the Property and that certain adjacent

 

8

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property described as “Parcel K” (and also referred to as Parcel 5 of Parcel Map
18350) (the “Adjacent Office Building Parcel”) in that certain “Agreement
between Landowners including Covenants, Conditions and Restrictions and Grants
of Easements for Carmel Center and Including Amendment and Restatement of Former
Declaration and Termination of Prior Grants of Easements” recorded in the
Official Records of San Diego County on March 25, 2002 as Document No.
2002-0245385 (as amended, the “CC&R’s”), the greatest of: (i) the number of
parking spaces required by Law; (ii) the number of parking spaces required by
the Leases and the Property Documents; or (iii) a number of parking spaces equal
to the product of (x) 3.5 multiplied by (y) the aggregate number of square feet
of gross floor area on the Property and on the Adjacent Office Building Parcel
divided by 1,000; provided that, Borrower may make 125 of the parking spaces on
the Property available for the use of Parcels C & D to the extent required under
(and as defined in) the CC&R’s (which right shall in no event be deemed as
limiting Borrower’s obligation to provide the minimum number of spaces set forth
in clauses (i), (ii) and (iii) above). In furtherance and not in limitation of
the foregoing, in no event shall Borrower consent to, or permit, any restriction
on the use of the parking spaces located on the Property that makes a
disproportionately large number of parking spaces (based on the number of square
feet of gross floor area) available to users of the Adjacent Office Building
Parcel (or, in the event any portion of the Property is at any time released
from the lien of this Deed of Trust, to users of such released portion of the
Property). The parking areas will be reserved and used exclusively for ingress,
egress and parking for Borrower and the tenants under the Leases and their
respective employees, customers and invitees and in accordance with the Leases
and the Property Documents.

 

Section 5.8. Separate Tax Lot. The Property is and will remain assessed for real
estate tax purposes as one or more wholly independent tax lots, separate from
any property that is not part of the Property.

 

Section 5.9. Changes in Zoning or Restrictive Covenants. Borrower will not (i)
initiate, join in or consent to any change in any Laws pertaining to zoning, any
restrictive covenant or other restriction which would restrict the Permitted
Uses for the Property; (ii) permit the Property to be used to fulfill any
requirements of Law for property that is not part of the Property, including any
such requirements for the construction or maintenance of any improvements on or
for the benefit of property that is not part of the Property; (iii) permit the
Property to be used for any purpose not included in the Permitted Use; or (iv)
impair the integrity of the Property as a single, legally subdivided zoning lot
separate from all other property.

 

Section 5.10. Lender’s Right to Appear. Lender has the right to appear in and
defend any Proceeding brought regarding the Property and to bring any
Proceeding, in the name and on behalf of Borrower or in Lender’s name, which
Lender, in its sole discretion, determines should be brought to protect Lender’s
interest in the Property.

 

ARTICLE 6

IMPOSITIONS AND ACCUMULATIONS

 

Section 6.1. Impositions.

 

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(a) Subject to Borrower’s right to contest Taxes and Assessments as provided
below, Borrower will pay each Imposition before the date (the “Imposition
Penalty Date”) that is the earlier of (i) the date on which the Imposition
becomes delinquent and (ii) the date on which any penalty, interest or charge
for non-payment of the Imposition accrues.

 

(b) Borrower, at its own expense, may contest any Imposition, provided that the
following conditions are met:

 

  (i) not less than 30 days prior to the Imposition Penalty Date, Borrower
delivers to Lender notice of the proposed contest;

 

  (ii) the contest is by a Proceeding promptly initiated and conducted
diligently and in good faith;

 

  (iii) there is no Event of Default;

 

  (iv) the Proceeding suspends the collection and enforcement of the contested
Taxes or Assessments;

 

  (v) the Proceeding is permitted under and is conducted in accordance with the
Leases and the Property Documents;

 

  (vi) Lender does not reasonably believe that, as a result of such contest or
the non-payment of an Imposition during the pendency of such contest, (A)
Borrower may be subject to the imposition of criminal or civil penalties, (B)
the Property may be subject to sale or forfeiture, or (C) Lender may be subject
to any civil suit; and

 

  (vii) Borrower either deposits with the Accumulations Depositary reserves or
furnishes a bond or other security satisfactory to Lender, in either case in an
amount sufficient to pay the contested Taxes or Assessments, together with all
interest and penalties or Borrower pays all of the contested Taxes or
Assessments under protest.

 

Section 6.2. Installment Payments. If any Assessment is billed separately from
the Taxes and is payable in installments, Borrower will nevertheless pay the
Assessment in its entirety on the day the first installment becomes due and
payable or a lien, unless Lender approves payment of the Assessment in
installments.

 

Section 6.3. Accumulations.

 

(a) Borrower has made or shall make an initial deposit with either Lender or a
mortgage servicer or financial institution designated or approved by Lender from
time to time (Lender, or such mortgage servicer or financial institution, as
applicable, the “Accumulations Depositary”), acting on behalf of Lender as
Lender’s agent or otherwise such that Lender is the “customer”, as defined in
the Uniform Commercial Code, of the depository bank with respect to the deposit
account into which the Accumulations are deposited, to receive, hold and
disburse the Accumulations in accordance with this Section and a Real Estate Tax
Pledge and Security Agreement of even date herewith (the “Impound Agreement”).
On the first Business Day of

 

10

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each calendar month commencing on the first date specified in Section 1(a)(i) of
the Note, Borrower will deposit with the Accumulations Depositary an amount
equal to one-twelfth of the annual Taxes and Assessments as determined by Lender
or its designee. Borrower will deliver to the Accumulations Depositary any bills
and other documents that are necessary to pay the Taxes and Assessments, and
will do so sufficiently in advance of the Imposition Penalty Date that the
payments will be made timely by the Accumulations Depositary as required by this
Deed of Trust and the Impound Agreement. Borrower will deliver to Lender copies
of all bills for Taxes and/or Assessments within 30 days of Borrower’s receipt
thereof.

 

(b) The Accumulations will be applied to the payment of Taxes and Assessments.
Any excess Accumulations after payment of Taxes and Assessments and not applied
by Lender to the Debt will remain on deposit with the Accumulations Depositary,
and will be taken into account by Lender in determining the amounts required to
be deposited by Borrower with the Accumulations Depositary pursuant to the
Impound Agreement. If the Accumulations are not sufficient to pay Taxes and
Assessments, Borrower will pay the deficiency to the Accumulations Depositary
within the time periods specified in the Impound Agreement.

 

(c) The Accumulations Depositary will hold the Accumulations as security for the
Obligations until applied in accordance with the provisions of this Deed of
Trust and the Impound Agreement. If Lender is not the Accumulations Depositary,
the Accumulations Depositary will deliver the Accumulations to Lender upon
Lender’s demand at any time after an Event of Default.

 

(d) If the Property is sold or conveyed other than by foreclosure or transfer in
lieu of foreclosure, and any portion of the indebtedness secured hereby remains
outstanding after such sale or conveyance, then all right, title and interest of
Borrower in and to the Accumulations will automatically, and without necessity
of further assignment, be held for the account of the new owner, subject to the
provisions of this Section, and Borrower will have no further interest in the
Accumulations.

 

(e) The Accumulations Depositary has deposited the initial deposit and will
deposit any monthly deposits into a separate interest bearing account with
Lender denominated as secured party, all in accordance with the Impound
Agreement.’

 

(f) At any time after an Event of Default has occurred, Lender has the right to
pay, or to direct the Accumulations Depositary to pay, any Taxes or Assessments
unless Borrower is contesting the Taxes or Assessments in accordance with the
provisions of this Deed of Trust, in which event any payment of the contested
Taxes or Assessments will be made under protest in the manner prescribed by Law
or, at Lender’s election, will be withheld.

 

(g) If Lender assigns this Deed of Trust, Lender will pay, or cause the
Accumulations Depositary to pay, the unapplied balance of the Accumulations to
or at the direction of the assignee. Simultaneously with the payment, Lender and
the Accumulations Depositary will be released from all liability with respect to
the Accumulations and Borrower will look solely to the assignee with respect to
the Accumulations. When the Obligations have been fully satisfied, any unapplied
balance of the Accumulations will be returned to Borrower. At any time after an

 

11

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Event of Default occurs, Lender may apply the Accumulations as a credit against
any portion of the Debt selected by Lender in its sole discretion.

 

Section 6.4. Changes in Tax Laws. If a Law requires the deduction of the Debt
from the value of the Property for the purpose of taxation or imposes a tax,
either directly or indirectly, on the Debt, any Loan Document or Lender’s
interest in the Property, Borrower will pay the tax with interest and penalties,
if any. If Lender determines, based on an opinion of counsel, that Borrower’s
payment of the tax may be unlawful, unenforceable, usurious or taxable to
Lender, the Debt will become immediately due and payable on 60 days’ prior
notice unless the tax must be paid within the 60-day period, in which case the
Debt will be due and payable within such lesser period.

 

ARTICLE 7

INSURANCE, CASUALTY, CONDEMNATION

AND RESTORATION

 

Section 7.1. Insurance Coverages.

 

(a) Borrower will maintain such insurance coverages and endorsements in form and
substance and in amounts as Lender may require, in its sole discretion, from
time to time. Until Lender notifies Borrower of changes in Lender’s
requirements, Borrower will maintain not less than the insurance coverages and
endorsements Lender required for closing of the Loan. In furtherance and not in
limitation of the foregoing, until such time as all amounts payable by Borrower
under the Loan Documents have been paid in full, Borrower shall at all times
carry:

 

  (i) earthquake insurance covering the Property in amount equal to or greater
than the “probable maximum loss,” as determined by Lender’s consultant,
multiplied by the insurable value of the Property; provided that, if the cost of
such earthquake insurance exceeds, in any year, an amount equal to 133% of the
cost of such earthquake insurance for the immediately preceding year, then the
foregoing minimum coverage amount applicable to the Property shall not apply,
and Borrower shall instead be required to carry earthquake insurance covering
all properties owned by Borrower at such time, on a blanket basis, in an amount
equal to or greater than the least of: (1) $25,000,000 (with such amount to be
adjusted by Lender, in its reasonable discretion, for inflation), (2) that
amount of coverage that can be purchased for an amount equal to 133% of the cost
of such insurance for the immediately preceding year, and (3) such other amount
as Borrower and Lender may mutually agree upon, in writing; and

 

  (ii) terrorism insurance covering the Property and insuring “certified
terrorism acts” (as defined in the Terrorism Risk Insurance Act of 2002);
provided that, (A) Borrower shall not be required to carry terrorism insurance
with respect to the Property if such insurance is not commercially available, in
any year, for a premium amount that is less than or equal to 33% of the
aggregate amount of the Allocable Insurance Premium Amount (excluding that
portion of such amount attributable to earthquake insurance).

 

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(b) The insurance, including renewals, required under this Section will be
issued on valid and enforceable policies and endorsements satisfactory to Lender
(the “Policies”). Each Policy will contain a standard waiver of subrogation
(where applicable) and a replacement cost endorsement and will provide that
Lender will receive not less than 30 days’ prior written notice of any
cancellation, termination or non-renewal of a Policy or any material change
other than an increase in coverage and that Lender will be named under a
standard mortgagee endorsement as loss payee.

 

(c) The insurance companies issuing the Policies (the “Insurers”) must be
authorized to do business in the State of California, must have been in business
for at least 5 years, must carry an A.M. Best Company, Inc. policy holder rating
of A or better and an A.M. Best Company, Inc. financial category rating of Class
X (or, with respect to providers of earthquake insurance only, Class VIII) or
better and must be otherwise satisfactory to Lender. Lender may select an
alternative credit rating agency and may impose different credit rating
standards for the Insurers. Notwithstanding Lender’s right to approve the
Insurers and to establish credit rating standards for the Insurers, Lender will
not be responsible for the solvency of any Insurer.

 

(d) Notwithstanding Lender’s rights under this Article, Lender will not be
liable for any loss, damage or injury resulting from the inadequacy or lack of
any insurance coverage.

 

(e) Borrower will comply with the provisions of the Policies and with the
requirements, notices and demands imposed by the Insurers and applicable to
Borrower or the Property.

 

(f) Borrower will pay the Insurance Premiums for each Policy not less than 30
days before the expiration date of the Policy being replaced or renewed and will
deliver to Lender an original or, if a blanket policy, a certified copy of each
Policy marked “Paid” not less than 15 days prior to the expiration date of the
Policy being replaced or renewed; provided, however, that if an Insurer permits
payment of the Insurance Premium on a Policy in installments, Borrower may elect
to pay in installments, in which event Borrower will timely pay each such
installment when due and will deliver to Lender, not more than 30 days after
payment of the first such installment, the Insurer’s written acknowledgment of
receipt of payment of such installment together with a schedule of all
installment amounts and due dates.

 

(g) Borrower will not carry separate insurance concurrent in kind or form or
contributing in the event of loss with any other insurance carried by Borrower.

 

(h) Borrower will not carry any of the insurance required under this Section on
a blanket or umbrella policy without in each instance Lender’s prior approval.
If Lender approves, Borrower will deliver to Lender a certified copy of the
blanket policy which will allocate to the Property the amount of coverage
required under this Section and otherwise will provide the same coverage and
protection as would a separate policy insuring only the Property.

 

(i) Borrower will give the Insurers prompt notice of any change in ownership or
occupancy of the Property. This subsection does not abrogate the prohibitions on
transfers set forth in this Deed of Trust.

 

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(j) If the Property is sold at a foreclosure sale or otherwise is transferred so
as to extinguish the Obligations, all of Borrower’s right, title and interest in
and to the Policies then in force will be transferred automatically to the
purchaser or transferee.

 

Section 7.2. Casualty and Condemnation.

 

(a) Upon recordation of this Deed of Trust and periodically thereafter as may be
necessary, Borrower will instruct the Insurers in writing to give written notice
to Lender of each claim relating to the Property that is made under a Policy
promptly after such claim is made. Borrower will give Lender notice of any
Casualty as to which the cost of Restoration would exceed $25,000 and for which
a claim will not be made under a Policy, immediately after such Casualty occurs,
and will give Lender notice of any Condemnation Proceeding immediately after
Borrower receives notice of commencement or notice that such a Condemnation
Proceeding will be commencing. Borrower immediately will deliver to Lender
copies of all documents Borrower delivers or receives relating to the Casualty
or the Condemnation Proceeding, as the case may be.

 

(b) Borrower authorizes Lender, at Lender’s option, to act on Borrower’s behalf
to collect, adjust and compromise any claims for loss, damage or destruction
under the Policies on such terms as Lender determines in Lender’s sole
discretion. Borrower authorizes Lender to act, at Lender’s option, on Borrower’s
behalf in connection with any Condemnation Proceeding. Borrower will execute and
deliver to Lender all documents requested by Lender and all documents as may be
required by Law to confirm such authorizations. Nothing in this Section will be
construed to limit or prevent Lender from joining with Borrower either as a
co-defendant or as a co-plaintiff in any Condemnation Proceeding.

 

(c) If Lender elects not to act on Borrower’s behalf as provided in this
Section, then Borrower promptly will, diligently, in good faith and in a
commercially reasonable manner, file and prosecute all claims (including
Lender’s claims) relating to the Casualty and will prosecute or defend
(including defense of Lender’s interest) any Condemnation Proceeding. Borrower
will have the authority to settle or compromise the claims or Condemnation
Proceeding, as the case may be, provided that Lender has approved in Lender’s
sole discretion any compromise or settlement that exceeds the then-applicable
Destruction Event Threshold. If a check for Insurance Proceeds or Condemnation
Awards, as the case may be (the “Proceeds”), is in payment of all or any part of
a Casualty claim or a Condemnation Award which is in excess of the
then-applicable Destruction Event Threshold (irrespective of whether such check
is itself in excess of such Destruction Event Threshold), such check will be
made payable to Lender and Borrower. Borrower will endorse any such check to
Lender immediately upon Lender presenting the check to Borrower for endorsement
or, if Borrower receives the check first, will endorse the check immediately
upon receipt and forward it to Lender. If any Proceeds are paid to Borrower in
payment of all or any part of a Casualty claim or Condemnation Award which is in
excess of the then-applicable Destruction Event Threshold (irrespective of
whether such Proceeds are themselves in excess of such Destruction Event
Threshold), Borrower immediately will deposit the entire Proceeds with Lender,
to be applied or disbursed in accordance with the provisions of this Deed of
Trust. Lender will be responsible for only the Proceeds actually received by
Lender.

 

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Section 7.3. Application of Proceeds. After deducting the costs incurred by
Lender in collecting the Proceeds, Lender may, in its sole discretion, (i) apply
the Proceeds as a credit against any portion of the Debt selected by Lender in
its sole discretion; (ii) apply the Proceeds to restore the Improvements,
provided that Lender will not be obligated to see to the proper application of
the Proceeds, and provided further that any amounts released for Restoration
will not be deemed a payment on the Debt; or (iii) deliver the Proceeds to
Borrower.

 

Section 7.4. Conditions to Availability of Proceeds for Restoration.
Notwithstanding the preceding Section, after a Casualty or a Condemnation (a
“Destruction Event”), Lender will make the Proceeds (less any costs incurred by
Lender in collecting the Proceeds) available for Restoration in accordance with
the conditions for disbursements set forth in the Section entitled
“Restoration”, provided that the following conditions are met:

 

  (i) Kilroy Realty, L.P., a Delaware limited partnership, or the transferee
under a Permitted Transfer, if any, continues to be Borrower at the time of the
Destruction Event and at all times thereafter until the Proceeds have been fully
disbursed;

 

  (ii) no Event of Default exists at the time of the Destruction Event and no
Event of Default has occurred during the 12 months prior to the Destruction
Event;

 

  (iii) all Leases in effect immediately prior to the Destruction Event and all
Property Documents in effect immediately prior to the Destruction Event that are
essential to the use and operation of the Property continue in full force and
effect notwithstanding the Destruction Event;

 

  (iv) if the Destruction Event is a Condemnation, Borrower delivers to Lender
evidence satisfactory to Lender that the Improvements can be restored to an
economically and architecturally viable unit;

 

  (v) Borrower delivers to Lender evidence satisfactory to Lender that the
Proceeds are sufficient to complete Restoration or, if the Proceeds are
insufficient to complete Restoration, Borrower first (A) deposits with Lender
funds (“Additional Funds”) that when added to the Proceeds will be sufficient to
complete Restoration (and Lender shall maintain the Additional Funds in an
interest-bearing account under a disbursement and security agreement
satisfactory to Lender), or (B) delivers an unconditional irrevocable clean
sight draft letter of credit in commercially reasonable form in such amount;

 

  (vi) if the Destruction Event is a Casualty, Borrower delivers to Lender
evidence satisfactory to Lender that the Insurer under each affected Policy has
not denied liability under the Policy as to Borrower or the insured under the
Policy;

 

  (vii) Lender is satisfied that the proceeds of any business interruption
insurance in effect together with other available gross revenues from the
Property are sufficient to pay Debt Service Payments on the Note after paying
the Impositions, Allocable Insurance Premium Amount, reasonable and customary
operating expenses and capital expenditures until Restoration is complete;

 

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  (viii) Lender is satisfied that Restoration will be completed on or before the
date (the “Restoration Completion Date”) that is the earliest of: (A) 12 months
prior to the Maturity Date; (B) 12 months after the Destruction Event; (C) the
earliest date required for completion of Restoration under any Lease or any
Property Document; or (D) any date required by Law; and

 

  (ix) the annual Rents (excluding security deposits) under Leases in effect on
the date of the Destruction Event are providing a debt service coverage ratio
for the annual Debt Service Payments on the Note of 1.15:1.0 after payment of
the annual Allocable Insurance Premium Amount, and annual Impositions and
operating expenses of the Property (including ground rent, if any), provided
that, if the Rents do not provide such debt service coverage, then Borrower
expressly authorizes and directs Lender to apply an amount from the Proceeds to
reduction of the principal amount of the Note in order to reduce the annual Debt
Service Payments on the Note sufficiently for such debt service coverage to be
achieved. The reduction of the Debt Service Payments will be calculated using
the Fixed Interest Rate, and an amortization schedule that will achieve the same
proportionate amortization of the reduced principal amount of the Note over the
then remaining Term as would have been achieved if the principal amount of the
Note and the originally scheduled Debt Service Payments on the Note had not been
reduced. Borrower will execute any documentation that Lender deems reasonably
necessary to evidence the reduced principal amount and debt service payments of
the Note.

 

Section 7.5. Restoration.

 

(a) If the total Proceeds for any Destruction Event are less than the
then-applicable Destruction Event Threshold and Lender elects or is obligated by
Law or under this Article to make the Proceeds available for Restoration, Lender
will promptly disburse to Borrower the entire amount received by Lender (or will
promptly endorse and deliver to Borrower any check for any such Proceeds which
is payable to Lender and is received by Lender or is presented by Borrower to
Lender for such endorsement) and Borrower will commence Restoration promptly
after the Destruction Event and complete Restoration not later than the
Restoration Completion Date.

 

(b) If the Proceeds for any Destruction Event are in payment of all or any part
of a Casualty claim or Condemnation Award which is in excess of the
then-applicable Destruction Event Threshold (irrespective of whether such
Proceeds are themselves in excess of such Destruction Event Threshold) and
Lender elects or is obligated by Law or under this Article to make the Proceeds
available for Restoration, Lender will disburse all such Proceeds and any
Additional Funds (the “Restoration Funds”) upon Borrower’s request as
Restoration progresses, generally in accordance with normal construction lending
practices for disbursing funds for construction costs, provided that the
following conditions are met:

 

  (i) Borrower commences Restoration promptly after the Destruction Event and
Lender and Borrower (each in its reasonable, good faith judgment) expect that
Restoration will be completed on or before the Restoration Completion Date;

 

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  (ii) if Lender requests, Borrower delivers to Lender prior to commencing
Restoration, for Lender’s approval, plans and specifications and a detailed
budget for the Restoration;

 

  (iii) Borrower delivers to Lender satisfactory evidence of the costs of
Restoration incurred prior to the date of the request, and such other documents
as Lender may request, including mechanics’ lien waivers and title insurance
endorsements;

 

  (iv) Borrower pays all costs of Restoration whether or not the Restoration
Funds are sufficient and, if at any time during Restoration, Lender determines
that the undisbursed balance of the Restoration Funds is insufficient to
complete Restoration, Borrower deposits with Lender, as part of the Restoration
Funds, an amount equal to the deficiency within 30 days of receiving notice of
the deficiency from Lender; and

 

  (v) No Event of Default exists (or will result from the requested
disbursement) under the Loan Documents at the time Borrower requests funds or at
the time Lender disburses funds.

 

(c) If an Event of Default occurs at any time after the Destruction Event, then
Lender will have no further obligation to make any remaining Proceeds available
for Restoration and may apply any remaining Proceeds as a credit against any
portion of the Debt selected by Lender in its sole discretion.

 

(d) Lender may elect at any time prior to commencement of Restoration or while
work is in progress to retain, at Borrower’s expense, an independent engineer or
other consultant to review the plans and specifications, to inspect the work as
it progresses and to provide reports. If any matter included in a report by the
engineer or consultant is unsatisfactory to Lender, Lender may suspend
disbursement of the Restoration Funds until the unsatisfactory matters contained
in the report are resolved to Lender’s satisfaction.

 

(e) If Borrower fails to commence and complete Restoration in accordance with
the terms of this Article, then in addition to the Remedies, Lender may elect to
restore the Improvements on Borrower’s behalf and reimburse itself out of the
Restoration Funds for costs and expenses incurred by Lender in restoring the
Improvements, or Lender may apply the Restoration Funds as a credit against any
portion of the Debt selected by Lender in its sole discretion.

 

(f) Lender may commingle the Restoration Funds with its general assets. Lender
will not hold any Restoration Funds in trust. Lender may elect to deposit the
Restoration Funds in an interest-bearing account with a depositary satisfactory
to Lender under a disbursement and security agreement satisfactory to Lender.

 

(g) Borrower will pay all of Lender’s reasonable expenses incurred in connection
with a Destruction Event or Restoration. If Borrower fails to do so, then in
addition to the Remedies, Lender may from time to time reimburse itself out of
the Restoration Funds.

 

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(h) If any excess Proceeds remains after Restoration, Lender may elect, in its
sole discretion, either to apply the excess as a credit against any portion of
the Debt as selected by Lender in its sole discretion or to deliver the excess
to Borrower.

 

ARTICLE 8

COMPLIANCE WITH LAW AND AGREEMENTS

 

Section 8.1. Compliance with Law. Borrower, the Property and the use of the
Property comply and will continue to comply with Law and with all agreements and
conditions necessary to preserve and extend all rights, licenses, permits,
privileges, franchises and concessions (including zoning variances, special
exceptions and non-conforming uses) relating to the Property or Borrower, in
each case the violation of which could be reasonably expected to have a material
adverse effect on Borrower, the Property or Lender’s interests therein. Borrower
will notify Lender of the commencement of any investigation or Proceeding
relating to an alleged violation of Law in connection with the Property or
Borrower immediately after Borrower receives notice thereof and will deliver
promptly to Lender copies of all documents Borrower receives or delivers in
connection with the investigation or Proceeding. Borrower will not alter the
Property in any manner that would increase Borrower’s responsibilities for
compliance with Law.

 

Section 8.2. Compliance with Agreements. There are no defaults, events of
defaults or events which, with the passage of time or the giving of notice,
would constitute an event of default under any material Property Document, which
event of default could be reasonably expected to have a material adverse effect
on Borrower, the Property or Lender’s interests therein. Borrower will pay and
perform all of its obligations under all material Property Documents as and when
required thereby. Borrower will use its commercially reasonable best efforts to
cause all other parties to all material Property Documents to pay and perform
their obligations thereunder as and when required thereby. Borrower will not
amend or waive any material provisions of any material Property Document;
exercise any material options under any material Property Document; give any
approval required or permitted under any material Property Document that would
adversely affect the Property or Lender’s rights and interests under the Loan
Documents; cancel or surrender any material Property Document; or release or
discharge or permit the release or discharge of any party to or entity bound by
any material Property Document, without, in each instance, Lender’s prior
approval (excepting therefrom all service contracts or other agreements entered
into in the normal course of business that are cancelable upon not more than 30
days’ notice), which approval shall not be unreasonably withheld or delayed.
Borrower promptly will deliver to Lender copies of any notices of default or of
termination that Borrower receives or delivers relating to any material Property
Document.

 

Section 8.3. ERISA Compliance.

 

(a) Neither Borrower nor any of Borrower’s constituent entities is or will be an
“employee benefit plan” as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 (“ERISA”) that is subject to Title I of ERISA or a
“plan” as defined in Section 4975(e)(1) of the Code that is subject to Section
4975 of the Code, and none of the assets of Borrower are or will constitute
“plan assets” of one or more such plans for purposes of Title I of ERISA or
Section 4975 of the Code.

 

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(b) Borrower is not and will continue not to be a “governmental plan” within the
meaning of Section 3(32) of ERISA and transactions by or with Borrower are not
and will not be subject to any Laws regulating investments of and fiduciary
obligations with respect to governmental plans.

 

(c) Borrower will not engage in any transaction which would cause any obligation
or any action under the Loan Documents, including Lender’s exercise of the
Remedies, to be a non-exempt prohibited transaction under ERISA.

 

Section 8.4. Anti-Terrorism.

 

  (a) None of Borrower, KRC or (to Borrower’s knowledge without investigation)
their respective constituents or affiliates are in violation of any Laws
relating to terrorism or money laundering, including Executive Order No. 13224
on Terrorist Financing, effective September 24, 2001 and relating to Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism (as amended, the “Executive Order”) and the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (Public Law 107-56, as amended, the “Patriot
Act”).

 

  (b) None of Borrower, KRC, or (to Borrower’s knowledge without investigation)
any of their respective constituents or affiliates, or any of their respective
brokers or other agents acting or benefiting in any capacity in connection with
the Loan, is a “Prohibited Person” which is defined as follows:

 

  (i) a person or entity that is listed in the Annex to, or is otherwise subject
to the provisions of, the Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001 and relating to the Executive Order;

 

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

 

  (iii) a person or entity with whom Lender is prohibited from dealing or
otherwise engaging in any transaction by any terrorism or money laundering Law,
including the Executive Order and the Patriot Act;

 

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

 

  (v) a person or entity that is named as a “specially designated national and
blocked person” on the most current list published

 

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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.

 

  (c) None of Borrower, KRC, or (to Borrower’s knowledge without investigation)
any of their respective affiliates or constituents, or any of their respective
brokers or other agents acting in any capacity in connection with the Loan is or
will knowingly (i) conduct any business or engage in any transaction or dealing
with any Prohibited Person, including the making or receiving any contribution
of funds, goods or services to or for the benefit of any Prohibited Person, (ii)
deal in, or otherwise engage in any transaction relating to, any property or
interests in property blocked pursuant to the Executive Order; or (iii) engage
in or conspire to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in the Executive Order or the Patriot Act.

 

Borrower covenants and agrees to deliver to Lender any certification or other
evidence requested from time to time by Lender in its sole discretion confirming
Borrower’s compliance with this Section 8.4.

 

Section 8.5.   Section 6045(e) Filing. Borrower will supply or cause to be
supplied to Lender either (i) a copy of a completed Form 1099-B, Statement for
Recipients of Proceeds from Real Estate, Broker and Barter Exchange Proceeds
prepared by Borrower’s attorney or other person responsible for the preparation
of the form, together with a certificate from the person who prepared the form
to the effect that the form has, to the best of the preparer’s knowledge, been
accurately prepared and that the preparer will timely file the form; or (ii) a
certification from Borrower that the Loan is a refinancing of the Property or is
otherwise not required to be reported to the Internal Revenue Service pursuant
to Section 6045(e) of the Code. Under no circumstances will Lender or Lender’s
counsel be obligated to file the reports or returns.

ARTICLE 9

ENVIRONMENTAL

 

Section 9.1.   Environmental Representations and Warranties. Except as disclosed
in the Environmental Report and to Borrower’s knowledge as of the date of this
Deed of Trust:

 

  (i) no Environmental Activity has occurred or is occurring on the Property
other than the use, storage, and disposal of Hazardous Substances which (A) is
in the ordinary course of business consistent with the Permitted Use; (B) is in
compliance with all Environmental Laws; and (C) has not resulted in Material
Environmental Contamination of the Property; and

 

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  (ii) no Environmental Activity has occurred or is occurring on any property in
the vicinity of the Property which has resulted in Material Environmental
Contamination of the Property.

 

Section 9.2.   Environmental Covenants.

 

(a) Borrower will not cause or permit any Material Environmental Contamination
of the Property.

 

(b) No Environmental Activity will occur on the Property other than the use,
storage and disposal of Hazardous Substances which (A) is in the ordinary course
of business consistent with the Permitted Use; (B) is in compliance with all
Environmental Laws; and (C) does not create more than a de minimis risk of
Material Environmental Contamination of the Property.

 

(c) Borrower will notify Lender immediately upon Borrower becoming aware of (i)
any Material Environmental Contamination of the Property or (ii) any
Environmental Activity with respect to the Property that is not in accordance
with the preceding subsection (b). Borrower promptly will deliver to Lender
copies of all documents delivered to or received by Borrower regarding the
matters set forth in this subsection, including notices of Proceedings or
investigations concerning any Material Environmental Contamination of the
Property or Environmental Activity affecting or relating to the Property or
concerning Borrower’s status as a potentially responsible party (as defined in
the Environmental Laws) relating to the Property. Borrower’s notification of
Lender in accordance with the provisions of this subsection will not be deemed
to excuse any default under the Loan Documents resulting from the violation of
Environmental Laws or the Material Environmental Contamination of the Property
or Environmental Activity that is the subject of the notice. If Borrower
receives notice of a suspected violation of Environmental Laws in the vicinity
of the Property that poses a risk of Material Environmental Contamination of the
Property, Borrower will give Lender notice and copies of any documents received
relating to such suspected violation.

 

(d) From time to time at Lender’s request, Borrower will deliver to Lender any
information known and documents available to Borrower relating to the
environmental condition of the Property.

 

(e) Lender may perform or engage an independent consultant to perform an
assessment of the environmental condition of the Property and of Borrower’s
compliance with this Section on an annual basis, or at any other time for
reasonable cause, or after an Event of Default. In connection with the
assessment: (i) Lender or consultant may enter and inspect the Property, upon
reasonable notice, during regular business hours, and perform tests of the air,
soil, ground water and building materials; (ii) Borrower will cooperate and use
best efforts to cause tenants and other occupants of the Property to cooperate
with Lender or consultant; (iii) Borrower will receive a copy of any final
report prepared after the assessment, to be delivered to Borrower not more than
10 days after Borrower requests a copy and executes Lender’s standard
confidentiality and waiver of liability letter; (iv) Borrower will accept
custody of and arrange for lawful disposal of any Hazardous Substances required
to be disposed of under Environmental Laws as a result of the tests; (v) Lender
will not have liability to Borrower with respect to the results of the
assessment; and (vi) Lender will not be responsible for any damage to the
Property

 

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resulting from the tests described in this subsection and Borrower will look
solely to the consultants to reimburse Borrower for any such damage. The
consultant’s assessment and reports will be at Borrower’s expense (i) if the
reports disclose any material adverse change in the environmental condition of
the Property from that disclosed in the Environmental Report; (ii) if Lender
engaged the consultant when Lender had reasonable cause to believe Borrower was
not in compliance with the terms of this Article and, after written notice from
Lender, Borrower failed to provide promptly reasonable evidence that Borrower is
in compliance; or (iii) if Lender engaged the consultant after the occurrence of
an Event of Default.

 

(f) If Lender has reasonable cause to believe that there is Environmental
Activity at the Property, Lender may elect in its sole discretion to direct the
Trustee to reconvey any portion of the Property affected by the Environmental
Activity and Borrower will accept the reconveyance.

ARTICLE 10

FINANCIAL REPORTING

Section 10.1.   Financial Reporting.

 

(a) Borrower will deliver to Lender within 105 days after the close of each
Fiscal Year:

 

  (i) an annual financial statement (the “Annual Financial Statement”) for the
Property for the Fiscal Year, consisting of an income and expense statement and
such other information as Lender may require. The Annual Financial Statement
will be:

 

(A) audited by a CPA and accompanied by an opinion of the CPA that, in all
material respects, the Annual Financial Statement fairly presents the financial
position of the Property (provided, however, that prior to the occurrence of any
Event of Default, the Annual Financial Statement may be unaudited (subject to
the provisions of Section 10.1(b) below), if accompanied by a certification of
Borrower and an authorized officer of Kilroy Realty Corporation, a Maryland
corporation (“KRC”), which certification shall state that, in all material
respects, the Annual Financial Statement fairly presents the financial position
of the Property); and

 

(B) separate and distinct from any consolidated statement or report for Borrower
or any other entity or any other property; and

 

  (ii) upon Lender’s request, an annual financial statement for Borrower for the
Fiscal Year, prepared on a consolidated basis with KRC, certified by Borrower
and KRC.

 

(b) Borrower will keep full and accurate Financial Books and Records for each
Fiscal Year. Borrower will permit Lender or Lender’s accountants or auditors to
inspect or audit the Financial Books and Records from time to time and without
notice, during regular business hours, with the amount of all costs and expenses
incurred by Lender in connection with any such

 

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audit that reveals material misstatements in any of the Annual Financial
Statements (including any supporting schedules to such Annual Financial
Statements) to be paid by Borrower to Lender promptly following Lender’s request
therefor. Borrower will maintain the Financial Books and Records for each Fiscal
Year for not less than 3 years after the date Borrower delivers to Lender the
Annual Financial Statement and the other financial certificates, statements and
information to be delivered to Lender for the Fiscal Year. Financial Books and
Records will be maintained at Borrower’s address set forth in the Section
entitled “Notices” or at any other location as may be approved by Lender.

 

Section 10.2.   Certificate of Good Standing. Borrower will (if Lender so
requests) cause to be delivered to Lender, together with the annual financial
statement required to be delivered hereunder, or as otherwise requested by
Lender from time to time, a certificate of good standing from its state of
organization.

 

ARTICLE 11

EXPENSES AND DUTY TO DEFEND

Section 11.1.   Payment of Expenses.

 

(a) Borrower is obligated to pay all fees and expenses (the “Expenses”) actually
incurred by Lender or Trustee or that are otherwise payable in connection with
the Loan, the Property or Borrower, including reasonable attorneys’ fees and
expenses of outside counsel (if outside counsel is engaged) and any fees and
expenses relating to (i) the preparation, execution, acknowledgement, delivery
and recording or filing of the Loan Documents; (ii) any Proceeding or other
claim asserted against Lender; (iii) any inspection, assessment, survey and test
permitted under the Loan Documents; (iv) any Destruction Event; (v) the
preservation of Trustee’s title or Lender’s security; (vi) the enforcement of
the Loan Documents or any of their terms or the exercise of any rights or
remedies available at Law, in equity or otherwise, whether or not any Proceeding
is filed; (vii) the representation of Lender in any bankruptcy, insolvency,
reorganization or other debtor-relief or similar proceeding of or relating to
Borrower, to any person liable (by way of guaranty, assumption, endorsement or
otherwise) upon any of the Obligations, to the Property, or to any other
property which secures any of the Obligations; or (viii) the Leases and the
Property Documents.

 

(b) Borrower will pay the Expenses promptly on demand, and in any event within
ten (10) Business Days of demand therefor, together with any applicable
interest, premiums or penalties. If Lender pays any of the Expenses, Borrower
will reimburse Lender the amount paid by Lender promptly upon demand, and in any
event within ten (10) Business Days of demand therefor, together with interest
on such amount at the Default Interest Rate from the date Lender paid the
Expenses through and including the date Borrower reimburses Lender. The
Expenses, together with any applicable interest, premiums or penalties,
constitute a portion of the Debt secured by this Deed of Trust.

 

Section 11.2.   Duty to Defend. If Lender or any of its trustees, officers,
participants, employees or affiliates is a party in any Proceeding relating to
the Property, Borrower or the Loan, Borrower will indemnify and hold harmless
such party (other than for liabilities for such party’s willful misconduct or
gross negligence) and will defend the party with attorneys and

 

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other professionals retained by Borrower and approved by Lender. Lender may
elect to engage its own attorneys and other professionals, at Borrower’s
reasonable expense, to defend or to assist in the defense of the party. In all
events, Lender shall have full consultation rights with respect to case strategy
if Lender so elects and no Proceeding will be settled without Lender’s prior
approval, which may be withheld in its sole discretion.

 

ARTICLE 12

TRANSFERS, LIENS AND ENCUMBRANCES

 

Section 12.1.   Prohibitions on Transfers, Liens and Encumbrances.

 

(a) Borrower acknowledges that in making the Loan, Lender is relying to a
material extent on the business expertise and net worth of Borrower and
Borrower’s general partner and on the continuing interest that it has, directly
or indirectly, in the Property. Accordingly, except as specifically set forth in
this Deed of Trust, Borrower (i) will not, and will not permit its partners,
members or principals to, effect a Transfer without Lender’s prior approval,
which may be withheld in Lender’s sole discretion, and (ii) will keep the
Property free from all liens and encumbrances other than the lien of this Deed
of Trust and the Permitted Exceptions and Permitted Liens. A “Transfer” is
defined as any sale, grant, lease (other than space leases with tenants
permitted by the Assignment), conveyance, assignment or other transfer of, or
any encumbrance or pledge against, the Property, any interest in the Property,
any interest of Borrower’s partners, members or principals in the Property, or
any change in Borrower’s composition, in each instance whether voluntary or
involuntary, direct or indirect, by operation of law or otherwise and including
the grant of an option or the execution of an agreement relating to any of the
foregoing matters.

 

(b) Borrower represents, warrants and covenants as of the date hereof that:

 

  (i) Borrower is a Delaware limited partnership whose sole general partner is
KRC, owning approximately 87 % of the partnership interests in Borrower, and
Borrower’s five largest limited partners own the majority of the remaining
partnership interests in Borrower in the following approximate amounts:

 

Richard Allen and Related Entities

   5.1 %

John Kilroy, Jr.

   2.8 %

Kilroy Industries

   1.9 %

Steve Black

   1.4 %

John Kilroy, Sr.

   0.8 %

 

  (ii) KRC is a publicly held corporation traded on the New York Stock Exchange.

 

Section 12.2.   Permitted Transfers.

 

(a) Notwithstanding the prohibitions regarding Transfers, the Permitted
Transfers described in Subsections 12.2(b)(iv) and (v) below may occur without
Lender’s prior consent (except as otherwise provided), provided that all of the
following conditions are met:

 

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  (i) At least 15 Business Days prior to the proposed Permitted Transfer,
Borrower delivers to Lender a notice that is sufficiently detailed to enable
Lender to determine that the proposed Permitted Transfer complies with the terms
of this Section;

 

  (ii) there is no default under the Loan Documents either when Lender receives
the notice (if notice is required) or when the proposed Permitted Transfer
occurs;

 

  (iii) such proposed Permitted Transfer will not result in a violation of any
of the covenants contained in the Section entitled “ERISA Compliance” and
Borrower will deliver to Lender such documentation of compliance as Lender
requests in its sole discretion;

 

  (iv) if the proposed Permitted Transfer is or would result in the admission of
a new general partner (whether by transfer of an interest to or change in the
status of a limited partner, transfer of an interest to a third party, or
otherwise), when Lender receives the notice (if notice is required) and when the
proposed Permitted Transfer occurs, the transferee has never been an adverse
party to Lender in any litigation to which Lender was a party; the transferee
has never defaulted on a loan from Lender or on any contract or other agreement
with Lender; and the transferee has never threatened litigation against Lender
(for purposes of this subsection “transferee” includes the transferee’s
constituent entities at all levels and “Lender” includes Lender’s subsidiaries);

 

  (v) Borrower pays all of Lender’s expenses relating to the Transfer, including
Lender’s reasonable attorneys’ fees (if outside counsel is engaged);

 

  (vi) the proposed transferee is not the subject of a case in bankruptcy, and
Lender is satisfied that the Property will continue to be managed by Borrower
directly or by a manager satisfactory to Lender;

 

  (vii) KRC shall at all times remain the managing general partner of Borrower,
with the right on its authority alone without the consent of any other general
or limited partner to take all actions on behalf of Borrower in accordance with
Borrower’s partnership agreement in connection with the Loan and the Property;
and KRC shall at all times retain not less than 51% of all of the partnership
interests in Borrower, and not less than 51% of all general partnership
interests in Borrower;

 

  (viii) if the proposed Permitted Transfer is or would result in the admission
of a new general partner (whether by transfer of an interest to or change in the
status of a limited partner, transfer of an interest to a third party, or
otherwise), Borrower obtains Lender’s prior written consent thereto; and

 

  (ix) on the date of the proposed Permitted Transfer, if requested by Lender
based on a reasonable concern by Lender that such Permitted Transfer may impair
Lender’s security interest in the Property, a Uniform Commercial Code search
report is delivered to Lender relating to (i) the transferee, (ii) any
predecessor entity that the transferee

 

25

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merged into or with, and (iii) any entity where the transferee acquired
substantially all of its assets, in each case satisfactory to Lender and
indicating that Lender’s security interest in such portion of the Property as is
perfected by filing a financing statement is prior to all other security
interests reflected in the report.

 

(b) Notwithstanding the prohibitions regarding Transfers, the following
Transfers (the “Permitted Transfers”) may occur without Lender’s prior consent
(except as otherwise provided); provided that, the requirements set forth in
Section 12.2(a)(vii) and Section 8.3 above remain satisfied at all times:

 

  (i) Transfers of limited partnership interests in Borrower between limited
partners, and redemptions of limited partnership interests pursuant to
Borrower’s partnership agreement;

 

  (ii) admission of new limited partners to Borrower;

 

  (iii) pledges of a limited partner’s interest in Borrower;

 

  (iv) admission of new general partners to Borrower (but only upon satisfaction
of all conditions set forth in Section 12.2(a) above);

 

  (v) transfer of a general partnership interest in Borrower (but only upon
satisfaction of all applicable conditions set forth in Section 12.2(a) above);
and

 

  (vi) public trading of the shares of KRC and pledges thereof.

 

(c) Borrower shall pay all out-of-pocket expenses incurred by Lender in the
review and processing of a proposed Transfer, regardless of whether the Transfer
is consummated.

 

Section 12.3. Right to Contest Liens. Borrower, at its own expense, may contest
the amount, validity or application, in whole or in part, of any mechanic’s,
materialmen’s or environmental liens in which event Lender will refrain from
exercising any of the Remedies, provided that the following conditions are met:

 

  (i) Borrower delivers to Lender notice of the proposed contest not more than
30 days after receiving notice that the lien is filed;

 

  (ii) the contest is by a Proceeding promptly initiated and conducted in good
faith and with due diligence;

 

  (iii) there is no Event of Default other than the Event of Default arising
from the filing of the lien;

 

  (iv) the Proceeding suspends enforcement and collection of the lien,
imposition of criminal or civil penalties and sale or forfeiture of the Property
and Lender will not be subject to any civil suit;

 

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  (v) the Proceeding is permitted under and is conducted in accordance with the
Leases and the Property Documents;

 

  (vi) with respect to liens in excess of $250,000, Borrower sets aside reserves
or furnishes a bond or other security satisfactory to Lender, in either case in
an amount sufficient to pay the claim giving rise to the lien, together with all
interest and penalties, or Borrower pays the contested lien under protest; and

 

  (vii) with respect to an environmental lien, Borrower is using commercial best
efforts to mitigate or prevent any deterioration of the Property resulting from
the alleged violation of any Environmental Laws or the alleged Environmental
Activity.

 

Section 12.4. Reconveyance Rights. On or after the second anniversary of the
first date specified in Section 1(a)(ii) of the Note, Borrower may obtain the
partial reconveyance from Trustee of any one (1) (but not more than one (1)) of
the four (4) parcels collectively comprising the Property and identified and
described on Schedule 1 attached hereto (each, a “Parcel,” with any Parcel
reconveyed pursuant to the terms of this Section 12.4 referred to herein as the
“Release Parcel”), provided that, all of the following conditions are satisfied
in full with respect to such reconveyance:

 

  (i) the reconveyance is solely for the purpose of a transfer or ground lease
of the Release Parcel to a bona fide purchaser or ground lessee;

 

  (ii) not less than sixty (60) days prior to the proposed date of the
reconveyance, Borrower delivers to Lender a notice setting forth (A) the
proposed date of the reconveyance; (B) the name of the proposed transferee; and
(C) any other information reasonably necessary for Lender to analyze the terms
of the reconveyance;

 

  (iii) not less than thirty (30) days prior to the proposed date of the
reconveyance, Borrower delivers to Lender a current survey of the remaining Land
and Improvements, together with legal descriptions of the same, a plot plan of
the Release Parcel showing building integration, if any, with adjoining
improvements, economic or financial information relating to the proposed
transferee and a copy of the contract of sale or ground lease;

 

  (iv) on the date Borrower delivers to Lender notice of the proposed
reconveyance and on the date of the reconveyance, no default has occurred and is
continuing under the Loan Documents;

 

  (v) Borrower delivers to Lender evidence satisfactory to Lender that (x)
Borrower has complied with any requirements of the Property Documents and the
Leases applicable to the reconveyance, (y) the reconveyance does not violate any
of the provisions of the Property Documents or the Leases and (z) to the extent
necessary to comply with the Property Documents or the Leases, the transferee
has assumed all of Borrower’s obligations relating to the Release Parcel under
the Property Documents;

 

27

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  (vi) Borrower delivers to Lender an endorsement to Lender’s title insurance
policy satisfactory to Lender that (A) extends the effective date of the policy
to the effective date of the reconveyance; (B) confirms no change in the
priority of the Deed of Trust with respect to the remaining Property or in the
amount of coverage; (C) consents to the reconveyance; (D) waives any defense
resulting from the reconveyance; (E) to the extent of the value of the Release
Parcel, waives any right of subrogation; and (F) confirms that the Release
Parcel and the balance of the remaining Property constitute separate tax lots;

 

  (vii) not less than 10 days prior to the date of the reconveyance, Borrower
delivers to Lender consents to the reconveyance by entities holding liens
affecting the Property or holding any other interest in the Property that would
be affected by the reconveyance, including parties to any Property Documents or
to any Leases;

 

  (viii) Borrower delivers to Lender evidence satisfactory to Lender that (A)
the Release Parcel and the balance of the Property each separately conforms to
and is in compliance with Law, the violation of which (as determined by Lender
in its reasonable discretion) could be reasonably expected to have a material
adverse effect on Borrower, the Property or Lender’s interests therein, and (B)
the balance of the Property constitutes a self-contained unit, having direct
on-site connection to all utilities and direct access to one or more public
streets;

 

  (ix) prior to or concurrently with such reconveyance, Borrower pays all
expenses relating to the reconveyance, including Lender’s and Trustee’s
reasonable attorneys’ fees if outside counsel is engaged and any other
third-party costs;

 

  (x) Borrower delivers to Lender copies of the executed documents evidencing
the transfer or ground lease of the Release Parcel;

 

  (xi) Borrower delivers to Lender any other information, approvals and
documents reasonably required by Lender relating to the reconveyance;

 

  (xii) Borrower delivers to Lender a fully executed amendment satisfactory to
Lender to each reciprocal easement agreement affecting the Property that joins
the transferee of the Release Parcel as a party to the agreement and that
provides for any additional easements, restrictions and payment obligations that
Lender deems reasonably necessary for the continued operation and maintenance of
the remaining Property;

 

  (xiii) during the term of the Loan, Borrower may only obtain one (1)
reconveyance pursuant to this Section 12.4 of the Deed of Trust;

 

  (xiv) prior to or concurrently with the reconveyance, Borrower pays to Lender
an amount equal to 110% of the product of (such product, the “Allocated Loan
Amount”): (x) the aggregate outstanding principal balance of the Note as of the
date of the reconveyance (prior to taking the payment of the Allocated Loan
Amount into account), multiplied by (y) the ratio corresponding to the Release
Parcel as set forth on Schedule 1 attached hereto (which ratio represents the

 

28

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portion of the original principal amount of the Loan allocated to the Release
Parcel), which payment shall be applied to the partial prepayment of the
outstanding principal amount of the Note (without premium for such prepayment
other than the Reconveyance Premium);

 

  (xv) prior to or concurrently with the reconveyance, Borrower pays to Lender
the Reconveyance Premium, all other amounts due and payable as of the date of
such reconveyance under the Note, and all other amounts due and payable as of
the date of such reconveyance under this Deed of Trust;

 

  (xvi) the outstanding principal balance of the Note, after application of the
partial prepayment to be made in connection with the reconveyance as set forth
in clause (xiv) above, shall not exceed seventy percent (70%) of the fair market
value of the balance of the Property that remains subject to the lien of this
Deed of Trust following the reconveyance, as evidenced to Lender’s satisfaction
by an appraisal report of the balance of the Property that (w) is dated no
earlier than sixty (60) days prior to the proposed reconveyance, (x) satisfies
the requirements pertaining to appraisal reports set forth in the Commitment,
(y) is otherwise reasonably satisfactory to Lender, and (z) is paid for by
Borrower;

 

  (xvii) following the reconveyance, the annual Rents (excluding security
deposits) under Leases in effect with respect to the balance of the Property
during the 12-month period following such reconvyance (as reasonably determined
by Lender) will provide a debt service coverage ratio for the annual Debt
Service Payments on the Note of 1.70:1.0 after payment of the annual Allocable
Insurance Premium Amount, and annual Impositions and operating expenses of such
properties, as reasonably determined by Lender, and in connection therewith, not
less than 30 days prior to the date of the reconveyance, Borrower will deliver
to Lender certified rent rolls and certified operating statements for the
preceding 12 calendar months for the balance of the Property (prepared on a cash
basis, using methodology satisfactory to Lender, with income and expenses
treated consistently and in the ordinary course of business), together with such
other information as Lender may require to make its determination; and

 

  (xviii) Borrower delivers to Lender evidence satisfactory to Lender that
following the reconveyance, the parking provided to the balance of the Property
will continue to satisfy the applicable requirements of the Loan Documents.

 

Section 12.5. Substitution of Properties. Borrower may request Lender’s
permission to substitute, for any one (1) Parcel, a different parcel or parcels
of real property together with improvements thereon and personal property
related thereto (collectively, the “Substitute Parcel”). Lender shall reasonably
consider any such request; provided that, it shall not be considered
unreasonable for Lender to withhold its consent to any such requested
substitution, and Borrower shall have no rights under this Section 12.5, if,
among other reasons, any one or more of the following is true with respect to
such proposed substitution:

 

29

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  (i) Such proposed substitution would result in the occurrence of more than one
(1) such substitution during the term of the Loan.

 

  (ii) The proposed Substitute Parcel:

 

(A) is not of a quality comparable to or greater than that of the Parcel
released in connection with such substitution (the “Substitution Release
Parcel”); or

 

(B) does not have a fair market value (as evidenced to Lender’s satisfaction
based on appraisal reports of each of the Substitute Parcel and the Substitution
Release Parcel that (w) are dated no earlier than sixty (60) days prior to the
proposed substitution, (x) satisfy the requirements pertaining to appraisal
reports set forth in the Commitment, (y) are otherwise reasonably satisfactory
to Lender, and (z) are paid for by Borrower) equal to or greater than the
greater of (1) the fair market value of the Substitution Release Parcel as of
the date of recordation of this Deed of Trust, and (2) the fair market value of
the Substitution Release Parcel immediately prior to such proposed substitution.

 

  (iii) The annual Rents (excluding security deposits) under Leases in effect on
the Property that will remain subject to the liens and security interests of the
Deed of Trust and the other Loan Documents following the substitution, excluding
the Substitution Release Parcel and including the Substitute Parcel (the
“Post-Substitution Property”) for the 12-month period following the substitution
(as reasonably determined by Lender), do not provide debt service coverage for
the annual Debt Service Payments on the Note (after payment of the annual
Allocable Insurance Premium Amount, and annual Impositions and operating
expenses) that is equal to or greater than the greater of (x) 1.70:1.0 and (y)
the debt service coverage provided by the Property for the 12-month period prior
to the substitution, and in connection therewith, not less than 30 days prior to
the date of the substitution, Borrower will deliver to Lender certified rent
rolls and certified operating statements for the preceding 12 calendar months
for the Substitution Release Parcel and the Post-Substitution Property (prepared
on a cash basis, using methodology satisfactory to Lender, with income and
expenses treated consistently and in the ordinary course of business), together
with such other information as Lender may require to make its determination;

 

  (iv) The outstanding principal balance of the Note is not less than or equal
to seventy percent (70%) of the fair market value of the Post-Substitution
Property, as evidenced to Lender’s satisfaction based on an appraisal report of
the Post-Substitution Property that (w) is dated no earlier than sixty (60) days
prior to the proposed substitution, (x) satisfies the requirements pertaining to
appraisal reports set forth in the Commitment, (y) is otherwise reasonably
satisfactory to Lender, and (z) is paid for by Borrower).

 

  (v) A Transfer hereunder (other than a Permitted Transfer) has occurred prior
to the date of the proposed substitution.

 

  (vi) The Substitute Parcel does not meet Lender’s then-current mortgage
lending and underwriting criteria and standards (including, without limitation,
standards

 

30

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relating to environmental and hazardous materials matters, engineering,
title/land use, legal matters, leasing and other underwriting standards), as
determined by Lender in its sole discretion.

 

  (vii) At the time of the proposed substitution, either the Substitute Parcel
or Borrower does not satisfy one or more of the applicable requirements that
were conditions to Lender’s obligation to make the Loan, as set forth in that
certain Loan Application and Commitment Agreement by and between Borrower and
Lender dated as of December 10, 2003 (the “Commitment”) and executed in
connection with the Loan, that would have been applicable if the Substitute
Parcel [rather than the Substitution Release Parcel] had been included as
security for the Loan), including without limitation the requirement that
Borrower be free from bankruptcy and solvent.

 

  (viii) Borrower does not deliver to Lender, at least thirty (30) days prior to
the requested date of Lender’s approval of the proposed substitution, all due
diligence materials and related information required by Lender to evaluate the
Substitute Parcel and to confirm that the requirements referenced in Section
12.5 (vii) above have all been satisfied.

 

  (ix) Borrower does not deliver to Lender endorsement(s) to Lender’s title
insurance policy(ies), or new title insurance policy(ies), satisfactory to
Lender that (A) extend the effective date of the title insurance policy(ies)
obtained by Lender with respect to the Property to the effective date of the
substitution; (B) insure Lender that Lender holds a first priority lien on the
Substitute Parcel (subject only to such exceptions as Lender may have approved
prior to the date of the substitution); (C) confirm no change in the priority of
the Deed of Trust (with respect to the balance of the Property, other than the
Substitution Release Parcel) or in the aggregate amount of coverage; (D) consent
to the substitution; (E) waive any defense resulting from the substitution; and
(F) confirm that the Substitution Release Parcel and the Post-Substitution
Property constitute separate tax lots.

 

  (x) Borrower does not deliver to Lender, prior to or concurrently with the
substitution: (i) either (A) a deed of trust which is sufficient to, upon
recordation, create a first priority lien against the Substitute Parcel in favor
of Lender, an assignment of leases and rents, a financing statement, an
environmental indemnity agreement, and any other instruments and documents
required by Lender in connection with the release of the Property and the
substitution of the Substitute Parcel, each of which is substantially in the
form delivered by Borrower as of the date of recordation of this Deed of Trust
and otherwise in form reasonably satisfactory to Lender, or (B) amendments to
the Loan Documents in effect as of the date of recordation of this Deed of Trust
in form reasonably satisfactory to Lender that accomplish the same purposes as
the documents described in clause (A) immediately above, and (ii) legal opinions
of counsel acceptable to Lender opining on the due authorization, execution,
delivery, enforceability and such other matters as Lender shall require with
respect to the documents described in clause (i) immediately above.

 

31

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  (xi) The Substitute Parcel is not in an asset class or is not in a geographic
location that Lender is investing in at the time of the proposed substitution.

 

  (xii) The Substitute Parcel is not located in California.

 

  (xiii) Lender is not reasonably satisfied that no creditors’ rights issues
will arise in connection with the substitution.

 

  (xiv) Prior to or concurrently with such proposed substitution, Borrower does
not pay all costs and expenses, including reasonable attorneys’ fees if outside
counsel is engaged by Lender, and any other reasonable third party costs,
incurred by Lender in connection with any proposed substitution.

 

  (xv) Not less than 10 days prior to the date of the proposed substitution,
Borrower does not deliver to Lender consents to the substitution and concurrent
release of the Substitution Release Parcel by entities holding liens affecting
the Property or holding any other interest in the Property that would be
affected by the substitution and concurrent release, including parties to any
Property Documents or to any Leases.

 

  (xvi) Borrower does not deliver to Lender a fully executed amendment to each
reciprocal easement agreement affecting the Property that is satisfactory to
Lender and that joins the transferee of the Substitution Release Parcel as a
party to the agreement and that provides for any additional easements,
restrictions and payment obligations that Lender deems reasonably necessary for
the continued operation and maintenance of the Post-Substitution Property.

 

  (xvii) Borrower does not deliver to Lender evidence satisfactory to Lender
that (A) the Post-Substitution Property and the Substitution Release Parcel each
separately conforms to and is in compliance with Law, and (B) the
Post-Substitution Property and the Substitution Release Parcel each constitutes
a self-contained unit, having direct on-site connection to all utilities and
direct access to one or more public streets.

 

  (xviii) Borrower does not deliver to Lender evidence satisfactory to Lender
that following the proposed substitution and the concurrent release of the
Substitution Release Parcel, the parking provided to the Post-Substitution
Property will continue to satisfy the applicable requirements of the Loan
Documents (as such requirements may be adjusted by Lender, in its reasonable
discretion, to account for such substitution), or does not deliver evidence
satisfactory to Lender that the parking provided to the Substitute Parcel
satisfies Lender’s then-current underwriting standards.

 

ARTICLE 13

ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Section 13.1. Further Assurances.

 

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(a) Borrower will execute, acknowledge and deliver to Lender or to any other
entity Lender designates any additional or replacement documents and perform any
additional actions that Lender determines are reasonably necessary to evidence,
perfect or protect Lender’s first lien on and prior security interest in the
Property or to carry out the intent or facilitate the performance of the
provisions of the Loan Documents.

 

(b) Borrower appoints Lender as Borrower’s attorney-in-fact to perform, at
Lender’s election, any actions and to execute and record any of the additional
or replacement documents referred to in this Section, in each instance only at
Lender’s election and only to the extent Borrower has failed to comply with the
terms of this Section.

 

Section 13.2. Estoppel Certificates.

 

(a) Within 10 days of Lender’s request, but not more frequently than monthly,
Borrower will deliver to Lender or to any entity Lender designates a certificate
certifying with respect to the Note: (i) the original principal amount; (ii) the
unpaid principal amount; (iii) the Interest Rate; (iv) the amount of the then
current Debt Service Payments; (v) the Maturity Date; (vi) the date a Debt
Service Payment was last made; (vii) that, except as may be disclosed in the
statement, there are no defaults or events which, with the passage of time or
the giving of notice, would constitute an Event of Default; and (viii) there are
no offsets or defenses against any portion of the Obligations except as may be
disclosed in the statement.

 

(b) If Lender requests, but not more frequently than once (or, following an
Event of Default, twice) in any twelve-month period with respect to any one
Property Document, Borrower will use its commercially reasonable best efforts to
promptly deliver to Lender or to any entity Lender designates a certificate from
each party to any Property Document, certifying that the Property Document is in
full force and effect with no defaults or events which, with the passage of time
or the giving of notice, would constitute an event of default under the Property
Document and that there are no defenses or offsets against the performance of
its obligations under the Property Document.

 

(c) If Lender requests, but not more frequently than once (or, following an
Event of Default, twice) in any twelve-month period with respect to any one
tenant, Borrower will use its commercially reasonable best efforts to promptly
deliver to Lender, or to any entity Lender designates, a certificate from each
tenant under a Lease then affecting the Property, certifying to any facts
regarding the Lease as Lender may require, including that the Lease is in full
force and effect with no defaults or events which, with the passage of time or
the giving of notice, would constitute an event of default under the Lease by
any party thereto, that the rent has not been paid more than one month in
advance and that the tenant claims no defense or offset against the performance
of its obligations under the Lease, except in each case as may be disclosed in
the estoppel.

 

Section 13.3. Replacement Guaranty and Environmental Indemnity. If the provider
of any guaranty or indemnity delivered to Lender in connection with the Loan
ceases to exist or transfers a substantial portion of the assets held by such
provider as of the date hereof, Borrower will deliver to Lender a replacement to
each guaranty and indemnity delivered to Lender by such provider in connection
with this Loan within 5 Business Days of the date the cessation occurs, or

 

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such a transfer occurs, as the case may be. Any replacement guaranty and any
replacement indemnity will be satisfactory to Lender and from an alternate
provider satisfactory to Lender. Upon receipt of the replacement, Lender will
deliver promptly to Borrower the guaranty and/or indemnity being replaced.

 

ARTICLE 14

DEFAULTS AND REMEDIES

 

Section 14.1. Events of Default. The term “Event of Default” means the
occurrence of any of the following events:

 

  (i) if Borrower fails to pay any amount due, as and when required, under any
Loan Document and the failure continues for a period of 5 days;

 

  (ii) if Borrower makes a general assignment for the benefit of creditors or
generally is not paying, or is unable to pay, or admits in writing its inability
to pay, its debts as they become due; or if Borrower or any other party
commences any Proceeding (A) relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors, in each instance with respect to Borrower;
(B) seeking to have an order for relief entered with respect to Borrower; (C)
seeking attachment, distraint or execution of a judgment with respect to
Borrower; (D) seeking to adjudicate Borrower as bankrupt or insolvent; (E)
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to Borrower or Borrower’s
debts; or (F) seeking appointment of a Receiver, trustee, custodian, conservator
or other similar official for Borrower or for all or any substantial part of
Borrower’s assets, provided that if the Proceeding is commenced by a party other
than Borrower or any of Borrower’s general partners or members, Borrower will
have 120 days to have the Proceeding dismissed or discharged before an Event of
Default shall be deemed to have occurred;

 

  (iii) if Borrower is in default beyond any applicable grace and cure period
under any other mortgage, deed of trust, deed to secure debt or other security
agreement encumbering the Property, whether junior or senior to the lien of this
Deed of Trust;

 

  (iv) if a Transfer occurs except in accordance with the provisions of this
Deed of Trust;

 

  (v) if Borrower abandons the Property or ceases to perform or cause to be
performed the business of operating, managing, leasing and maintaining the
Property; or

 

  (vi) if there is a default in the performance by Borrower of any other
provision of any of the Loan Documents or if there is any material inaccuracy or
falsehood in any representation or warranty contained in any of the Loan
Documents which is not remedied within 30 days after Borrower receives notice
thereof, provided that if

 

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the default, inaccuracy or falsehood is of a nature that it cannot be cured
within the 30-day period and during that period Borrower commences to cure, and
thereafter diligently continues to cure, the default, inaccuracy or falsehood,
then the 30-day period will be extended for a reasonable period not to exceed
120 days after the notice to Borrower.

 

Section 14.2.   Remedies.

 

(a) If an Event of Default occurs, Lender may take any of the following actions
(the “Remedies”) without notice to Borrower:

 

  (i) declare the Note and all or any portion of the Debt immediately due and
payable (“Acceleration”);

 

  (ii) pay or perform any Obligation;

 

  (iii) institute a Proceeding for the specific performance of any Obligation;

 

  (iv) apply for and obtain the appointment of a Receiver to be vested with the
fullest powers permitted by Law, without bond being required, which appointment
may be made ex parte, as a matter of right and without regard to the value of
the Property, the amount of the Debt or the solvency of Borrower or any other
person liable for the payment or performance of any portion of the Obligations;

 

  (v) directly, by its agents or representatives or through a Receiver appointed
by a court of competent jurisdiction, enter on the Land and Improvements, take
possession of the Property, dispossess Borrower and exercise Borrower’s rights
with respect to the Property, either in Borrower’s name or otherwise;

 

  (vi) institute Proceedings for foreclosure of this Deed of Trust, or, if
permitted by Law, for the partial foreclosure of this Deed of Trust for the
portion of the Debt then due and payable, subject to the continuing lien of this
Deed of Trust for the balance of the Debt not then due;

 

  (vii) deliver to Trustee a declaration of default and demand for sale and a
notice of default and election to cause Borrower’s interest in the Property to
be sold, which notice Trustee or Lender will file in the official records of the
county in which the Property is located;

 

  (viii) exercise any and all rights and remedies granted to a secured party
under the Uniform Commercial Code;

 

  (ix) require Borrower to assemble any or all of the Property which is personal
property and make it available to Lender in a place designated by Lender which
is not unreasonably inconvenient to the Property; sell Property which is
personal property at the Land or elsewhere, with or without having such personal
property at the place of sale; without removal, render Property which is
personal property

 

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unusable and dispose of it on the Land; enter upon the Land and Improvements and
possess and remove any or all of the Property which is personal property without
legal process, if Lender can do so without a breach of the peace or violation of
any Leases, or by legal action for possession; and

 

  (x) pursue any other right or remedy available to Lender at Law, in equity or
otherwise.

 

(b) If an Event of Default occurs, the license granted to Borrower in the Loan
Documents to collect Rents will terminate automatically without any action
required of Lender.

 

Section 14.3.   General Provisions Pertaining to Remedies.

 

(a) The Remedies are cumulative and may be pursued by Lender or Trustee
concurrently or otherwise, at such time and in such order as Lender or Trustee
may determine in their sole discretion and without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by Borrower.

 

(b) The enumeration in the Loan Documents of specific rights or powers will not
be construed to limit any general rights or powers or impair Lender’s or
Trustee’s rights with respect to the Remedies.

 

(c) If Lender or Trustee exercises any of the Remedies, Lender will not be
deemed a mortgagee-in-possession unless Lender has elected affirmatively to be a
mortgagee-in-possession.

 

(d) Lender and Trustee will not be liable for any act or omission of Lender or
Trustee (other than gross negligence or willful misconduct) in connection with
the exercise of the Remedies.

 

(e) Lender’s and Trustee’s right to exercise any Remedy will not be impaired by
any delay in exercising or failure to exercise the Remedy and the delay or
failure will not be construed as extending any cure period or constitute a
waiver of the default or Event of Default or of the right to exercise any Remedy
in the event of any subsequent default or Event of Default.

 

(f) If an Event of Default occurs, Lender’s payment or performance or acceptance
of payment or performance will not be deemed a waiver or cure of the Event of
Default.

 

(g) Lender’s acceptance of partial payment or receipt of Rents will not extend
or affect any grace period or constitute a waiver of a default or Event of
Default or constitute a rescission of Acceleration, but will be credited against
the Debt in accordance with the Loan Documents.

 

Section 14.4.   Foreclosure by Power of Sale.

 

(a) Should Lender elect following an Event of Default to foreclose this Deed of
Trust by exercise of the power of sale contained in this Deed of Trust, Lender
will notify Trustee and

 

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deposit, if required by Trustee, with Trustee this Deed of Trust and such of the
Note and other Loan Documents as Trustee may require.

 

(b) Upon receipt of the notice from Lender, Trustee will have recorded,
published and delivered to Borrower any notice of default as is then required by
Law. Trustee will, without demand on Borrower after lapse of any time as may
then be required by Law and after notice of sale having been given as required
by Law, sell the Property at the time and place of sale fixed by it in the
notice of sale, at public auction to the highest bidder as provided by Law.
Trustee will deliver to the purchaser of the Property a good and sufficient deed
or deeds conveying the Property so sold, but without any covenant or warranty,
express or implied. The recitals in the deed of any matter or fact will be
conclusive proof of the truthfulness of the recitals. Any person, including
Borrower, Trustee or Lender may purchase at the sale, and Borrower will warrant
and defend the title of the purchaser.

 

(c) After deducting all costs, fees and expenses of Lender and Trustee,
including costs of evidence of title in connection with sale, Lender will apply
the proceeds of sale in the following priority, to payment of (i) first, all
sums expended under the terms of the Loan Documents, not then repaid, with
accrued interest at the Default Rate; (ii) second, the Debt (whether or not
previously accelerated) in such order as Lender determines; and (iii) the
remainder, if any, to the person or persons legally entitled to it.

 

(d) Trustee may postpone sale of all or any portion of the Property as permitted
by Law, and without further notice make such sale at the time fixed by the last
postponement, or may, in its discretion, give a new notice of sale.

 

(e) A sale of less than the whole of the Property or any defective or irregular
sale made under this Deed of Trust will not exhaust the power of sale provided
for in this Deed of Trust; and subsequent sales may be made until the
Obligations have been satisfied, or the entire Property sold, without defect or
irregularity.

 

Section 14.5.   General Provisions Pertaining to Receiver and Other Remedies.

 

(a) If an Event of Default occurs, any court of competent jurisdiction may, upon
application by Lender, appoint a Receiver as designated in the application and
issue an injunction prohibiting Borrower from interfering with the Receiver,
collecting Rents, disposing of any Rents or any part of the Property, committing
waste or doing any other act that will tend to affect the preservation of the
Leases, the Rents and the Property, and Borrower approves the appointment of the
designated Receiver or any other Receiver appointed by the court. Borrower
agrees that the appointment may be made ex parte and as a matter of right to
Lender or Trustee, either before or after sale of the Property, without further
notice, and without regard to the solvency or insolvency, at the time of
application for the Receiver, of the person or persons, if any, liable for the
payment of any portion of the Debt and the performance of any portion of the
Obligations and without regard to the value of the Property or whether the
Property is occupied as a homestead and without bond being required of the
applicant.

 

(b) The Receiver will be vested with the fullest powers permitted by Law
including all powers necessary or usual in similar cases for the protection,
possession and operation of the

 

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Property and all the powers and duties of Lender as a mortgagee-in-possession as
provided in this Deed of Trust and may continue to exercise all the usual powers
and duties until the Receiver is discharged by the court.

 

(c) In addition to the Remedies and all other available rights, Lender or the
Receiver may take any of the following actions:

 

  (i) take exclusive possession, custody and control of the Property and manage
the Property so as to prevent waste;

 

  (ii) require Borrower to deliver to Lender or the Receiver all keys, security
deposits, operating accounts, prepaid Rents, past due Rents, the Financial Books
and Records and all original counterparts of the Leases and the Property
Documents;

 

  (iii) collect, sue for and give receipts for the Rents and, after paying all
expenses of collection, including reasonable receiver’s, broker’s and attorney’s
fees, apply the net collections to any portion of the Debt selected by Lender in
its sole discretion;

 

  (iv) enter into, modify, extend, enforce, renew or accept surrender of Leases,
and terminate Leases and evict tenants in accordance with the Leases, except
that in the case of a Receiver, such actions may be taken only with the written
consent of Lender as provided in this Deed of Trust and in the Assignment;

 

  (v) enter into, modify, extend, enforce or renew Property Documents, and
terminate Property Documents in accordance with the Property Documents, except
that in the case of a Receiver, such actions may be taken only with the written
consent of Lender as provided in this Deed of Trust and in the Assignment;

 

  (vi) appear in and defend any Proceeding brought in connection with the
Property and bring any Proceeding to protect the Property as well as Borrower’s
and Lender’s respective interests in the Property (unless any such Proceeding
has been assigned previously to Lender in the Assignment, or if so assigned,
Lender has not expressly assigned such Proceeding to the Receiver and consented
to such appearance or defense by Receiver); and

 

  (vii) perform any act in the place of Borrower that Lender or the Receiver
deems necessary (A) to preserve the value, marketability or rentability of the
Property; (B) to increase the gross receipts from the Property; or (C) otherwise
to protect Borrower’s and Lender’s respective interests in the Property.

 

(d) Borrower appoints Lender as Borrower’s attorney-in-fact, at Lender’s
election, to perform any actions and to execute and record any instruments
necessary to effectuate the actions described in this Section, in each instance
only at Lender’s election and only to the extent Borrower has failed to comply
with the provisions of this Section.

 

Section 14.6.   General Provisions Pertaining to Foreclosures and the Power of
Sale. The following provisions will apply to any Proceeding to foreclose and to
any sale of the Property by power of sale or pursuant to a judgment of
foreclosure and sale:

 

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  (i) Lender’s or Trustee’s right to institute a Proceeding to foreclose or to
sell by power of sale will not be exhausted by a Proceeding or a sale that is
defective or not completed or by conducting separate sales of portions of the
Property;

 

  (ii) any sale may be postponed or adjourned by Lender by public announcement
at the time and place appointed for the sale without further notice;

 

  (iii) with respect to any sale pursuant to a judgment of foreclosure and sale
or by power of sale, the Property may be sold as an entirety or in separate lots
or parcels, at one or more sales, at the time and place, on terms and in the
order that Lender deems expedient in its sole discretion;

 

  (iv) if a portion of the Property is sold pursuant to this Article, the Loan
Documents will remain in full force and effect with respect to any unmatured
portion of the Debt and this Deed of Trust will continue as a valid and
enforceable first lien on and security interest in the remaining portion of the
Property, subject only to the Permitted Exceptions and Permitted Liens, without
loss of priority and without impairment of any of Lender’s or Trustee’s rights
and remedies with respect to the unmatured portion of the Debt;

 

  (v) Lender may bid for and acquire the Property at a sale and, in lieu of
paying cash, may credit the amount of Lender’s bid against any portion of the
Debt selected by Lender in its sole discretion after deducting from the amount
of Lender’s bid the expenses of the sale, costs of enforcement and other amounts
that Lender is authorized to deduct at Law, in equity or otherwise; and

 

  (vi) Lender’s receipt of the proceeds of a sale will be sufficient
consideration for the portion of the Property sold and Lender will apply the
proceeds as set forth in this Deed of Trust.

 

Section 14.7.   Application of Proceeds. Lender may apply the proceeds of any
sale of the Property pursuant to a judgment of foreclosure and sale and any
other amounts collected by Lender in connection with the exercise of the
Remedies to payment of the Debt (whether or not previously accelerated) in such
priority and proportions as Lender may determine in its sole discretion or in
such priority and proportions as required by Law.

 

Section 14.8.   Power of Attorney. Borrower appoints Lender as Borrower’s
attorney-in-fact to perform any actions necessary and incidental to exercising
the Remedies.

 

Section 14.9.   Tenant at Sufferance. If Lender, Trustee, or a Receiver enters
the Property in the exercise of the Remedies and Borrower is allowed to remain
in occupancy of the Property, Borrower will pay to Lender, Trustee, or the
Receiver, as the case may be, in advance, a reasonable rent for the Property
occupied by Borrower. If Borrower fails to pay the rent, Borrower may be
dispossessed by the usual Proceedings available against defaulting tenants.

 

ARTICLE 15

LIMITATION OF LIABILITY

 

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Section 15.1. Limitation of Liability.

 

(a) Notwithstanding any provision in the Loan Documents to the contrary, except
as set forth in subsections (b) and (c), if Lender seeks to enforce the
collection of the Debt, Lender will foreclose the Deed of Trust instead of
instituting suit on the Note. If a lesser sum is realized from a foreclosure of
the Deed of Trust and sale of the Property than the then outstanding Debt,
Lender will not institute any Proceeding against Borrower or Borrower’s general
partners, if any, for or on account of the deficiency, except as set forth in
subsections (b) and (c).

 

(b) The limitation of liability in subsection (a) will not affect or impair (i)
the lien of the Deed of Trust or Lender’s other rights and Remedies under the
Loan Documents, including Lender’s right as beneficiary or secured party to
commence an action to foreclose any lien or security interest Lender has under
the Loan Documents; (ii) the validity of the Loan Documents or the Obligations;
(iii) Lender’s rights under any Loan Document that are expressly recourse; or
(iv) Lender’s right to present and collect on any letter of credit or other
credit enhancement document held by Lender in connection with the Obligations.

 

(c) The following are excluded and excepted from the limitation of liability in
subsection (a) and Lender may recover personally against Borrower and its
general partners, if any, for the following:

 

  (i) all losses suffered and liabilities and expenses incurred by Lender
relating to any fraud or intentional misrepresentation or omission by Borrower
or any of Borrower’s partners, officers, directors, or principals in connection
with (A) the performance of any of the conditions to Lender making the Loan; (B)
any inducements to Lender to make the Loan; (C) the execution and delivery of
the Loan Documents; (D) any certificates, representations or warranties given in
connection with the Loan; or (E) Borrower’s performance of the Obligations;

 

  (ii) all Rents derived from the Property after a default under the Loan
Documents which default is a basis of a Proceeding by Lender to enforce
collection of the Debt and all moneys that, on the date such a default occurs,
are on deposit in one or more accounts used by or on behalf of Borrower relating
to the operation of the Property, except to the extent properly applied to
payment of Debt Service Payments on the Note, Impositions, the Allocable
Insurance Premium Amount and any reasonable and customary expenses incurred by
Borrower in the operation, maintenance and leasing of the Property or delivered
to Lender;

 

  (iii) the cost of remediation of any Environmental Activity affecting the
Property, any material diminution in the value of the Property arising from any
Environmental Activity affecting the Property and any other losses suffered and
liabilities and expenses actually incurred by Lender relating to a default under
the Article entitled “Environmental” (other than such liabilities and expenses
attributable to the gross negligence or willful misconduct of Lender or its
agents);

 

  (iv) all security deposits collected by Borrower or any of Borrower’s
predecessors and not refunded to tenants in accordance with their respective
Leases, applied in

 

40

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accordance with the Leases or Law or delivered to Lender, and all advance rents
collected by Borrower or any of Borrower’s predecessors and not applied in
accordance with the Leases or delivered to Lender;

 

  (v) the replacement cost of any Fixtures or Personal Property removed from the
Property by Borrower or its agents after a default occurs and not replaced in
the ordinary course of business with property of at least equal value and
utility;

 

  (vi) all losses suffered and liabilities and expenses incurred by Lender
relating to any acts or omissions by Borrower that result in waste (including
economic and non-physical waste to the extent resulting from a violation of the
provisions of Section 5.4 above, but excluding ordinary wear and tear in the
absence of gross negligence or willful misconduct) on the Property;

 

  (vii) all protective advances and other payments made by Lender pursuant to
express provisions of the Loan Documents to protect Lender’s security interest
in the Property or to protect the assignment of the property described in and
effected by the Assignment, but only to the extent that the Rents would have
been sufficient to permit Borrower to make the payment and Borrower failed to do
so;

 

  (viii) [INTENTIONALLY OMITTED]

 

  (ix) all Proceeds that are not applied in accordance with the Deed of Trust or
not paid to Lender as required under the Deed of Trust;

 

  (x) all losses suffered and liabilities and expenses incurred by Lender
relating to a Transfer that is not permitted under the Section entitled
“Permitted Transfers”;

 

  (xi) all losses suffered and liabilities and expenses incurred by Lender
relating to forfeiture or threatened forfeiture of the Property to the
Government; and

 

  (xii) all losses suffered and liabilities and expenses incurred by Lender
relating to any default by Borrower under any of the provisions of the Deed of
Trust relating to ERISA including the prohibition on any Transfer that results
in a violation of ERISA.

 

(d) Nothing under subparagraph (a) above will be deemed to be a waiver of any
right which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the Bankruptcy Code or under any other Law relating to bankruptcy
or insolvency to file a claim for the full amount of the Debt or to require that
all collateral will continue to secure all of the Obligations in accordance with
the Loan Documents.

 

ARTICLE 16

WAIVERS

 

Section 16.1. WAIVER OF STATUTE OF LIMITATIONS. BORROWER WAIVES THE RIGHT TO
CLAIM ANY STATUTE OF LIMITATIONS AS A DEFENSE TO BORROWER’S PAYMENT AND
PERFORMANCE OF THE OBLIGATIONS.

 

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Section 16.2. WAIVER OF NOTICE. BORROWER WAIVES THE RIGHT TO RECEIVE ANY NOTICE
FROM LENDER OR TRUSTEE WITH RESPECT TO THE LOAN DOCUMENTS EXCEPT FOR THOSE
NOTICES THAT LENDER OR TRUSTEE IS EXPRESSLY REQUIRED TO DELIVER PURSUANT TO THE
LOAN DOCUMENTS.

 

Section 16.3. WAIVER OF MARSHALLING AND OTHER MATTERS. BORROWER WAIVES THE
BENEFIT OF ANY RIGHTS OF MARSHALLING OR ANY OTHER RIGHT TO DIRECT THE ORDER IN
WHICH ANY OF THE PROPERTY WILL BE (i) SOLD; OR (ii) MADE AVAILABLE TO ANY ENTITY
IF THE PROPERTY IS SOLD BY POWER OF SALE OR PURSUANT TO A JUDGMENT OF
FORECLOSURE AND SALE. BORROWER ALSO WAIVES THE BENEFIT OF ANY LAWS RELATING TO
APPRAISEMENT, VALUATION, STAY, EXTENSION, REINSTATEMENT, MORATORIUM, HOMESTEAD
AND EXEMPTION RIGHTS OR A SALE IN INVERSE ORDER OF ALIENATION.

 

Section 16.4. WAIVER OF TRIAL BY JURY. BORROWER WAIVES TRIAL BY JURY IN ANY
PROCEEDING BROUGHT BY, OR AGAINST, OR COUNTERCLAIM OR CROSS-COMPLAINT ASSERTED
BY OR AGAINST, LENDER OR TRUSTEE RELATING TO THE LOAN, THE PROPERTY DOCUMENTS OR
THE LEASES.

 

Section 16.5. WAIVER OF COUNTERCLAIM. BORROWER WAIVES THE RIGHT TO ASSERT A
COUNTERCLAIM OR CROSS-COMPLAINT, OTHER THAN COMPULSORY OR MANDATORY
COUNTERCLAIMS OR CROSS-COMPLAINTS, IN ANY PROCEEDING LENDER OR TRUSTEE BRINGS
AGAINST BORROWER RELATING TO THE LOAN, INCLUDING ANY PROCEEDING TO ENFORCE
REMEDIES.

 

Section 16.6. [INTENTIONALLY OMITTED]

 

Section 16.7. WAIVER OF SUBROGATION. BORROWER WAIVES ALL RIGHTS OF SUBROGATION
TO LENDER’S RIGHTS OR CLAIMS RELATED TO OR AFFECTING THE PROPERTY OR ANY OTHER
SECURITY FOR THE LOAN UNTIL THE LOAN IS PAID IN FULL AND ALL FUNDING OBLIGATIONS
UNDER THE LOAN DOCUMENTS HAVE BEEN TERMINATED.

 

Section 16.8. GENERAL WAIVER. BORROWER ACKNOWLEDGES THAT

 

(a) BORROWER AND BORROWER’S PARTNERS, MEMBERS OR PRINCIPALS, AS THE CASE MAY BE,
ARE KNOWLEDGEABLE BORROWERS OF COMMERCIAL FUNDS AND EXPERIENCED REAL ESTATE
DEVELOPERS OR INVESTORS WHO UNDERSTAND FULLY THE EFFECT OF THE ABOVE PROVISIONS;

 

(b) LENDER WOULD NOT MAKE THE LOAN WITHOUT THE PROVISIONS OF THIS ARTICLE;

 

(c) THE LOAN IS A COMMERCIAL OR BUSINESS LOAN UNDER THE LAWS OF THE STATE OR
COMMONWEALTH WHERE THE PROPERTY IS LOCATED NEGOTIATED BY LENDER AND BORROWER AND
THEIR RESPECTIVE ATTORNEYS AT ARMS’ LENGTH; AND

 

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(d) ALL WAIVERS BY BORROWER IN THIS ARTICLE HAVE BEEN MADE VOLUNTARILY,
INTELLIGENTLY AND KNOWINGLY, AFTER BORROWER FIRST HAS BEEN INFORMED BY COUNSEL
OF BORROWER’S OWN CHOOSING AS TO POSSIBLE ALTERNATIVE RIGHTS, AND HAVE BEEN MADE
AS AN INTENTIONAL RELINQUISHMENT AND ABANDONMENT OF A KNOWN RIGHT AND PRIVILEGE.
THE FOREGOING ACKNOWLEDGEMENT IS MADE WITH THE INTENT THAT LENDER AND ANY
SUBSEQUENT HOLDER OF THE NOTE WILL RELY ON THE ACKNOWLEDGMENT.

 

ARTICLE 17

NOTICES

 

Section 17.1. Notices. All acceptances, approvals, consents, demands, notices,
requests, waivers and other communications (the “Notices”) required or permitted
to be given under the Loan Documents must be in writing and (a) delivered
personally by a process server providing a sworn declaration evidencing the date
of service, the individual served, and the address where the service was made;
(b) sent by certified mail, return receipt requested; or (c) delivered by
nationally recognized overnight delivery service that provides evidence of the
date of delivery, with all charges prepaid (for next available morning delivery
if sent by overnight delivery service), addressed to the appropriate party at
its address listed below:

 

If to Lender:

 

Teachers Insurance and Annuity

   

Association of America

   

730 Third Avenue

   

New York, New York 10017

   

Attention:   Director Portfolio Management

   

Mortgage and Real Estate

   

West Coast Region

   

Application #AAA-3436

   

Mortgage #000566900

with a courtesy copy to:

 

Teachers Insurance and Annuity

   

Association of America

   

730 Third Avenue

   

New York, New York 10017

   

Attention:       Vice President and Chief Counsel

   

Mortgage and Real Estate Law

   

Application #AAA-3436

   

Mortgage #000566900

And to:

 

Mayer, Brown, Rowe & Maw LLP

   

350 South Grand Avenue, 25th Floor

   

Los Angeles, California 90071-1503

   

Attn: Louis P. Eatman, Esq.

If to Borrower:

 

Kilroy Realty, L.P.

   

12200 West Olympic Boulevard, Suite 200

 

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Los Angeles, California 90064

   

Attn: Mr. Tyler H. Rose &

   

Mr. Timothy M. Schoen

with a courtesy copy to:

 

Latham & Watkins LLP

   

633 West 5th Street, Suite 4000

   

Los Angeles, California 90071

   

Attn: Jennifer Upham Saunders, Esq.

 

Lender and Borrower each may change from time to time the address to which
Notices must be sent, by notice given in accordance with the provisions of this
Section. All Notices given in accordance with the provisions of this Section
will be deemed to be effective as of the earliest of (i) actual receipt; (ii)
Borrower’s rejection of delivery; or (iii) the third Business Day after having
been deposited in any mail depository regularly maintained by the United States
postal service, if sent by certified mail, or the first Business Day after
having been deposited with a nationally recognized overnight delivery service,
if sent by overnight delivery, or on the date of personal service, if served by
a process server.

 

Section 17.2. Change in Borrower’s Name, Place of Business or State of
Formation. Borrower will immediately notify Lender in writing of any change in
Borrower’s legal name, principal place of business, or state of organization,
including as a result of, or in connection with, any Transfer, including any
Permitted Transfer.

 

Section 17.3. Request for Notice. Borrower requests that a copy of any statutory
notice of default or sale hereunder be mailed to Borrower at the address set
forth in this Article.

 

ARTICLE 18

MISCELLANEOUS

 

Section 18.1. Applicable Law. The Loan Documents are governed by and will be
construed in accordance with the Laws of the state or commonwealth in which the
Property is located without regard to conflict of law provisions, except to the
extent that the Uniform Commercial Code requires otherwise.

 

Section 18.2. Usury Limitations. Borrower and Lender intend to comply with all
Laws with respect to the charging and receiving of interest. Any amounts charged
or received by Lender for the use or forbearance of the Principal to the extent
permitted by Law, will be amortized and spread throughout the Term until payment
in full so that the rate or amount of interest charged or received by Lender on
account of the Principal does not exceed the Maximum Interest Rate. If any
amount charged or received under the Loan Documents that is deemed to be
interest is determined to be in excess of the amount permitted to be charged or
received at the Maximum Interest Rate, the excess will be deemed to be a
prepayment of Principal when paid, without premium, and any portion of the
excess not capable of being so applied will be refunded to Borrower. If during
the Term the Maximum Interest Rate, if any, is eliminated, then for purposes of
the Loan, there will be no Maximum Interest Rate.

 

Section 18.3. Lender’s Discretion. Wherever under the Loan Documents any matter
is required to be satisfactory to Lender, Lender has the right to make requests
or approve or

 

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determine any matter or Lender has an election, Lender’s request, approval,
determination or election will be made in Lender’s reasonable discretion unless
expressly provided to the contrary.

 

Section 18.4. Unenforceable Provisions. If any provision in the Loan Documents
is found to be illegal or unenforceable or would operate to invalidate any of
the Loan Documents, then the provision will be deemed expunged and the Loan
Documents will be construed as though the provision was not contained in the
Loan Documents and the remainder of the Loan Documents will remain in full force
and effect.

 

Section 18.5. Survival of Borrower’s Obligations. Borrower’s representations,
warranties and covenants contained in the Loan Documents will continue in full
force and effect and survive (i) satisfaction of the Obligations; (ii)
reconveyance of the lien of this Deed of Trust by Trustee; (iii) assignment or
other transfer of all or any portion of Lender’s interest in the Loan Documents
or the Property; (iv) Lender’s or Trustee’s exercise of any of the Remedies or
any of Lender’s or Trustee’s other rights under the Loan Documents; (v) a
Transfer; (vi) amendments to the Loan Documents; and (vii) any other act or
omission that might otherwise be construed as a release or discharge of
Borrower.

 

Section 18.6. Relationship Between Borrower and Lender; No Third Party
Beneficiaries.

 

(a) Lender is not a partner of or joint venturer with Borrower or any other
entity as a result of the Loan or Lender’s rights under the Loan Documents; the
relationship between Lender and Borrower is strictly that of creditor and
debtor. Each Loan Document is an agreement between the parties to that Loan
Document for the mutual benefit of such parties, and no entities other than the
parties to that Loan Document will be a third party beneficiary or will have any
claim against Lender or Borrower by virtue of the Loan Document. As between
Lender and Borrower, any actions taken by Lender under the Loan Documents will
be taken for Lender’s protection only, and Lender has not and will not be deemed
to have assumed any responsibility to Borrower or to any other entity by virtue
of Lender’s actions.

 

(b) All conditions to Lender’s performance of its obligations under the Loan
Documents are imposed solely for the benefit of Lender. No entity other than
Lender will have standing to require satisfaction of the conditions in
accordance with their provisions or will be entitled to assume that Lender will
refuse to perform its obligations in the absence of strict compliance with any
of the conditions.

 

Section 18.7. Partial Reconveyances or Releases, Extensions, Waivers. Lender
may: (i) permit the reconveyance of any part of the Property or release any
entity obligated for any of the Obligations; (ii) extend the time for payment or
performance of any of the Obligations or otherwise amend the provisions for
payment or performance by agreement with any entity that is obligated for the
Obligations or that has an interest in the Property; (iii) accept additional
security for the payment and performance of the Obligations; and (iv) waive any
entity’s performance of an Obligation, release any entity or individual now or
in the future liable for the performance of the Obligation or waive the exercise
of any Remedy or option. Lender may exercise any of the foregoing rights without
notice, without regard to the amount of any

 

45

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

consideration given, without affecting the priority of the Loan Documents,
without releasing any entity not specifically released from its obligations
under the Loan Documents, without releasing any guarantor(s) or surety(ies) of
the Obligations, without effecting a novation of the Loan Documents and, with
respect to a waiver, without waiving future performance of the Obligation or
exercise of the Remedy waived.

 

Section 18.8. Service of Process. Borrower and Lender each irrevocably consent
to service of process by registered or certified mail, postage prepaid, return
receipt requested, to it at its address set forth in the Article entitled
“Notices”.

 

Section 18.9. Entire Agreement. Oral agreements or commitments between Borrower
and Lender to lend money, to extend credit or to forbear from enforcing
repayment of a debt, including promises to extend or renew the debt, are not
enforceable. Any agreements among Borrower, Lender and Trustee relating to the
Loan are contained in the Loan Documents, which contain the complete and
exclusive statement of the agreements among Borrower, Lender and Trustee, except
as Borrower, Lender and, if applicable, Trustee may later agree in writing to
amend the Loan Documents. The language of each Loan Document will be construed
as a whole according to its fair meaning and will not be construed against the
party by or for whom it was drafted.

 

Section 18.10. No Oral Amendment. The Loan Documents may not be amended, waived
or terminated orally or by any act or omission made individually by Borrower,
Lender or Trustee but may be amended, waived or terminated only by a written
document signed by the party against which enforcement of the amendment, waiver
or termination is sought.

 

Section 18.11. Severability. The invalidity, illegality or unenforceability of
any provision of any of the Loan Documents will not affect any other provisions
of the Loan Documents, which will be construed as if the invalid, illegal or
unenforceable provision never had been included.

 

Section 18.12. Covenants Run with the Land. Subject to the restrictions on
transfer contained in the Article entitled “TRANSFERS, LIENS AND ENCUMBRANCES”,
all of the covenants of this Deed of Trust and the Assignment run with the Land,
will bind all parties hereto and all tenants and subtenants of the Land or the
Improvements and their respective heirs, executors, administrators, successors
and assigns, and all occupants and subsequent owners of the Property, and will
inure to the benefit of Lender and all subsequent holders of the Note and this
Deed of Trust.

 

Section 18.13. Time of the Essence. Time is of the essence with respect to
Borrower’s payment and performance of the Obligations.

 

Section 18.14. Subrogation. If the Principal or any other amount advanced by
Lender is used directly or indirectly to pay off, discharge or satisfy all or
any part of an encumbrance affecting the Property, then Lender is subrogated to
the encumbrance and to any security held by the holder of the encumbrance, all
of which will continue in full force and effect in favor of Lender as additional
security for the Obligations.

 

Section 18.15. [INTENTIONALLY OMITTED]

 

46

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

Section 18.16. Successors and Assigns. The Loan Documents bind the parties to
the Loan Documents and their respective successors, assigns, heirs,
administrators, executors, agents and representatives and inure to the benefit
of Lender and its successors, assigns, heirs, administrators, executors, agents
and representatives and, to the extent applicable, inure to the benefit of
Trustee and its successors, assigns, heirs, administrators, executors, agents
and representatives.

 

Section 18.17. Duplicates and Counterparts. Duplicate counterparts of any of the
Loan Documents, other than the Note, may be executed and together will
constitute a single original document.

 

ARTICLE 19

TRUSTEE PROVISIONS

 

Section 19.1. Acceptance of Trust.

 

(a) Trustee accepts this Trust upon recordation of this Deed of Trust as
provided by Law. Except as provided by Law, Trustee is not obligated to notify
any party of a pending sale under this Deed of Trust or of a Proceeding in which
Borrower, Lender or Trustee is a party.

 

(b) Lender may from time to time unilaterally substitute a successor to Trustee
pursuant to a recordable instrument that complies with Law for substitution of
Trustees. The recorded substitution will be conclusive proof of proper
substitution of trustee who will, without conveyance from predecessor trustee,
succeed to all of the predecessor trustee’s title, estate, rights, powers and
duties.

 

Section 19.2. Reconveyance After Payment. Upon written request of Lender stating
that all of the Obligations have been paid, upon surrender of this Deed of Trust
to Trustee for cancellation and retention and upon payment to Trustee of its
fees, costs and expenses incurred or to be incurred thereby, Trustee shall
reconvey, without warranty, the Property then held hereunder. The recitals in
such reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The grantee in such reconveyance may be described as “the
person or persons legally entitled thereto.”

 

[SIGNATURE PAGE FOLLOWS]

 

47

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IN WITNESS WHEREOF, Borrower has executed and delivered this Deed of Trust as of
the date first set forth above.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

         

By

 

KILROY REALTY CORPORATION,

a Maryland corporation,

Its General Partner

   

By:

 

/s/    Tyler H. Rose

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

   

Name:

 

Tyler H. Rose

   

Its:

 

Senior Vice President and Treasurer

   

By:

 

/s/    Timothy M. Schoen

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

   

Name:

 

Timothy M. Schoen

   

Its:

 

Vice President – Corporate Finance

 

 

 

S-1

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

ACKNOWLEDGMENT

 

STATE OF CALIFORNIA            )

                                                         )SS.

COUNTY OF LOS ANGELES     )

 

On January 30, 2004, before me, Claudia M. Thomas, a Notary Public, personally
appeared Tyler H. Rose and Timothy M. Schoen, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the persons whose names are
subscribed to the within instrument and acknowledged to me that they executed
the same in their authorized capacities, and that by their signatures on the
instrument, the persons, or the entities upon behalf of which the persons acted,
executed the instrument.

 

WITNESS my hand and official seal.

 

[Seal]

      /s/    Claudia M. Thomas                

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

        Notary Public

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

Exhibit A

LEGAL DESCRIPTION

 

DESCRIPTION OF REAL PROPERTY

 

THE FOLLOWING LAND SITUATED IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE
OF CALIFORNIA, DESCRIBED AS FOLLOWS:

 

PARCEL A: (ASSESSOR’S PARCEL NO. 307-410-12)

 

PARCEL 1 OF PARCEL MAP NO. 17382, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO,
STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, JUNE 30, 1994 AS FILE NO. 1994-0414824 OF OFFICIAL RECORDS.

 

PARCEL B: (ASSESSOR’S PARCEL NO. 307-410-15 THROUGH 18, 20 AND 21)

 

PARCELS 1 THROUGH 4 INCLUSIVE, AND PARCELS 6 AND 7 OF PARCEL MAP NO. 18350 IN
THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY ON SEPTEMBER 30, 1999 AS FILE
NO. 1999-0664638 OF OFFICIAL RECORDS.

 

PARCEL C:

 

NON-EXCLUSIVE EASEMENTS OVER AND ACROSS THE COMMON AREA, AS CONVEYED, SET FORTH
AND DESCRIBED IN THAT CERTAIN “AGREEMENT BETWEEN LANDOWNERS INCLUDING COVENANTS,
CONDITIONS AND RESTRICTIONS AND GRANT OF EASEMENTS FOR CARMEL CENTER AND
INCLUDING AMENDMENT AND RESTATEMENT OF FORMER DECLARATION AND TERMINATION OF
PRIOR GRANTS OF EASEMENTS” DATED AS OF MARCH 22, 2002, EXECUTED BY KILROY
REALTY, L.P., A DELAWARE LIMITED PARTNERSHIP, RECORDED MARCH 25, 2002, AS
INSTRUMENT NO. 2002-0245385 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.

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

Exhibit B

DEFINITIONS

 

“Acceleration” is defined in Section 14.2(a)(i).

 

“Accumulations” is defined in Section 2.1(xii).

 

“Accumulations Depositary” is defined in Section 6.3(a).

 

“Additional Funds” is defined in Section 7.4(v).

 

“Adjacent Office Building Parcel” is defined in Section 5.7.

 

“Allocated Loan Amount” is defined in Section 12.4(xiv).

 

“Allocable Insurance Premium Amount” is defined as that portion of the aggregate
Insurance Premiums allocable to the Property (as reasonably determined by
Lender), rather than to other properties owned by Borrower and also covered by
the blanket policies in respect of which such Insurance Premiums are payable.
The Allocable Insurance Premium Amount shall equal the amount of the Insurance
Premiums if no portion of such Insurance Premiums is payable with respect to
blanket policies covering property other than the Property.

 

“Annual Financial Statement” is defined in Section 10.1(a) (i).

 

“Assessments” is defined as all assessments now or hereafter levied, assessed or
imposed against the Property.

 

“Assignment” is defined as the Assignment of Leases and Rents dated of even date
with this Deed of Trust made by Borrower for the benefit of Lender with respect
to the Leases and Rents.

 

“Bankruptcy Code” is defined as Title 11 of the United States Code.

 

“Borrower” is defined in the introductory paragraph.

 

“Business Day” is defined as any day on which commercial banks are not
authorized or required by Law to close in Los Angeles, California.

 

“Casualty” is defined as damage to or destruction of the Property by fire or
other casualty.

 

“CC&Rs” is defined in Section 5.7.

 

“Code” is defined as the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.

 

“Commitment” is defined in Section 12.5(vii).

 

“Condemnation” is defined as the permanent or temporary taking of all or any
portion of the Property, or any interest therein or right accruing thereto, by
the exercise of the right of eminent

 

B-1

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

domain (including any transfer in lieu of or in anticipation of the exercise of
the right), inverse condemnation or any similar injury or damage to or decrease
in the value of the Property, including severance and change in the grade of any
streets.

 

“Condemnation Awards” is defined in Section 2.1(viii).

 

“Condemnation Proceeding” is defined as a Proceeding that could result in a
Condemnation.

 

“CPA” is defined as an independent certified public accountant satisfactory to
Lender.

 

“Debt” is defined in Section 3.1.

 

“Debt Service Payments” is defined as the monthly installments of principal and
interest payable by Borrower to Lender as set forth in the Note.

 

“Deed of Trust” is defined in the Recitals.

 

“Default Interest Rate” is defined as the lower of the sum of five percent (5%)
plus the Fixed Interest Rate or the Maximum Interest Rate, if any.

 

“Destruction Event” is defined in Section 7.4.

 

“Destruction Event Threshold” is defined as $1,000,000 minus the following, each
determined as of each occasion that the Destruction Event Threshold is to be
applied:

 

(i) the aggregate cost of all Restorations necessitated by all Casualties and
Condemnations which have occurred to the Property, except such Restorations as
have been completed and paid for in full and all insurance claims and/or
condemnation awards for which have been paid and the funds applied as provided
in the Deed of Trust; and

 

(ii) with respect to all Condemnations which have occurred to the Property and
as to which Restoration is not possible, the aggregate amount of all
condemnation award claims with respect thereto, except such claims which have
been paid and the proceeds of which have been applied as provided in the Deed of
Trust.

 

“Environmental Activity” is defined as any actual, suspected or threatened
abatement, cleanup, disposal, generation, handling, manufacture, possession,
release, remediation, removal, storage, transportation, treatment or use of any
Hazardous Substances. The actual, suspected or threatened presence of any
Hazardous Substances, or the actual, suspected or threatened noncompliance with
any Environmental Laws, will be deemed Environmental Activity.

 

“Environmental Laws” is defined as all Laws pertaining to the effect of the
environment on human health or safety, protection of the environment, natural
resources, conservation, wildlife, waste management, Environmental Activities
and pollution.

 

“Environmental Report” is defined as the report shown in Schedule 1
corresponding to the Note.

 

“ERISA” is defined in Section 8.3(a).

 

B-2

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

“Event of Default” is defined in Section 14.1.

 

“Expenses” is defined in Section 11.1(a).

 

“Financial Books and Records” is defined as detailed accounts of the income and
expenses of the Property and the business and affairs of Borrower relating to
the Property and all other data, records and information that either are
specifically referred to in the Article entitled “FINANCIAL REPORTING” or are
necessary to the preparation of any of the statements, reports or certificates
required under such Article and includes all supporting schedules prepared or
used in connection with the preparation or certification of the Annual Financial
Statement.

 

“Fiscal Year” is defined as any calendar year or partial calendar year during
the Term.

 

“Fixed Interest Rate” is defined in the Note.

 

“Fixtures and Personal Property” is defined in Section 2.1(iv).

 

“Government” is defined as any federal, state or municipal governmental or
quasi-governmental authority including executive, legislative or judicial
branch, division and any subdivision or agency of any of them and any entity to
which any of them has delegated authority.

 

“Hazardous Substances” is defined as (i) any by-product, chemical, compound,
material, mixture or substance that is now or hereafter defined or listed in, or
otherwise classified pursuant to, any Environmental Laws, as a “hazardous
substance”, “hazardous material”, “hazardous waste”, “extremely hazardous
waste”, infectious waste”, “toxic substance”, “toxic pollutant”, or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, or “EP toxicity”, (ii) any
petroleum, natural gas, natural gas liquid, liquified natural gas, synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas), ash
produced by a resource recovery facility utilizing a municipal solid waste
stream, and drilling fluids, produced waters, and other wastes associated with
the exploration, development or production of crude oil, natural gas, or
geothermal resources, and (iii) any underground storage tanks.

 

“Imposition Penalty Date” is defined in Section 6.1(a).

 

“Impositions” is defined as all Taxes, Assessments, ground rent, if any, water
and sewer rents, fees and charges, levies, permit, inspection and license fees
and other dues, charges or impositions, including all charges and license fees
for the use of vaults, chutes and similar areas adjoining the Land, maintenance
and similar charges and charges for utility services, in each instance whether
now or in the future, directly or indirectly, levied, assessed or imposed on the
Property or Borrower and whether levied, assessed or imposed as excise,
privilege or property taxes, in each case relating to the Property.

 

“Impound Agreement” is defined in Section 6.3(a).

 

“Improvements” is defined in Section 2.1(ii).

 

B-3

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

“Insurance Premiums” is defined as all present and future premiums and other
charges due and payable on policies of fire, rental value and other insurance
covering the Property and required pursuant to the provisions of this Deed of
Trust.

 

“Insurance Proceeds” is defined in Section 2.1(ix).

 

“Insurers” is defined in Section 7.1(c).

 

“Interest” is defined as the amount of all interest payable under the Note and
any other sums which could be deemed to be interest under Law.

 

“Interest Rate” is defined in the Note.

 

“KRC” is defined in Section 10.1(a)(i)(A).

 

“Land” is defined in the Recitals.

 

“Late Charges” is defined as all amounts payable under the Note as a “Late
Charge” as that term is defined in the Note.

 

“Law” is defined as all present and future codes, constitutions, cases,
opinions, rules, manuals, regulations, determinations, laws, orders, ordinances,
requirements and statutes, as amended, of any Government that affect or that may
be interpreted to affect the Property, Borrower or the Loan, including
amendments and all guidance documents and publications promulgated thereunder.

 

“Leases” is defined as all present and future leases, subleases, licenses and
other agreements for the use and occupancy of the Land and Improvements and
related Personal Property and Fixtures, any related guarantees and including any
use and occupancy arrangements created pursuant to Section 365 (h) of the
Bankruptcy Code or otherwise in connection with the commencement or continuation
of any bankruptcy, reorganization, arrangement, insolvency, dissolution,
receivership or similar Proceedings, or any assignment for the benefit of
creditors, in respect of any tenant or other occupant of the Land and
Improvements.

 

“Lender” is defined in the introductory paragraph.

 

“Loan” is defined in the Recitals.

 

“Loan Documents” is defined as, collectively, the Note, the Deed of Trust, the
Assignment, and all documents now or hereafter executed by Borrower or held by
Lender or Trustee relating to the Loan, including all amendments, but not
including any separate environmental indemnity provided to Lender in connection
with the Loan.

 

“Material Environmental Contamination” is defined as contamination of the
Property with Hazardous Substances (i) that constitutes a violation of one or
more Environmental Laws; (ii) for which there is a significant possibility that
remediation will be required under Environmental Laws; (iii) that results in a
material risk of liability or expense to Lender; or (iv) that materially
diminishes the value of the Property.

 

B-4

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

“Maturity Date” is defined in the Recitals.

 

“Maximum Interest Rate” is defined as the maximum rate of interest, if any,
permitted by Law to be charged with respect to the Loan as the maximum rate may
be increased or decreased from time to time.

 

“Note” is defined in the Recitals.

 

“Notices” is defined in Section 17.1.

 

“Obligations” is defined in Section 3.1.

 

“Parcel” is defined in Section 12.4.

 

“Permitted Exceptions” is defined as the matters shown in Schedule B, Part 1 and
2 of the title insurance policy insuring the lien of this Deed of Trust.

 

“Permitted Liens” is defined as the following: (i) liens for taxes, assessments
or other governmental charges not yet due and payable or (if later) not yet
required by this Deed of Trust to be paid or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted in
accordance with Section 6.1; (ii) statutory liens of carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which are
incurred in the ordinary course of business for sums not yet due and payable or
(if later) not yet required by this Deed of Trust to be paid or which are being
contested in good faith in accordance with Section 12.3; (iii) the interests of
lessors under leases of personal property to Borrower, made in the ordinary
course of business and on fair market terms, which personal property does not
have a fair market value at the time of execution of the lease in excess of
$10,000 for any single item or $50,000 in the aggregate for all leased items,
(iv) liens in favor of Lender under the Loan Documents and (v) leases of
Fixtures and Personal Property to tenants under Leases affecting the Property as
of the date hereof or entered into in accordance with the terms of the Loan
Documents.

 

“Permitted Transfers” is defined in Section 12.2(b).

 

“Permitted Use” is defined as a first-class commercial office building and uses
incidentally and directly related to such use.

 

“Policies” is defined in Section 7.1(b).

 

“Post-Substitution Property” is defined in Section 12.5(iii).

 

“Prepayment Premiums” is defined as all amounts payable under the Note as a
“Prepayment Premium,” “Evasion Premium” or “Reconveyance Premium” as those terms
are defined in the Note.

 

“Principal” is defined in the Recitals.

 

B-5

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

“Proceeding” is defined as a pending or threatened action, claim or litigation
before a legal, equitable or administrative tribunal having proper jurisdiction.

 

“Proceeds” is defined in Section 7.2(c).

 

“Property” is defined in Section 2.1.

 

“Property Documents” is defined in Section 2.1(v).

 

“Receiver” is defined as a receiver, custodian, trustee, liquidator or
conservator of the Property.

 

“Reconveyance Premium” is defined in the Note.

 

“Release Parcel” is defined in Section 12.4.

 

“Remedies” is defined in Section 14.2(a).

 

“Rents” is defined as all present and future rents, prepaid rents, percentage,
participation or contingent rents, issues, profits, proceeds, parking fees,
revenues and other consideration accruing under or in connection with the Leases
or otherwise derived from the use and occupancy of the Land or the Improvements,
including tenant contributions to expenses, security deposits, royalties and
contingent rent, if any, all other fees, accounts, accounts receivable or
payments paid to or for the benefit of Borrower, including liquidated damages
after a default under a lease, any termination, cancellation, modification or
other fee or premium payable by tenant for any reason and the proceeds of any
rental insurance, and any payments received pursuant to Sections 502(b) or 365
of the Bankruptcy Code or otherwise in connection with the commencement or
continuance of any bankruptcy, reorganization, arrangement, insolvency,
dissolution, receivership or similar proceedings, or any assignment for the
benefit of creditors, in respect of any tenant or other occupant of the Land or
the Improvements and all claims as a creditor in connection with any of the
foregoing.

 

“Restoration” is defined as the restoration of the Property after a Destruction
Event as nearly as possible to its condition immediately prior to the
Destruction Event, in accordance with the plans and specifications, in a
first-class workmanlike manner using materials substantially equivalent in
quality and character to those used for the original improvements, in accordance
with Law and free and clear of all liens, encumbrances or other charges other
than this Deed of Trust, the Permitted Exceptions and the Permitted Liens.

 

“Restoration Completion Date” is defined in Section 7.4(viii).

 

“Restoration Funds” is defined in Section 7.5(b).

 

“Substitute Parcel” is defined in Section 12.5.

 

“Substitution Release Parcel” is defined in Section 12.5(ii)(A).

 

“Taxes” is defined as all present and future real estate taxes levied, assessed
or imposed against the Property.

 

B-6

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

“Term” is defined as the scheduled term of this Deed of Trust commencing on the
date Lender makes the first disbursement of the Loan and terminating on the
Maturity Date.

 

“Transfer” is defined in Section 12.1(a).

 

“Trustee” is defined in the introductory paragraph.

 

“Uniform Commercial Code” is defined as the Uniform Commercial Code in effect in
the jurisdiction where the Land is located or, to the extent required by the
Uniform Commercial Code, where the Borrower is located, as applicable.

 

B-7

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Exhibit C

RULES OF CONSTRUCTION

 

(a) References in any Loan Document to lettered or numbered Exhibits or
Schedules are references to the Exhibits or Schedules attached to that Loan
Document, all of which are incorporated in and constitute a part of that Loan
Document. Article, Section, Exhibit and Schedule captions used in any Loan
Document are for reference only and do not describe or limit the substance,
scope or intent of that Loan Document or the individual Articles, Sections,
Exhibits or Schedules of that Loan Document.

 

(b) The terms “include”, “including” and similar terms are construed as if
followed by the phrase “without limitation”.

 

(c) The terms “Land”, “Improvements”, “Fixtures and Personal Property”,
“Condemnation Awards”, “Insurance Proceeds” and “Property” are construed as if
followed by the phrase “or any part thereof”.

 

(d) Any agreement by or duty imposed on Borrower in any Loan Document to perform
any obligation or to refrain from any act or omission constitutes a covenant
running with the ownership or occupancy of the Land and the Improvements, which
will bind all parties hereto and their respective successors and assigns, and
all lessees, subtenants and assigns of same, and all occupants and subsequent
owners of the Property, and will inure to the benefit of Lender and all
subsequent holders of any of the Note and this Deed of Trust and includes a
covenant by Borrower to cause its partners, members, principals, agents,
representatives and employees to perform the obligation or to refrain from the
act or omission in accordance with the Loan Documents. Any statement or
disclosure contained in any Loan Document about facts or circumstances relating
to the Property, Borrower or the Loan constitutes a representation and warranty
by Borrower made as of the date of the Loan Document in which the statement or
disclosure is contained.

 

(e) The term “to Borrower’s knowledge” is construed as meaning to the best of
Borrower’s knowledge after diligent inquiry.

 

(f) The singular of any word includes the plural and the plural includes the
singular. The use of any gender includes all genders.

 

(g) The terms “person”, “party” and “entity” include natural persons, firms,
partnerships, limited liability companies and partnerships, corporations and any
other public or private legal entity.

 

(h) The term “provisions” includes terms, covenants, conditions, agreements and
requirements.

 

(i) The term “amend” includes modify, supplement, renew, extend, replace or
substitute and the term “amendment” includes modification, supplement, renewal,
extension, replacement and substitution.

 

C-1

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

(j) Reference to any specific Law or to any document or agreement, including the
Note, this Deed of Trust, any of the other Loan Documents, the Leases and the
Property Documents, includes any future amendments to the Law, document or
agreement, as the case may be.

 

(k) No inference in favor of or against a party with respect to any provision in
any Loan Document may be drawn from the fact that the party drafted the Loan
Document.

 

(l) The term “certificate” means the sworn, notarized statement of the entity
giving the certificate, made by a duly authorized person satisfactory to Lender
affirming the truth and accuracy of every statement in the certificate. Any
document that is “certified” means the document has been appended to a
certificate of the entity certifying the document that affirms the truth and
accuracy of everything in the document being certified. In all instances the
entity issuing a certificate must be satisfactory to Lender.

 

(m) Any appointment of Lender as Borrower’s attorney-in-fact is irrevocable and
coupled with an interest. Lender may appoint a substitute attorney-in-fact.
Borrower ratifies all actions taken by the attorney-in-fact but, nevertheless,
if Lender requests, Borrower will specifically ratify any action taken by the
attorney-in-fact by executing and delivering to the attorney-in-fact or to any
entity designated by the attorney-in-fact all documents necessary to effect the
ratification.

 

(n) Any document, instrument or agreement to be delivered by Borrower will be in
form and content satisfactory to Lender.

 

(o) All obligations, rights, remedies and waivers contained in the Loan
Documents will be construed as being limited only to the extent required to be
enforceable under the Law.

 

(p) The unmodified word “days” means calendar days.

 

C-2

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

SCHEDULE 1

 

Parcels and Ratios

 

PARCEL

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

   RATIO

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

1. That property described as Parcel 2 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3611 Valley Centre Drive).

   $ 25,000,000     

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

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

     $ 81,000,000         

2. That property described as Parcel 3 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3661 Valley Centre Drive).

   $ 23,000,000     

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

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

     $ 81,000,000         

3. That property described as Parcel 4 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3721 Valley Centre Drive).

   $ 22,000,000     

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

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

     $ 81,000,000         

4. That property described as Parcel 1 of Parcel Map 17382 on Exhibit A attached
hereto

(and commonly referred to as 3579 Valley Centre Drive).

   $ 11,000,000     

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

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

     $ 81,000,000

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

TIAA Appl. #AAA3707

 

PROMISSORY NOTE

 

$34,000,000.00

  Del Mar, California

 

March 30, 2004

 

FOR VALUE RECEIVED, KILROY REALTY, L.P., a Delaware limited partnership
(“Borrower”), having its principal place of business at 12200 West Olympic
Boulevard, Suite 200, Los Angeles, CA 90064, promises to pay to TEACHERS
INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (“Lender”), a New York corporation,
or order, at Lender’s offices at 730 Third Avenue, New York, New York 10017 or
at such other place as Lender designates in writing, the principal sum of
Thirty-Four Million and 00/100 Dollars ($34,000,000.00) (the principal sum or so
much of the principal sum as may be advanced and outstanding from time to time,
whichever is less, the “Principal”), in lawful money of the United States of
America, with interest on the Principal from and after the date advanced by
Lender at the Interest Rate (defined below) in effect from time to time and as
otherwise provided herein.

 

On February 3, 2004, Lender made a loan to Borrower in the amount of
$81,000,000.00 (“Loan No. 1”) evidenced by that certain Promissory Note dated
February 3, 2004 in that amount, as modified by that certain Modification to
Deed of Trust and Other Loan Documents (the “Modification Agreement”) dated the
date hereof among Borrower, Chicago Title Company, as trustee (“Trustee”), and
Lender, intended to be recorded in the Official Records, San Diego County,
California, Recorder’s Office (the “Official Records”) (collectively, “Note No.
1”). Note No.1 and this Note are secured by that certain Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing Statement
dated February 3, 2004, made by Borrower in favor of Trustee for the benefit of
Lender recorded in the Official Records on February 3, 2004 as document no.
2004-0084482, as modified by the Modification Agreement (collectively, the “Deed
of Trust”) and by that certain Assignment of Leases and Rents dated February 3,
2004 by Borrower to Lender recorded in the Official Records on February 3, 2004
as document no. 2004-0084483, as modified by the Modification Agreement
(collectively the “Assignment”).

 

The Principal shall bear interest at a rate per annum equal to: (i) during the
period from and including the date hereof and through and including June 30,
2004, two and eighty-six one hundredths percent (2.86%); (ii) during the period
from and including July 1, 2004 and through and including September 30, 2004 the
sum of (x) the LIBOR Rate (as defined below) plus (y) 175 basis points; and
(iii) during the period from and including October 1, 2004 through the date that
all indebtedness hereunder is paid in full, four and ninety-five one-hundredths
percent (4. 95%) ( the “Fixed Interest Rate,” with the interest rate in effect
from time to time pursuant to clause (i), (ii), or (iii) above, as applicable,
the “Interest Rate”). The LIBOR Rate will be the average bid quoted for ninety
(90) day LIBOR deposits on the page numbered 3750 on the Telerate system
determined at 4:00 p.m. Eastern Standard Time on June 29, 2004.

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

This Promissory Note (this “Note”) evidences a loan (the “Loan”) in the original
amount of Thirty-Four Million and 00/100 Dollars ($34,000,000.00). This Note is
secured by, among other things, the Deed of Trust. All capitalized terms not
expressly defined in this Note will have the definitions set forth in the Deed
of Trust.

 

Section 1. Payments of Principal and Interest.

 

(a) Borrower will make monthly installment payments (“Debt Service Payments”) as
follows:

 

(i) On the date hereof, a payment of accrued interest on the Principal for the
balance of March, 2004 at the Interest Rate;

 

(ii) On May 1, 2004, and on the first Business Day of each succeeding calendar
month through and including October 1, 2004, payments of accrued interest on the
Principal at the Interest Rate; and

 

(iii) On November 1, 2004 and on the first Business Day of each succeeding
calendar month through and including July 1, 2012, payments in the amount of One
Hundred Eighty-One Thousand Four Hundred Eighty-One and 80/100ths Dollars
($181,481.80) (subject to adjustment as provided in Section 2(b)(iii) below),
each of which will be applied first to accrued interest on the Principal at the
Fixed Interest Rate and then to the Principal.

 

(a) On August 1, 2012 (the “Maturity Date”), Borrower will pay the Principal in
full together with accrued interest at the Interest Rate and all other amounts
due under the Loan Documents.

 

(b) In addition to the foregoing, Borrower shall pay to Lender, as long as
Lender shall be required to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency funds or deposits, additional
interest on the Principal of the Loan equal to the actual costs of such reserves
allocated to the Loan by Lender (as determined by Lender in good faith, which
determination shall be conclusive), which shall be due and payable on each date
on which interest is payable on the Loan, provided Borrower shall have received
at least 15 days’ prior notice of such additional interest from Lender. If
Lender fails to give notice 15 days prior to the relevant date on which interest
is payable, such additional interest shall be due and payable on the first date
on which interest is otherwise payable under the Loan which is at least 15 days
from receipt of such notice.

 

Section 2. Prepayment Provisions.

 

(a) The following definitions apply:

 

“Discount Rate” means the yield on a U.S. Treasury issue selected by Lender, as
published in The Wall Street Journal two weeks prior to the date as of which the
applicable Prepayment Premium, Evasion Premium or Reconveyance Premium, as the
case may be, is calculated (as

 

2

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

specified below), having a maturity date corresponding (or most closely
corresponding, if not identical) to the Maturity Date and, if applicable, a
coupon rate corresponding (or most closely corresponding, if not identical) to
the Fixed Interest Rate.

 

“Default Discount Rate” means the Discount Rate less 300 basis points.

 

“Discounted Value” means the Discounted Value of a Note Payment based on the
following formula:

 

NP

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

         

(1 + R/12)n

   =    Discounted Value where:

 

NP

   =    amount of Note Payment

R

   =    Prepayment Discount Rate, Default Discount Rate or Reconveyance Discount
Rate, as the case may be.

n

   =    the number of months between the date as of which a Prepayment Premium,
Evasion Premium or Reconveyance Premium, as the case may be, is calculated (as
specified below) and the scheduled date of the Note Payment being discounted
rounded to the nearest integer.

 

“Evasion Premium” means, with respect to any prepayment or Acceleration giving
rise to such Evasion Premium that occurs (i) prior to the Permitted Prepayment
Date (as defined below), the greater of the following, calculated as of the date
of the applicable prepayment or Acceleration: (x) an amount equal to the product
of one percent (1%) plus 300 basis points times the Prepayment Date Principal,
and (y) the amount by which the sum of the Discounted Values of the Note
Payments, determined by using the Default Discount Rate, exceeds the Prepayment
Date Principal, and (ii) on or after the Permitted Prepayment Date, an amount
equal to the Prepayment Premium. In order to calculate the amount in clause (y)
above, each remaining Note Payment will be discounted and the resulting
Discounted Values will be added together.

 

“Note Payments” means (i) the scheduled Debt Service Payments for the period
from the date as of which the Prepayment Premium, Evasion Premium or
Reconveyance Premium is calculated (as specified below) through the Maturity
Date and (ii) the scheduled repayment of Principal, if any, on the Maturity
Date.

 

“Prepayment Date Principal” means the Principal outstanding under this Note on
the date as of which a Prepayment Premium or Evasion Premium is calculated (as
specified below).

 

“Prepayment Discount Rate” means the Discount Rate plus 25 basis points.

 

“Prepayment Premium” means the greater of the following, calculated as of the
date of the applicable prepayment or Acceleration: (i) an amount equal to the
product of one percent (1%) times the Prepayment Date Principal and (ii) the
amount by which the sum of the Discounted Values of Note Payments, derived by
using the Prepayment Discount Rate,

 

3

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

exceeds the Prepayment Date Principal. In order to calculate the amount in
clause (ii) above, each remaining Note Payment will be discounted and the
resulting Discounted Values will be added together.

 

“Reconveyance Discount Rate” means the Discount Rate plus 25 basis points.

 

“Reconveyance Premium” means the greater of the following, calculated as of the
date of such prepayment: (i) an amount equal to the product of one percent (1%)
times the Note No. 2 Reconveyance Amount (as defined in the Deed of Trust) and
(ii) the amount by which the sum of the Discounted Values of those portions of
the Note Payments that are attributable to the Note No. 2 Reconveyance Amount,
derived by using the Reconveyance Discount Rate, exceeds such Note No. 2
Reconveyance Amount. In order to calculate the amount in clause (ii) above, that
portion of each remaining Note Payment attributable to the Note No. 2
Reconveyance Amount will be discounted and the resulting Discounted Values will
be added together.

 

(b) This Note may not be prepaid in full or in part before September 1, 2006
(the “Permitted Prepayment Date”). Commencing on the Permitted Prepayment Date,
this Note may be prepaid only as follows:

 

(i) Provided there is no Event of Default, Borrower may prepay this Note in
full, but not in part, upon not less than 60 days prior notice to Lender,
provided Note No.1 is simultaneously prepaid in full and not in part, and upon
payment in full of the Debt then due and owing on the date of such prepayment,
which will include (A) the prepayment premium required under Note No. 1 and (B)
the Prepayment Premium for this Note calculated as of the date of such
prepayment.

 

(ii) Provided there is no Event of Default, this Note may be prepaid in full,
but not in part, upon payment in full of the Debt then due and owing on the date
of such prepayment, without payment of the Prepayment Premium, provided Note No.
1 is simultaneously prepaid in full (but without payment of any prepayment
premium under Note No. 1), during the last 90 days of the Term upon not less
than 3 Business Days notice to Lender.

 

(iii) Provided there is no Event of Default, Borrower may prepay this Note, in
part, in the amount of the Note No. 2 Reconveyance Amount pursuant to the terms
of the Section of the Deed of Trust entitled “Reconveyance Rights,” upon payment
in full of the Note No. 2 Reconveyance Amount and all other amounts due and
payable under this Note at the time of such prepayment, which will include a
Reconveyance Premium calculated as of the date of such prepayment provided that
Note No. 1 is simultaneously prepaid in part pursuant to Section 2. (b) (iii) of
Note No. 1 in the amount of the Note

 

4

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

No. 1 Reconveyance Amount, and provided that Borrower simultaneously pays to the
Lender the prepayment premium required under Section 2. (b) (iii) of Note No. 1.
In the event of any partial prepayment of the Note expressly permitted pursuant
to the foregoing, the monthly payments due thereafter under this Note pursuant
to Section 1(a)(ii) above shall be reduced so as to equal the monthly payment
amount which would fully amortize the then-remaining Principal at the Fixed
Interest Rate in blended level payments over the number of full calendar months
between the date of such partial prepayment and October 1, 2034, all as
determined by Lender (provided that, the foregoing provision shall in no event
be interpreted as extending the maturity date of the loan beyond the “Maturity
Date” set forth in Section 1(b) above).

 

(c) After an Acceleration or upon any other prepayment not permitted by the Loan
Documents, any tender of payment of the amount necessary to satisfy the Debt
accelerated, any judgment of foreclosure, any statement of the amount due at the
time of foreclosure (including foreclosure by power of sale) and any tender of
payment made during any redemption period after foreclosure, will include an
Evasion Premium, calculated as of the date of the Acceleration or the date of
such unpermitted prepayment, as the case may be.

 

(d) Borrower acknowledges that:

 

(i) a prepayment of this Note without payment of the Prepayment Premium,
Reconveyance Premium or Evasion Premium (the “Premiums”), as applicable, will
cause damage to Lender;

 

(ii) the Premiums are intended to compensate Lender for the loss of its
investment and the expense incurred and time and effort associated with making
the Loan, which will not be fully repaid if the Loan is prepaid without payment
of the applicable Premium;

 

(iii) it will be extremely difficult and impracticable to ascertain the extent
of Lender’s damages caused by a prepayment after an Event of Default or any
other prepayment not permitted by the Loan Documents; and

 

(iv) the Premiums represent Lender and Borrower’s reasonable estimate of
Lender’s damages for a prepayment and is not a penalty.

 

(e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND TO
BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER’S WAIVER OF ANY
RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO

 

5

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

PREPAY THIS NOTE IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE
MATURITY DATE OF THIS NOTE, AND (2) BORROWER’S AGREEMENT, AS SET FORTH ABOVE, TO
PAY LENDER THE APPLICABLE PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF
THE PRINCIPAL INDEBTEDNESS EVIDENCED HEREBY FOLLOWING THE ACCELERATION OF THE
MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE DEED OF
TRUST, INCLUDING WITHOUT LIMITATION A DEFAULT ARISING FROM THE CONVEYANCE OF ANY
RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE DEED OF TRUST WHICH
IS NOT PERMITTED THEREBY, AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS
NOTE ON BORROWER’S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS
PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10. BY PLACING
ITS SIGNATURE BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL PARTNERS,
PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE KNOWLEDGEABLE REAL
ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY UNDERSTANDS THE EFFECT OF
THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY LENDER AT THE RATE SET FORTH
ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER, AND (IV) LENDER WOULD NOT
MAKE THE LOAN WITHOUT SUCH WAIVER.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

By:  

KILROY REALTY CORPORATION,

a Maryland corporation, its General Partner

   

By:

 

/s/    Tyler H. Rose        

       

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

   

Name:

  Tyler H. Rose    

Its:

  Senior Vice President and Treasurer    

By:

 

/s/    Timothy M. Schoen        

       

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

   

Name:

  Timothy M. Schoen    

Its:

  Vice President – Corporate Finance

 

Section 3. Events of Default:

 

(a) It is an “Event of Default” under this Note:

 

(i) if Borrower fails to pay any amount due, as and when required, under this
Note, Note No. 1 or any other Loan Document and the failure continues for a
period of 5 days; or

 

6

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

(ii) if an Event of Default occurs under (and as defined in) any other Loan
Document.

 

(b) If an Event of Default occurs, Lender may declare all or any portion of the
Debt immediately due and payable (“Acceleration”) and exercise any of the other
Remedies.

 

Section 4. Default Rate. Interest on the Principal will accrue at the Default
Interest Rate from the date an Event of Default occurs, and such interest shall
be payable upon demand.

 

Section 5. Late Charges.

 

(a) If Borrower fails to pay any Debt Service Payment when due and the failure
continues for a period of 5 days or more or fails to pay any amount then due and
payable under the Loan Documents on the Maturity Date, Borrower agrees to pay to
Lender an amount (a “Late Charge”) equal to five cents ($.05) for each one
dollar ($1.00) of the delinquent payment.

 

(b) Borrower acknowledges that:

 

(i) a delinquent payment will cause damage to Lender;

 

(ii) the Late Charge is intended to compensate Lender for loss of use of the
delinquent payment and the expense incurred and time and effort associated with
recovering the delinquent payment;

 

(iii) it will be extremely difficult and impracticable to ascertain the extent
of Lender’s damages caused by the delinquency; and

 

(iv) the Late Charge represents Lender and Borrower’s reasonable estimate of
Lender’s damages from the delinquency and is not a penalty.

 

Section 6. Limitation of Liability. This Note is subject to the limitations on
liability set forth in the Article of the Deed of Trust entitled “Limitation of
Liability”.

 

Section 7. WAIVERS. IN ADDITION TO THE WAIVERS SET FORTH IN THE ARTICLE OF THE
DEED OF TRUST ENTITLED “WAIVERS”, BORROWER WAIVES PRESENTMENT FOR PAYMENT,
DEMAND, DISHONOR AND, EXCEPT AS EXPRESSLY SET FORTH IN THE LOAN DOCUMENTS,
NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY PROTEST, LACK OF
DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF THE LOAN
DOCUMENTS. BORROWER AND ALL INDORSERS, SURETIES AND GUARANTORS OF THE
OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH

 

7

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

RESPECT TO THE OBLIGATIONS AND TO THE RELEASE OF ANY SECURITY FOR THIS NOTE AND
AGREE THAT ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND ADDITIONAL
INDORSERS, GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE AND WITHOUT
AFFECTING THE LIABILITY OF THE ORIGINAL MAKER OR ANY ORIGINAL INDORSER, SURETY
OR GUARANTOR.

 

Section 8. Commercial Loan. The Loan is made for the purpose of carrying on a
business or commercial activity or acquiring real or personal property as an
investment or carrying on an investment activity and not for personal or
household purposes.

 

Section 9. Usury Limitations. Borrower and Lender intend to comply with all Laws
with respect to the charging and receiving of interest. Any amounts charged or
received by Lender for the use or forbearance of the Principal to the extent
permitted by Law, will be amortized and spread throughout the Term until payment
in full so that the rate or amount of interest charged or received by Lender on
account of the Principal does not exceed the Maximum Interest Rate. If any
amount charged or received under the Loan Documents that is deemed to be
interest is determined to be in excess of the amount permitted to be charged or
received at the Maximum Interest Rate, the excess will be deemed to be a
permitted prepayment of Principal when paid, without premium, and any portion of
the excess not capable of being so applied will be promptly refunded to
Borrower. If during the Term the Maximum Interest Rate, if any, is eliminated,
then for purposes of the Loan, there will be no Maximum Interest Rate.

 

Section 10. Applicable Law. This Note is governed by and will be construed in
accordance with the Laws of California, without regard to conflict of law
provisions.

 

Section 11. Time of the Essence. Time is of the essence with respect to the
payment and performance of the Obligations.

 

Section 12. Cross-Default. A default under any other note now or hereafter
secured by the Loan Documents or under any loan document related to such other
note constitutes a default under this Note and under the other Loan Documents.
When the default under the other note constitutes an Event of Default under that
note or the related loan document, an Event of Default also will exist under
this Note and the other Loan Documents.

 

Section 13. Construction. Unless expressly provided otherwise in this Note, this
Note will be construed in accordance with the Exhibit attached to the Deed of
Trust entitled “Rules of Construction”.

 

Section 14. Mortgage Provisions Incorporated. To the extent not otherwise set
forth in this Note, the provisions of the Articles of the Deed of Trust entitled
“Expenses and Duty to Defend”, “Waivers”, “Notices”, and “Miscellaneous” and the
Section of the Deed of Trust entitled “General Provisions Pertaining to
Remedies” are applicable to this Note and deemed incorporated by reference as if
set forth at length in this Note.

 

8

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

Section 15. Joint and Several Liability; Successors and Assigns. This Note binds
Borrower and its successors, assigns, heirs, administrators, executors, agents
and representatives and inures to the benefit of Lender and its successors,
assigns, heirs, administrators, executors, agents and representatives.

 

Section 16. Absolute Obligation. Except for the Section of this Note entitled
“Limitation of Liability”, no reference in this Note to the other Loan Documents
and no other provision of this Note or of the other Loan Documents will impair
or alter the obligation of Borrower, which is absolute and unconditional, to pay
the Principal, interest at the Interest Rate and any other amounts due and
payable under this Note, as and when required.

 

[SIGNATURE PAGE FOLLOWS]

 

 

9

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

IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the date
first set forth above.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

By:   KILROY REALTY CORPORATION, a Maryland corporation,Its General Partner    

By:

 

/s/    Tyler H. Rose

       

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

   

Name:

  Tyler H. Rose    

Its:

  Senior Vice President and Treasurer    

By:

 

/s/    Timothy M. Schoen

       

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

   

Name:

  Timothy M. Schoen    

Its:

  Vice President – Corporate Finance

 

:

 

 

S-1

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

RECORDING REQUESTED BY AND

WHEN RECORDED, RETURN TO:

Robert C. Hayn, Esq.

Senior Counsel

Teachers Insurance and Annuity

Association of America

730 Third Avenue

New York, NY 10017

 

MODIFICATION TO DEED OF TRUST AND

OTHER LOAN DOCUMENTS

 

This MODIFICATION TO DEED OF TRUST AND OTHER LOAN DOCUMENTS (this “Agreement”)
is made as of the 30th day of March, 2004, among KILROY REALTY, L.P., a Delaware
limited partnership (“Borrower”), having its principal place of business at
12200 West Olympic Boulevard, Suite 200, Los Angeles, CA 90064, Chicago Title
Company (“Trustee”), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA,
a New York corporation with its office at 730 Third Avenue, New York, New York,
10017 (“Lender”).

 

W I T N E S S E T H

 

WHEREAS, on February 3, 2004, Lender made a loan to Borrower in the amount of
$81,000,000.00 (“Loan No. 1”) evidenced by that certain Promissory Note dated
February 3, 2004 in that amount (“Note No. 1”), which Note No.1 is secured by
that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement
and Fixture Filing Statement dated February 3, 2004 by and between Borrower and
Trustee for the benefit of Lender recorded in the Official Records, San Diego
County, California Recorder’s Office (“Official Records”) on February 3, 2004 as
document no. 2004-0084482 (the “Deed of Trust”) and by that certain Assignment
of Leases and Rents dated February 3, 2004 by Borrower to Lender recorded in the
Official Records on February 3, 2004 as document no. 2004-0084483 (the
“Assignment”);

 

WHEREAS, Lender is about to make an additional loan to Borrower in the amount of
$34,000,000.00 (“Loan No. 2”);

 

WHEREAS, simultaneously with the execution and delivery hereof, Borrower is
executing and delivering to Lender that certain Promissory Note of even date
herewith evidencing Loan No. 2 (“Note No. 2”);

 

WHEREAS, Borrower, Trustee and Lender wish to modify the Deed of Trust and the
Assignment to, among other things, spread the lien of the Deed of Trust and the
Assignment to cover certain additional property and extend the lien of the Deed
of Trust and the Assignment so that those instruments secure Note No. 2 as well
as Note No. 1;

 

1

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

WHEREAS, Borrower, Trustee and Lender wish to modify Note No. 1 in certain
respects to, among other things, reflect the existence of Loan No. 2;

 

WHEREAS, simultaneously with the execution and delivery hereof, KILROY REALTY
CORPORATION, a Maryland corporation having an office at 12200 West Olympic
Boulevard, Suite 200, Los Angeles, CA 90064 (the “Indemnitor”) has executed and
delivered to Lender that certain Amended and Restated Environmental Indemnity
dated the date hereof (the “Environmental Indemnity”), that certain Amended and
Restated Guaranty of Borrower’s Recourse Liabilities dated the date hereof (the
“Exceptions to Non-Recourse Guaranty”) and that certain Limited Guaranty dated
the date hereof (the “Scripps Guaranty”); and

 

WHEREAS, simultaneously with the execution and delivery hereof, Borrower, Lender
and UNION BANK OF CALIFORNIA, N.A., a national association, having its principal
place of business at 120 S. San Pedro St., Suite 400, Los Angeles, CA 90012
(“Escrow Holder”) have entered into that certain Amended and Restated Real
Estate Tax Pledge and Security Agreement dated the date hereof (the “Escrow
Agreement”) (Note No. 1 as modified hereby, Note No. 2, the Deed of Trust as
modified hereby, the Assignment as modified hereby, the Environmental Indemnity,
the Exceptions to Non-Recourse Guaranty, the Scripps Guaranty and the Escrow
Agreement and all other documents delivered to or held by Lender in connection
with the Notes and the Deed of Trust being hereinafter collectively called the
“Loan Documents”);

 

NOW, THEREFORE, in consideration of the sum of ONE DOLLAR ($1.00), and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower, Trustee and Lender hereby agree as follows:

 

1. The respective definitions of “Loan No. 2” and “Note No. 2”, as set forth
above, are incorporated by reference into Note No. 1, the Deed of Trust and the
Assignment. The terms “Note” and “Notes” as used in the Loan Documents and
herein shall hereafter be deemed to mean collectively Note No. 1 (as modified
hereby) and Note No. 2 (except that references in Note No. 1 to “this Note”
shall be references to Note No. 1 only and references in Note No. 2 to “this
Note” shall be references to Note No. 2 only). The term “Note No. 1” as used in
the Loan Documents and herein shall hereafter be deemed to mean Note No. 1 as
modified hereby. The term “Loan” as used in the Loan Documents shall hereafter
be deemed to mean collectively the loan evidenced by Note No. 1 and the loan
evidenced by Note No. 2. The term “Deed of Trust” as used in the Loan Documents
and herein shall hereafter be deemed to mean the Deed of Trust as modified
hereby. The term “Assignment” as used in the Loan Documents and herein shall
hereafter be deemed to mean the Assignment as modified hereby. The terms
“Environmental Indemnity”, “Exceptions to Non-Recourse Guaranty”, “Scripps
Guaranty” and “Escrow Agreement” as used herein and in the Loan Documents shall
have the respective meanings set forth above. The term “Default Interest Rate”
as used in the Loan Documents shall hereafter mean the lesser of (i) 10.39% per
annum (except that such rate as

 

2

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

used in the Scripps Guaranty shall be 9.95% per annum) and (ii) the Maximum
Interest Rate (as defined in the Deed of Trust).

 

2. Sections 2 and 3 of Note No. 1 are modified to read in their entirety as set
forth in Attachment 1 hereto.

 

3. The Deed of Trust is modified as follows:

 

a. The Deed of Trust shall hereafter secure the principal balances of Note No. 1
and Note No. 2, the interest payable under Note No. 1 at the Floating Interest
Rate and the Fixed Interest Rate (each as defined in Note No. 1) and the
interest payable under Note No. 2 at the Floating Interest Rate and the Fixed
Interest Rate (each as defined in Note No. 2) and any other sums which could be
deemed to be interest under the Law, the Late Charges set forth in Note No. 1
and Note No. 2, the Prepayment Premiums set forth in Note No. 1 and Note No. 2,
the Expenses (as defined in the Deed of Trust), any additional advances made by
Lender in connection with the Property or the Loan and all other amounts payable
under the Loan Documents (collectively, the “Debt”) and shall also hereafter
secure both the timely payment of the Debt as and when required and the timely
performance of all other obligations and covenants to be performed under the
Loan Documents (collectively, the “Obligations”). The terms “Debt” and
“Obligations” as used in the Deed of Trust shall hereafter have the meanings set
forth above. The lien of the Deed of Trust shall hereafter secure the payment of
the aggregate indebtedness evidenced by Note No. 1 and Note No. 2 in accordance
with each of their respective terms, without preference, priority or distinction
as to the lien or otherwise of any one note over the other by reason of the
priority of execution thereof.

 

b. The lien of the Deed of Trust is hereby spread to cover all of the real
property located in the City of San Diego, County of San Diego, State of
California described in Exhibit A hereto and all of the other property described
in Attachment 2 hereto. Exhibit A hereto and Schedule 1 hereto are substituted
respectively for the existing Exhibit A and the existing Schedule 1 of the Deed
of Trust. Without limiting the foregoing, all definitions of terms set forth in
revised Article II of the Deed of Trust as set forth in Attachment 2 hereto
(including the definitions of “Property”, “Improvements”, and “Fixtures and
Personal Property”) shall supersede the existing definitions of those same terms
in the Deed of Trust. The term “Land” as used in the Deed of Trust shall
hereafter mean all of the real property described in Exhibit A hereto.

 

c. Section 5.7 is modified and restated in its entirety to read as follows:

 

“5.7 Parking. Borrower will provide, maintain, police and light parking areas
within the Property, including any sidewalks, aisles, streets, driveways,
sidewalk cuts and rights-of-way to and from the adjacent public streets, in a
manner consistent with the Permitted Use and sufficient to accommodate, for the
exclusive use of the Property the greatest of: (i) the number

 

3

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

of parking spaces required by Law; (ii) the number of parking spaces required by
the Leases and the Property Documents; or (iii) a number of parking spaces equal
to the product of (x) 3.5 multiplied by (y) the aggregate number of square feet
of gross floor area on the Property divided by 1,000; provided that, Borrower
may make 125 of the parking spaces on the Property available for the use of
Parcels C & D to the extent required under (and as defined in) that certain
Agreement between Landowners including Covenants, Conditions and Restrictions
and Grants of Easements for Carmel Center and Including Amendment and
Restatement of Former Declaration and Termination of Prior Grants of Easements
recorded in the Official Records on March 25, 2002 as Document No. 2002-0245385,
as amended (which right shall in no event be deemed as limiting Borrower’s
obligation to provide the minimum number of spaces set forth in clauses (i),
(ii) and (iii) above). In furtherance and not in limitation of the foregoing, in
the event any portion of the Property is at any time released from the lien of
this Deed of Trust, the Borrower shall not consent to, or permit, any
restriction on the use of the parking spaces located on the Property that makes
a disproportionately large number of parking spaces (based on the number of
square feet of gross floor area) available to users of such released portion of
the Property. The parking areas will be reserved and used exclusively for
ingress, egress and parking for Borrower and the tenants under the Leases and
their respective employees, customers and invitees and in accordance with the
Leases and the Property Documents.”

 

d. Section 7.4 (ix) is hereby modified and restated in its entirety to read as
follows:

 

  “(ix) the annual Rents (excluding security deposits) under Leases in effect on
the date of the Destruction Event are providing a debt service coverage ratio
for the annual Debt Service Payments on the Notes of 1.15:1.0 after payment of
the annual Allocable Insurance Premium Amount, and annual Impositions and
operating expenses of the Property (including ground rent, if any), provided
that, if the Rents do not provide such debt service coverage, then Borrower
expressly authorizes and directs Lender to apply an amount from the Proceeds to
a reduction of the principal amount of the Notes, pro rata based on the
respective principal balance of each Note, in order to reduce the annual Debt
Service Payments on the Notes sufficiently for such debt service coverage to be
achieved. The reduction of the Debt Service Payments under each of Note No. 1
and Note No. 2 will be calculated using interest at the respective Fixed
Interest Rate of each Note and an amortization schedule that will achieve the
same proportionate amortization of principal of each of Note No. 1 and Note No.
2 over the then remaining Term as would have been achieved had the principal
amount of the Notes and the originally scheduled Debt Service Payments not been
reduced. Borrower will execute any documentation that Lender deems reasonably
necessary to evidence the reduced principal amount and debt service payments
under the Notes.”

 

4

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

e. Section 12.4 is modified by deleting the phrase “the second anniversary of
the first date specified in Section 1(a)(ii) of the Note” and substituting
“September 1, 2006” therefor and by deleting the reference to “four (4)” in the
third line and substituting “five (5)” therefor.

 

f. Section 12.4 (xiv) is modified and restated to read as follows:

 

  “(xiv) prior to or concurrently with the reconveyance, Borrower pays to Lender
both (a) an amount (the “Note No. 1 Reconveyance Amount”) equal to the product
of the Allocated Loan Amount (as defined below) and a fraction whereby the
numerator is equal to the outstanding principal balance of Note No. 1 and the
denominator is equal to the aggregate outstanding principal balance of the Notes
and (b) an amount (the “Note No. 2 Reconveyance Amount”) equal to the product of
the Allocated Loan Amount and a fraction whereby the numerator is equal to the
outstanding principal balance of Note No. 2 and the denominator is equal to the
aggregate outstanding principal balance of the Notes, each of which payments
shall be applied to the partial prepayment of the outstanding principal amount
of the respective Note (without premium for such prepayment other than the
Reconveyance Premium). Allocated Loan Amount means an amount equal to 110% of
the product of (x) the aggregate outstanding principal balance of the Notes as
of the date of the reconveyance (prior to taking the payment of the Allocated
Loan Amount into account), multiplied by (y) the ratio corresponding to the
Release Parcel as set forth on Schedule 1 attached hereto (which ratio
represents the portion of the original principal amount of the Loan allocated to
the Release Parcel);”

 

g. Section 12.4 (xvii) is hereby modified by adding the word “aggregate” before
the phrase “Debt Service Payments”.

 

h. The definitions of the following terms set forth in Exhibit B to the Deed of
Trust are modified to read as follows:

 

“Debt Service Payments” is defined as the monthly installments of principal and
interest payable by Borrower to Lender as set forth in Note No. 1 and Note No.
2. However: (i) the term “Debt Service Payments”, as used in Note No. 1, shall
be defined as the monthly installments of principal and interest payable by
Borrower to Lender as set forth in Note No. 1; and (ii) the term “Debt Service
Payments”, as used in Note No. 2, shall be defined as the monthly installments
of principal and interest payable by Borrower to Lender as set forth in Note No.
2.

 

“Fixed Interest Rate” is defined as 5.57% in the case of Note No. 1, and 4.95%
in the case of Note No. 2.

 

5

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

“Reconveyance Premium” is defined in the respective Notes.

 

“Principal” is defined as the aggregate principal balance of Note No. 1 and Note
No. 2 that is outstanding from time to time. However: (i) the term “Principal”,
as used in Note No. 1, shall be defined as the principal balance of Note No. 1
from time to time; and (ii) the term “Principal”, as used in Note No. 2, shall
be defined as the principal balance of Note No. 2 from time to time.

 

“Term” is defined as the scheduled term of this Deed of Trust, commencing on
February 3, 2004 and terminating on the Maturity Date.

 

4. The Assignment is modified as follows:

 

a. The Assignment shall hereafter secure the payment of the aggregate
indebtedness evidenced by Note No. 1 and Note No. 2 in accordance with each of
their respective terms, without preference, priority or distinction as to the
lien or otherwise of any one Note over the other by reason of the priority of
execution thereof.

 

b. The term “Land” as used in the Assignment shall hereafter mean all of the
real property described in Exhibit A hereto. The term “Property” as used in the
Assignment shall hereafter have the meaning set forth in Article II of the Deed
of Trust as modified by paragraph 3b of this Agreement. All other modified
definitions set forth in paragraph 3 of this Agreement are likewise incorporated
into the Assignment by reference. Article II of the Assignment is restated as
set forth on Attachment 3 hereto, incorporating therein those modified
definitions. The property assigned under Article II of the Assignment is
modified and spread to cover all of the Assigned Property (as defined in the
Assignment and modified hereby) and other property assigned thereby, including
without limitation all Leases (as defined in the Assignment and modify hereby)
and the immediate and continuing right to collect and receive all present and
future Rents (as defined in the Assignment and modified hereby).

 

5. Borrower represents and warrants to Lender as of the date hereof: that the
Loan Documents (as defined in the final recital above) are in full force and
effect and unmodified (except to the extent expressly modified hereby); that
Borrower is not in default under any of the Loan Documents; that Borrower has no
defense or right of offset to the payment of the indebtedness evidenced and
secured by any of the Loan Documents; that the Deed of Trust is a valid and
subsisting first lien on the property referred to in the Deed of Trust (subject
only to the liens and encumbrances set forth on Schedule B, Part I of the title
insurance policy issued to Lender that insures that lien, and to Permitted
Liens); and that the sum of $81,000,000.00 is outstanding under Note No.1.

 

6. This Agreement is governed by the laws of the state of California.

 

 

6

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

7. Except as modified hereby, Note No. 1, the Deed of Trust, the Assignment, and
the other Loan Documents and all of the terms, covenants, provisions, conditions
and warranties thereof are hereby ratified and affirmed and shall continue in
full force and effect.

 

 

7

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

This Agreement shall be binding upon and inure to the benefit of Borrower,
Lender and Trustee and their respective successors and assigns.

 

KILROY REALTY, L.P.,

a Delaware limited partnership

By:

  KILROY REALTY CORPORATION, a Maryland corporation, its general partner        
     

By:

 

/s/    Tyler H. Rose

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

   

Name:

 

Tyler H. Rose

   

Its:

 

Senior Vice President and Treasurer

             

By:

 

/s/    Timothy M. Schoen

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

   

Name:

 

Timothy M. Schoen

   

Its:

 

Vice President – Corporate Finance

                   

CHICAGO TITLE COMPANY

         

By:

 

/s/    Rosie Sierra

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

         

 

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

         

By:

 

/s/    Judith L. King

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

 

8

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

ACKNOWLEDGMENTS

 

STATE OF CALIFORNIA

   )      )        SS:

COUNTY OF ORANGE

   )

 

On 3/26/04, before me, the undersigned, a Notary Public in and for said State,
personally appeared Tyler H. Rose, personally known to me or 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.

 

WITNESS my hand and official seal.

 

Signature: /s/ Leann E. Guggenmos

   

Leann E. Guggenmos

 

[Seal]

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

   

Name (Typed or Printed)

   

 

STATE OF NEW YORK

   )      )        SS:

COUNTY OF NEW YORK

   )

 

On March 28, 2004, before me, the undersigned, a Notary Public in and for said
State, personally appeared Judith L. King, personally known to me or 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 she executed the
same in her authorized capacity, and that by her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.

 

WITNESS my hand and official seal.

 

Signature:

   

/s/ Elodia Martinez

  [Seal]

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

   

Name (Typed or Printed)

   

STATE OF NEW YORK

   

 

9

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

STATE OF CALIFORNIA)

COUNTY OF ORANGE)

 

On 3/26/04, before me, Leann E. Guggenmos, a Notary Public in and for said
State, personally appeared Timothy M. Schoen, personally known to me (or 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.

 

 

WITNESS my hand and official seal.

 

         

Signature

 

/s/ Leann E. Guggenmos

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

  (Seal)        [Seal]

 

STATE OF NEW YORK)

 

COUNTY OF NEW YORK)

 

On                         , 200     before me,
                                        , a Notary Public in and for said State,
personally appeared                                         , personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

 

 

WITNESS my hand and official seal.

 

Signature

 

 

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

  (Seal)

 

10

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

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

 

STATE OF CALIFORNIA    )      ) ss. COUNTY OF SAN DIEGO    )

 

On March 29, 2004                             , before me,         Renee A. K.
Marshall                                                  ,

(Name And Title Of Officer)

personally appeared     Rosie Sierra                                       
                      ,

  ¨   personally known to me ¨   proved to me on the basis of satisfactory
evidence

 

to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

 

 

WITNESS my hand and official seal.

/s/ Renee. A. K. Marshall

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

Signature Of Notary

 

[SEAL]

 

11

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Attachment 1

 

Sections 2 and 3 of Note No. 1

 

Section 2. Prepayment Provisions.

 

(a) The following definitions apply:

 

“Discount Rate” means the yield on a U.S. Treasury issue selected by Lender, as
published in The Wall Street Journal two weeks prior to the date as of which the
applicable Prepayment Premium, Evasion Premium or Reconveyance Premium, as the
case may be, is calculated (as specified below), having a maturity date
corresponding (or most closely corresponding, if not identical) to the Maturity
Date and, if applicable, a coupon rate corresponding (or most closely
corresponding, if not identical) to the Fixed Interest Rate.

 

“Default Discount Rate” means the Discount Rate less 300 basis points.

 

“Discounted Value” means the Discounted Value of a Note Payment based on the
following formula:

 

    NP

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

               (1 + R/12)n    =   

Discounted Value

               

 

where:

 

NP    =    amount of Note Payment R    =    Prepayment Discount Rate, Default
Discount Rate or Reconveyance Discount Rate, as the case may be. n    =    the
number of months between the date as of which a Prepayment Premium, Evasion
Premium or Reconveyance Premium, as the case may be, is calculated (as specified
below) and the scheduled date of the Note Payment being discounted rounded to
the nearest integer

 

“Evasion Premium” means, with respect to any prepayment or Acceleration giving
rise to such Evasion Premium that occurs (i) prior to the Permitted Prepayment
Date (as defined below), the greater of the following, calculated as of the date
of the applicable prepayment or Acceleration: (x) an amount equal to the product
of one percent (1%) plus 300 basis points times the Prepayment Date Principal,
and (y) the amount by which the sum of the Discounted

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

Values of the Note Payments, determined by using the Default Discount Rate,
exceeds the Prepayment Date Principal, and (ii) on or after the Permitted
Prepayment Date, an amount equal to the Prepayment Premium. In order to
calculate the amount in clause (y) above, each remaining Note Payment will be
discounted and the resulting Discounted Values will be added together.

 

“Note Payments” means (i) the scheduled Debt Service Payments for the period
from the date as of which the Prepayment Premium, Evasion Premium or
Reconveyance Premium is calculated (as specified below) through the Maturity
Date and (ii) the scheduled repayment of Principal, if any, on the Maturity
Date.

 

“Prepayment Date Principal” means the Principal outstanding under this Note on
the date as of which a Prepayment Premium or Evasion Premium is calculated (as
specified below).

 

“Prepayment Discount Rate” means the Discount Rate plus 25 basis points.

 

“Prepayment Premium” means the greater of the following, calculated as of the
date of the applicable prepayment or Acceleration: (i) an amount equal to the
product of one percent (1%) times the Prepayment Date Principal and (ii) the
amount by which the sum of the Discounted Values of Note Payments, derived by
using the Prepayment Discount Rate, exceeds the Prepayment Date Principal. In
order to calculate the amount in clause (ii) above, each remaining Note Payment
will be discounted and the resulting Discounted Values will be added together.

 

“Reconveyance Discount Rate” means the Discount Rate plus 25 basis points.

 

“Reconveyance Premium” means the greater of the following, calculated as of the
date of such prepayment: (i) an amount equal to the product of one percent (1%)
times the Note No. 1 Reconveyance Amount (as defined in the Deed of Trust) and
(ii) the amount by which the sum of the Discounted Values of those portions of
the Note Payments that are attributable to the Note No. 1 Reconveyance Amount,
derived by using the Reconveyance Discount Rate, exceeds such Note No. 1
Reconveyance Amount. In order to calculate the amount in clause (ii) above, that
portion of each remaining Note Payment attributable to the Note No. 1
Reconveyance Amount will be discounted and the resulting Discounted Values will
be added together.

 

(b) This Note may not be prepaid in full or in part before the date (the
“Permitted Prepayment Date”) that is thirty (30) months after the first date
specified in Section 1(a)(i) above. Commencing on the Permitted Prepayment Date,
this Note may be prepaid only as follows:

 

(i) Provided there is no Event of Default, Borrower may prepay this Note in
full, but not in part, upon not less than 60 days prior notice to Lender,
provided Note No. 2 is simultaneously prepaid in full and not in part, and upon
payment in full of the Debt then due and owing on the date of such prepayment,
which will include (A) the

 

12

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

prepayment premium required under Note No. 2 and (B) the Prepayment Premium for
this Note calculated as of the date of such prepayment.

 

(ii) Provided there is no Event of Default, this Note may be prepaid in full,
but not in part, upon payment in full of the Debt then due and owing on the date
of such prepayment, without payment of the Prepayment Premium, provided Note No.
2 is simultaneously prepaid in full (but without payment of any prepayment
premium under Note No. 2), during the last 90 days of the Term upon not less
than 3 Business Days notice to Lender.

 

(iii) Provided there is no Event of Default, Borrower may prepay this Note, in
part, in the amount of the Note No. 1 Reconveyance Amount pursuant to the terms
of the Section of the Deed of Trust entitled “Reconveyance Rights,” upon payment
in full of the Note No. 1 Reconveyance Amount and all other amounts due and
payable under this Note at the time of such prepayment, which will include a
Reconveyance Premium calculated as of the date of such prepayment, provided that
Note No. 2 is simultaneously prepaid in part pursuant to Section 2. (b) (iii) of
Note No. 2 in the amount of the Note No. 2 Reconveyance Amount, and provided
that Borrower simultaneously pays to the Lender the prepayment premium required
under Section 2. (b) (iii) of Note No. 2. In the event of any partial prepayment
of the Note expressly permitted pursuant to the foregoing, the monthly payments
due thereafter under this Note pursuant to Section 1(a)(ii) above shall be
reduced so as to equal the monthly payment amount which would fully amortize the
then-remaining Principal at the Interest Rate in blended level payments over the
number of full calendar months between the date of such partial prepayment and
September 1, 2034, all as determined by Lender (provided that, the foregoing
provision shall in no event be interpreted as extending the maturity date of the
loan beyond the “Maturity Date” set forth in Section 1(b) above).

 

(c) After an Acceleration or upon any other prepayment not permitted by the Loan
Documents, any tender of payment of the amount necessary to satisfy the Debt
accelerated, any judgment of foreclosure, any statement of the amount due at the
time of foreclosure (including foreclosure by power of sale) and any tender of
payment made during any redemption period after foreclosure, will include an
Evasion Premium, calculated as of the date of the Acceleration or the date of
such unpermitted prepayment, as the case may be.

 

(d) Borrower acknowledges that:

 

13

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

(i) a prepayment of this Note without payment of the Prepayment Premium,
Reconveyance Premium or Evasion Premium (the “Premiums”), as applicable, will
cause damage to Lender;

 

(ii) the Premiums are intended to compensate Lender for the loss of its
investment and the expense incurred and time and effort associated with making
the Loan, which will not be fully repaid if the Loan is prepaid without payment
of the applicable Premium;

 

(iii) it will be extremely difficult and impracticable to ascertain the extent
of Lender’s damages caused by a prepayment after an Event of Default or any
other prepayment not permitted by the Loan Documents; and

 

(iv) the Premiums represent Lender and Borrower’s reasonable estimate of
Lender’s damages for a prepayment and is not a penalty.

 

(e) BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT LENDER WOULD NOT LEND TO
BORROWER THE LOAN EVIDENCED BY THIS NOTE WITHOUT (1) BORROWER’S WAIVER OF ANY
RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS
NOTE IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY
DATE OF THIS NOTE, AND (2) BORROWER’S AGREEMENT, AS SET FORTH ABOVE, TO PAY
LENDER THE APPLICABLE PREMIUM UPON THE SATISFACTION OF ALL OR ANY PORTION OF THE
PRINCIPAL INDEBTEDNESS EVIDENCED HEREBY FOLLOWING THE ACCELERATION OF THE
MATURITY DATE HEREOF BY REASON OF A DEFAULT HEREUNDER OR UNDER THE DEED OF
TRUST, INCLUDING WITHOUT LIMITATION A DEFAULT ARISING FROM THE CONVEYANCE OF ANY
RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE DEED OF TRUST WHICH
IS NOT PERMITTED THEREBY, AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS
NOTE ON BORROWER’S BEHALF TO SEPARATELY EXECUTE THE AGREEMENT CONTAINED IN THIS
PARAGRAPH, IN COMPLIANCE WITH CALIFORNIA CIVIL CODE SECTION 2954.10. BY PLACING
ITS SIGNATURE BELOW, BORROWER ACKNOWLEDGES THAT (I) THE GENERAL PARTNERS,
PRINCIPALS OR MEMBERS, AS THE CASE MAY BE, OF BORROWER ARE KNOWLEDGEABLE REAL
ESTATE DEVELOPERS OR INVESTORS, (II) BORROWER FULLY UNDERSTANDS THE EFFECT OF
THE ABOVE WAIVER, (III) THE MAKING OF THE LOAN BY LENDER AT THE RATE SET FORTH
ABOVE IS SUFFICIENT CONSIDERATION FOR SUCH WAIVER,

 

14

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

AND (IV) LENDER WOULD NOT MAKE THE LOAN WITHOUT SUCH WAIVER.

 

KILROY REALTY, L.P., a Delaware limited partnership By:  

KILROY REALTY CORPORATION,

a Maryland corporation, its general partner

 

    By:   /s/    Tyler H. Rose        

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

    Name:  

Tyler H. Rose

    Its:  

Senior Vice President and Treasurer

 

    By:   /s/     Timothy M. Schoen        

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

    Name:  

Timothy M. Schoen

    Its:  

Vice President – Corporate Finance

 

Section 3. Events of Default:

 

  (a) It is an “Event of Default” under this Note:

 

(i) if Borrower fails to pay any amount due, as and when required, under this
Note, Note No. 2 or any other Loan Document and the failure continues for a
period of 5 days; or

 

(ii) if an Event of Default occurs under (and as defined in) any other Loan
Document.

 

  (b) If an Event of Default occurs, Lender may declare all or any portion of
the Debt immediately due and payable (“Acceleration”) and exercise any of the
other Remedies.

 

15

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

Attachment 2

 

(Deed of Trust)

 

ARTICLE II

 

GRANTING CLAUSES

 

Section 2.1 Encumbered Property. Borrower irrevocably grants, mortgages,
warrants, conveys, assigns and pledges to Trustee in trust, WITH POWER OF SALE,
and grants to Lender a security interest in, the following property, rights,
interests and estates now or in the future owned or held by Borrower (the
“Property”) for the uses and purposes set forth in this Deed of Trust
(capitalized terms used in this Section 2.1 and not otherwise defined in this
Deed of Trust have the meaning ascribed to them in the Uniform Commercial Code):

 

  (i) the Land;

 

  (ii) all buildings and improvements located on the Land (the “Improvements”);

 

  (iii) all easements; rights of way or use, including any rights of ingress and
egress; streets, roads, ways, sidewalks, alleys and passages; strips and gores;
sewer rights; water, water rights, water courses, riparian rights and drainage
rights; air rights and development rights; oil and mineral rights; and
tenements, hereditaments and appurtenances, in each instance adjoining or
otherwise appurtenant to or benefiting the Land or the Improvements;

 

  (iv) all materials intended for construction, re-construction, alteration or
repair of the Improvements, such materials to be deemed included in the Land and
the Improvements immediately on delivery to the Land; all fixtures and personal
property that are attached to, contained in or used in connection with the Land
or the Improvements (excluding personal property owned by tenants), including:
furniture; furnishings; machinery; motors; elevators; fittings; microwave ovens;
refrigerators; office systems and equipment; plumbing, heating, ventilating and
air conditioning systems and equipment; maintenance and landscaping equipment;
lighting, cooking, laundry, dry cleaning, refrigerating, incinerating and
sprinkler systems and equipment; telecommunications systems and equipment;
computer or word processing systems and equipment; security systems and
equipment; all Goods, including Fixtures, Equipment and Consumer Goods attached
to, contained in or used in connection with the Land or the Improvements
(excluding personal property owned by Tenants); and

 

16

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

equipment leases for any of the property described in this subsection (the
“Fixtures and Personal Property”);

 

  (v) all agreements, ground leases, grants of easements or rights-of-way,
permits, declarations of covenants, conditions and restrictions, disposition and
development agreements, planned unit development agreements, cooperative,
condominium or similar ownership or conversion plans, management, leasing,
brokerage or parking agreements or other material documents affecting Borrower
or the Land, the Improvements or the Fixtures and Personal Property, expressly
excluding the Leases (the “Property Documents”);

 

  (vi) all Inventory (including all Goods, merchandise, raw materials,
incidentals, office supplies and packaging materials) held for sale, lease or
resale or furnished or to be furnished under contracts of service, or used or
consumed in the ownership, use or operation of the Land, the Improvements or the
Fixtures and Personal Property, all Documents of title evidencing any part of
any of the foregoing and all returned or repossessed Goods arising from or
relating to any sale or disposition of Inventory;

 

  (vii) all General Intangibles relating to the Land, the Improvements or the
Fixtures and Personal Property, including choses in action and causes of action
(except those personal to Borrower), corporate and other business records,
Software, inventions, designs, promotional materials, blueprints, plans,
specifications, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, claims for
refunds or rebates of taxes, insurance surpluses, refunds or rebates of taxes
and any letter of credit, guarantee, claim, security interest or other security
held by or granted to Borrower to secure payment by an account debtor of any of
the accounts of Borrower arising out of the ownership, use or operation of the
Land, the Improvements or the Fixtures and Personal Property, and documents
covering all of the foregoing; all accounts, accounts receivable, documents,
instruments, money, deposit accounts, funds deposited in accounts established
with a bank, savings and loan association, trust company or other financial
institution in connection with the ownership, use or operation of the Land, the
Improvements or the Fixtures and Personal Property, including any reserve
accounts or escrow accounts, and all investments of the funds and other General
Intangibles;

 

  (viii) all awards and other compensation paid after the date of this Deed of
Trust for any Condemnation (the “Condemnation Awards”);

 

  (ix) all proceeds of and all unearned premiums on the Policies arising from or
relating to the Property (the “Insurance Proceeds”);

 

17

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  (x) all licenses, certificates of occupancy, contracts, management agreements,
operating agreements, operating covenants, franchise agreements, permits and
variances relating to the Land, the Improvements or the Fixtures and Personal
Property;

 

  (xi) all books, records and other information, wherever located, which are in
Borrower’s possession, custody or control or to which Borrower is entitled at
law or in equity and which are related to the Property, including all computer
or other equipment used to record, store, manage, manipulate or access the
information;

 

 

  (xii) all deposits held from time to time by the Accumulations Depositary to
provide reserves for Taxes and Assessments, together with interest thereon, if
any (the “Accumulations”), and the account or accounts in which such deposits
are or may be held;

 

  (xiii) without limiting the above, all Goods, Accounts, Documents,
Instruments, Money, Deposit Accounts, Chattel Paper, Letter-of-Credit Rights,
Investment Property, General Intangibles and Supporting Obligations in any way
relating to any of the property described in this Section (including the design,
development, construction, improvement, equipping, furnishing, use, operation,
management, occupancy, financing or sale thereof); and

 

  (xiv) all after-acquired title to or remainder or reversion in any of the
property described in this Section; all Proceeds (excluding, however, sales or
other dispositions of Inventory in the ordinary course of the business of
operating the Land or the Improvements), replacements, substitutions, products,
accessions and increases within any one or more of the following types of
collateral: Goods, Equipment, Inventory, Instruments, Chattel Paper,
Letter-of-Credit Rights, Documents, Accounts, Deposit Accounts or General
Intangibles, all additions, accessions, and extensions to, improvements of and
substitutions or replacements in each case for any of the Property described in
this Section; and any and all additional lands, estates, interests, rights or
other property acquired by Borrower after the date of this Deed of Trust for use
in connection with the Land and Improvements, all without the need for any
additional mortgage, assignment, pledge or conveyance to Lender but Borrower
will execute and deliver to Lender, upon Lender’s request, any documents
reasonably requested by Lender to further evidence the foregoing.

 

Section 2.2 Habendum Clause. [Intentionally Deleted]

 

Section 2.3 Security Agreement.

 

(b) The Property includes both real and personal property and this Deed of Trust
is a real property deed of trust and also a “security agreement” and a
“financing

 

18

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statement” within the meaning of the Uniform Commercial Code. By executing and
delivering this Deed of Trust, Borrower grants to Lender, as security for the
Obligations, a security interest in the Property to the full extent that any of
the Property may be subject to the Uniform Commercial Code.

 

(a) Borrower desires and intends that this Deed of Trust also constitute a
Fixture Filing between Borrower as debtor and Lender as secured party, as
defined in Section 9102 of the California Commercial Code. To this end, Borrower
acknowledges that (i) this Deed of Trust covers goods which are or are to become
fixtures on the Land; (ii) this Deed of Trust is to be recorded; (iii) Borrower
is the record owner of such property; and (iv) products of collateral are also
covered. Except as otherwise provided in the Loan Documents and subject to any
Permitted Exceptions and Permitted Liens, no financing statement in favor of any
secured party other than Lender covering the personal property described herein
or any portion thereof is on file in any public office. Borrower will not remove
or permit the removal of the collateral or any part thereof without the prior
written permission of Lender, provided that obsolete and worn-out articles may
be removed concurrently with the replacement or renewal thereof with property of
at least equal value or usefulness in the operation of the Property without
Lender’s consent. This Deed of Trust constitutes a fixture filing statement
under the Laws of the State of California and for that purpose, (x) the
following information is set forth, and (y) Borrower represents that the
following information set forth in clauses (i), (v) and (vi) is true and
correct:

 

  (i) The exact legal name and address of Debtor is: Kilroy Realty, L.P., 11220
West Olympic Boulevard, Suite 200, Los Angeles, CA, 90064.

 

  (ii) Name and address of Secured Party: Teachers Insurance and Annuity
Association of America, 730 Third Avenue, New York, NY, 10017.

 

  (iii) Description of the types (or items) of property covered by this
Financing Statement: all of the property described in subsections (ii) through
(xiv), inclusive, of the Section entitled “Encumbered Property” described or
referred to herein and included as part of the Property.

 

  (iv) Description of real estate to which collateral is attached or upon which
it is located: Described in Exhibit A.

 

  (v) Federal Identification Number of Debtor: 95-4612685.

 

  (vi) Debtor’s chief executive office is located in the State of California,
and Debtor’s state of organization is the State of Delaware.

 

Section 2.4 Conditions to Grant. This Deed of Trust is made on the express
condition that if Borrower pays and performs the Obligations in full in
accordance with the Loan Documents, then unless expressly provided otherwise in
the Loan Documents, the Loan Documents will be released at Borrower’s expense.

 

19

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Attachment 3

 

ARTICLE II

 

GRANTING CLAUSES

 

Section 2.1. Assignment.

 

(a) In consideration of the Debt, Borrower irrevocably, absolutely, presently,
unconditionally and not merely as additional security for the payment and
performance of the Obligations, sells, assigns, sets over and delivers to Lender
the following property, rights, interests and estates now or in the future owned
or held by Borrower (the “Assigned Property”), for Lender’s uses and purposes as
set forth in this Assignment, subject to the license granted by Lender to
Borrower in this Assignment to collect and receive the Rents until an Event of
Default occurs:

 

(i) all present and future leases, subleases, licenses and other agreements
relating to the use and occupancy of the Property, including all amendments to
the leases, subleases, licenses and other agreements in existence on the date of
this Assignment (the “Leases”);

 

(ii) the immediate and continuing right to collect and receive all present and
future rents, prepaid rents, percentage, participation or contingent rents,
issues, profits, proceeds, royalties, revenues, parking fees, security deposits
and other consideration under or in connection with the Leases or otherwise
derived from the use and occupancy of the Property, including contributions to
expenses by present and future tenants, subtenants, licensees and other
occupants of the Property (the “Tenants”), and all other fees, charges,
accounts, accounts receivable or payments payable to or for the benefit of
Borrower by Tenants including liquidated damages following a default under a
Lease, any termination, cancellation, modification or other fee or premium
payable by Tenants for any reason, and the proceeds of rental insurance (the
“Rents”);

 

(iii) all present and future guarantees or other credit enhancements given to
Borrower in connection with any Tenant’s performance under any of the Leases;
and

 

(iv) all rights or causes of action that Borrower now or hereafter may have
against any Tenant.

 

20

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(b) Borrower further assigns, transfers and sets over to Lender all of
Borrower’s right, title and interest in and to all claims and rights to the
payment of money at any time arising in connection with any rejection or breach
of any of the Leases by a Tenant or trustee of the Tenant under Section 365 of
the Bankruptcy Code, 11 U.S.C. §365, including all rights to recover damages
arising out of such breach or rejection, all rights to charges payable by the
Tenant or trustee in respect of the leased premises following the entry of an
order for relief under the Bankruptcy Code in respect of such lessee and all
rentals and other charges outstanding under the Lease as of the date of entry of
such order for relief.

 

(c) Lender’s acceptance of this Assignment, with all of the rights, powers,
privileges and authority so created, will not, prior to Lender’s entry upon and
taking possession of the Property, be deemed to constitute Lender a
mortgagee-in-possession, will not obligate Lender to appear in or defend any
action or proceeding relating to the Leases or to take any action under this
Assignment, to expend any money or incur any expenses under the Leases or this
Assignment, to perform or discharge any obligation under the Leases or to assume
any obligation for security deposits or other deposits delivered to Borrower by
any Tenant and not delivered to Lender and Lender will not be liable for any
injury or damage to person or property sustained in or about the Property,
except to the extent caused by Lender’s gross negligence or willful misconduct.

 

21

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Exhibit A

LEGAL DESCRIPTION

 

DESCRIPTION OF REAL PROPERTY

 

THE FOLLOWING LAND SITUATED IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE
OF CALIFORNIA, DESCRIBED AS FOLLOWS:

 

PARCEL A: (ASSESSOR’S PARCEL NO. 307-410-12)

 

PARCEL 1 OF PARCEL MAP NO. 17382, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO,
STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, JUNE 30, 1994 AS FILE NO. 1994-0414824 OF OFFICIAL RECORDS.

 

PARCEL B: (ASSESSOR’S PARCEL NO. 307-410-15 THROUGH 18, 20 AND 21 [ADD])

 

PARCELS 1 THROUGH 7 INCLUSIVE OF PARCEL MAP NO. 18350 IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON SEPTEMBER 30, 1999 AS FILE NO. 1999-0664638 OF
OFFICIAL RECORDS.

 

PARCEL C:

 

NON-EXCLUSIVE EASEMENTS OVER AND ACROSS THE COMMON AREA, AS CONVEYED, SET FORTH
AND DESCRIBED IN THAT CERTAIN “AGREEMENT BETWEEN LANDOWNERS INCLUDING COVENANTS,
CONDITIONS AND RESTRICTIONS AND GRANT OF EASEMENTS FOR CARMEL CENTER AND
INCLUDING AMENDMENT AND RESTATEMENT OF FORMER DECLARATION AND TERMINATION OF
PRIOR GRANTS OF EASEMENTS” DATED AS OF MARCH 22, 2002, EXECUTED BY KILROY
REALTY, L.P., A DELAWARE LIMITED PARTNERSHIP, RECORDED MARCH 25, 2002, AS
INSTRUMENT NO. 2002-0245385 OF OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, CALIFORNIA.

 

22

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SCHEDULE 1

 

Parcels and Ratios

 

PARCEL

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

   RATIO

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

1. That property described as Parcel 2 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3611 Valley Centre Drive).

   $ 25,000,000     

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

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

     $ 115,000,000         

2. That property described as Parcel 3 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3661 Valley Centre Drive).

   $ 23,000,000     

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

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

     $ 115,000,000         

3. That property described as Parcel 4 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3721 Valley Centre Drive).

   $ 22,000,000     

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

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

     $ 115,000,000         

4. That property described as Parcel 1 of Parcel Map 17382 on Exhibit A attached
hereto

(and commonly referred to as 3579 Valley Centre Drive).

   $ 11,000,000     

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

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

     $ 115,000,000         

5. That property described as Parcel 5 of Parcel Map 18350 on Exhibit A attached
hereto

(and commonly referred to as 3811 Valley Centre Drive).

   $ 34,000,000     

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

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

     $ 115,000,000

 

23