San 8emardliO
3124121105
 
RECORDING REQUESTED BY:
 
8:rlConlruller -Recorder
 

 
 

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RECORDING REQUESTED BY: LandAmerica Commercial Services
 
PREPARED/DRAFTED BY AND RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO:
 
BEST & FLANAGAN LLP 225 South Sixth Street, Suite 4000 Minneapolis, Minnesota
55402 Attn: Bradley F. Williams
 
Order/Escrow No.: PHI-D5-18594HSE
 
Loan No.: 010-00001242
 
[Missing Graphic Reference]

 
(SPACE ABOVE THIS LINE FOR RECORDER'S USE)
TRUSTOR:
Name:
CALIFORNIA VALLEY ASSOCIATES
Address:
1150 First Avenue, Suite 920
 
King of Prussia, Pennsylvania 19506
TRUSTEE:
 
Name:
COMMONWEALTH LAND TITLE
Address:
3131 Camino Del Rio, Suite 1400
 
San Diego, California 92103
BENEFICIARY:
 
Name:
ARTESIA MORTGAGE CAPITAL CORPORATION
Address:
1180 NW Maple Street, Suite 202
 
Issaquah, Washington 98027

(SPACE ABOVE THIS LINE FOR RECORDER'S USE)
TRUSTOR:
Name:
CALIFORNIA VALLEY ASSOCIATES
Address:
1150 First Avenue, Suite 920
 
King of Prussia, Pennsylvania 19506
TRUSTEE:
 
Name:
COMMONWEALTH LAND TITLE
Address:
3131 Camino Del Rio, Suite 1400
 
San Diego, California 92103
BENEFICIARY:
 
Name:
ARTESIA MORTGAGE CAPITAL CORPORATION
Address:
1180 NW Maple Street, Suite 202
 
Issaquah, Washington 98027

NOTICE: THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF
BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY HEREIN
CONVEYED.  NOTICE: DO NOT DESTROY THIS DEED OF TRUST OR THE NOTE (IF IT IS IN
YOUR POSSESSION) WHICH IT SECURES AS THESE MUST BE PRESENTED TO THE TRUSTEE FOR
CANCELLATION IN ORDER TO OBTAIN A RECONVEYANCE. THE RECONVEYANCE MUST BE
RECORDED IN THE OFFICE OF THE COUNTY RECORDER, THIS DOCUMENT CONSTITUTES A
FIXTURE FlLING IN ACCORDANCE WITH SECTION 9502(c) OF THE CALIFORNIA UNIFORM
COMMERCIAL CODE.
Description: San Bernardino, CA Document-Year. Doc ID 2005.202586 Page: 2 of 58
Order: 327283 Comment:

 
 

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COMMERCIAL DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING FINANCING STATEMENT
AND ASSIGNMENT OF LEASES, RENTS, INCOME AND PROFITS THE PROMISSORY NOTE SECURED
HEREBY PROVIDES FOR A: FIXED INTEREST RATE

THIS COMMERCIAL DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING FINANCING
STATEMENT AND ASSIGNMENT OF LEASES, RENTS, INCOME AND PROFITS (this "Security
Instrument,,) is made and given as of February 21, 2005, by CALIFORNIA VALLEY
ASSOCIATES, a(n) New York limited partnership, whose address is 1150 First
Avenue, Suite 920, King of Prussia, Pennsylvania 19506 ("Borrower," and for
purposes of Article 3 hereof, "Assignor"), to COMMONWEALTH LAND TITLE, and all
successors and assigns, whose address is 3131 Camino Del Rio, Suite 1400, San
Diego, California 92103, Attn: Anni Fredericksen (herein called "Trustee"), for
the benefit of ARTESIA MORTGAGE CAPITAL CORPORATION, a Delaware corporation,
whose address is 1180 NW Maple Street, Suite 202, Issaquah, Washington 98027,
and its successor and assigns (in each case, "Lender," and for purposes of
Article 3 hereof, 'Assignee").
 
WHEREAS, Borrower is justly indebted to Lender in the principal sum of Three
Million Eight Hundred Fifty Thousand and 00/100 Dollars ($3,850,000.00),
pursuant to a certain Fixed Rate Note of even date herewith, more particularly
described below,
 
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, including the Indebtedness
herein recited and the trust herein created, the receipt of which is hereby
acknowledged, Borrower hereby grants a first priority security Interest In, and
Irrevocably gives, grants, transfers, aliens, enfeoffs, conveys, confirms,
warrants, assigns, mortgages, bargains, sells and pledges to Trustee, IN TRUST
FOREVER, WITH ALL POWERS OF SALE AND STATUTORY RIGHTS, for the benefit and
security of Lender, under and subject to the terms and conditions hereinafter
set forth, the following property, rights, interests and estates now owned, or
hereafter acquired, by Borrower (collectively, the 'Property"):
 
(a) the real property described in Exhibit A attached hereto and made a part
hereof (collectively, the "Land,,), together with additional lands, estates and
development rights hereafter acquired by Borrower for use in connection with the
development, ownership or occupancy of such real property, and all additional
lands and estates therein which may, from time to time, by supplemental mortgage
or otherwise be expressly made subject to the lien of this Security Instrument;
 
(b) any and all buildings, structures and other improvements now or hereafter
erected, constructed, placed or located on the Land including, without
limitation, fixtures, tenements, attachments, appliances, equipment, building
systems, machinery, and other articles now or hereafter attached to or used in
connection with said buildings, structures and other improvements (collectively,
the 'Improvements"), and any and all additions to, substitutions for or
replacements of such Improvements and such Land and all interests, estates or
other claims, both In law and equity, which Borrower now has or may hereafter
acquire in the Land or the Improvements, including, without limitation, all
right, title and interest now owned or hereafter acquired by Borrower in and to
any greater estate in the Land or the Improvements;
 
(c) all easements, tenements, hereditaments, appurtenances, rights-of-way and
rights now owned or hereafter acquired by Borrower used or useful in connection
with, or located on, under or above all or any part of, the Land or as a means
of access thereto, including, without limitation, all rights pursuant to any
trackage agreement; all rights to the nonexclusive use of common drive entries;
all oil and gas and other hydrocarbons; all minerals, crops, timber and other
emblements; all mineral rights, gas rights, royalties and profits arising from
or accruing to the Property, water, groundwater, water rights and shares of
stock evidencing the same; water stock and irrigation rights accruing 10 or
necessary for the use of the Property including but not limited to all water
rights, ditch and ditch rights, reservoir and reservoir

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rights, stock or interest in water, irrigation or ditch companies, any and all
right, title and interest of Borrower, now owned or hereafter acquired, in and
to any land lying within the right-of-way of any street, open or proposed,
adjoining the Land; and any and all sidewalks, vaults, alleys and strips and
gores of land adjacent to or used in connection with the Land (collectively, the
"Appurtenances,,);

 
(d) all leasehold estate, right, title and interest of Borrower in and to all
written and oral leases, subleases, subtenancies, licenses, franchises,
usufructs, occupancy agreements and other agreements affecting all or any
portion of the Property or the Improvements or the use or occupancy thereof, now
or hereafter existing or entered into, whether before or after any proceeding is
instituted by or against Borrower under 11 U.S.C. § 101 et seq, as amended (the
"Bankruptcy Code"), including, without limitation, extensions, renewals and
subleases (all of the foregoing, individually, a "lease" and collectively,
"leases"), and all rights and claims of any kind that Borrower may have against
any tenant under the Leases or in connection with the termination or rejection
of the Leases in a bankruptcy or insolvency proceeding, and all right, title and
interest of Borrower thereunder, including, without limitation, all cash or
security deposits, prepaid or advance rentals, and deposits or payments of
similar. nature which are hereby specifically assigned, transferred and set over
to Lender; including, without limitation, all rents, royalties, issues,
revenues, profits, proceeds, income and other benefits, including, without
limitation, accounts receivable, of, accruing to or derived from such Leases and
from the renting, leasing or bailment of Improvements and equipment, including,
without limitation, any payments made by tenants under Leases In connection with
the termination of any Lease and all oil, gas and other mineral rights,
royalties and profits, whether paid or accruing before or after any proceeding
is instituted by or against Borrower under the Bankruptcy Code (all of the
foregoing, collectively, "Rents"), and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Secured Obligations (defined below) and all lease guaranties,
letters of credit and any other supporting obligation for any of the Leases
(collectively, "Lease Guaranties') given by any guarantor in connection with any
of the Leases, and all rights, powers, privileges, options and other benefits of
Borrower as lessor under the Leases and beneficiary under Lease Guaranties;
 
(e) all the estate, interest, right, title, other claim or demand, both in law
and in equity, including, without limitation, claims or demands with respect to
the proceeds of and any unearned premiums on Insurance policies In effect with
respect to the Property, which Borrower now has or may hereafter acquire in the
Property, including, without limitation, the right to receive and apply the
proceeds of any insurance, judgments or settlements made in lieu thereof, for
damage to the Properly, and any and all awards made for the taking by eminent
domain, or by any proceeding of purchase in lieu thereof, of the whole or any
part of the Property, including, without limitation, any awards resulting from a
change of grade of streets and awards for severance damages;
 
(f) all goods, Chattels, construction materials, furniture, furnishings,
equipment, machinery, apparatus, appliances, and other items of personal
property, whether tangible or intangible, of any kind, nature or description,
whether now owned or hereafter acquired by Borrower, including, without
limitation, improvements including, without limitation, furnaces, steam boilers,
hot water boilers, oil burners, pipes, radiators, air conditioning and
sprinkling systems, gas and electric fixtures, carpets, rugs, shades, awnings,
screens, elevators, motors, dynamos, cabinets, and all other furnishings, tools,
equipment and machinery, appliances, building supplies, materials, fittings and
fixtures of every kind, which is, are or shall hereafter be located upon,
attached, affixed to or used or useful, either directly or indirectly, in
connection with the complete and comfortable use, occupancy and operation of the
Property and Improvements, whether or not any of such personal property is now
or becomes a Fixture (defined below), including, without limitation, any and all
licenses, permits or franchises used or required in connection with such use,
occupancy or operation, together with any and all additions, replacements or
substitutions thereto, thereof or therefor, as well as the proceeds thereof or
therefrom regardless of form (hereinafter sometimes together referred to as the
"Personal Property"; such Personal Property shall include, without limitation,
all Accounts, Documents, Instruments, Chattel Paper, Goods, Equipment, General
lntangibles, Fixtures and Inventory, as those terms are defined in the Uniform
Commercial Code of the State where the Property is located);

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(g) all plans and specifications, contracts and subcontracts for the
construction of any Improvements, density rights, bonds, permits and other
development or use entitlements, licenses, guarantees, warranties, causes of
action, claims, condemnation proceeds, profits, security deposits, utility
deposits, governmental agency fees and deposits and refunds thereof, refunds of
taxes or insurance premiums, policies, claims, and proceeds of insurance, claims
and proceeds arising from condemnation, vehicles, together with all present and
future attachments, accessions, replacements, additions, products and proceeds
thereof;

(h) all monies deposited by Borrower, or deposited on behalf of Borrower, with
any City, County, public body or agency, Irrigation, sewer or water district or
company, and any other body or agency, for the installation, or to secure the
installation, of any utility pertaining to the Property;

(i) all refunds, rebates, reimbursements, reserves, deferred payments, deposits,
cost savings, governmental subsidy payments, governmentally-registered credits
(such as emissions reduction credits), other credits, waivers and payments,
whether In cash or in kind, due from or payable by (i) any federal, state,
municipal or other governmental or quasi-governmental agency, authority or
district (each, a "Governmental Agency") or (ii) any Insurance or utility
company relating to any or all of the Property or arising out of the
satisfaction of any conditions imposed upon or the obtaining of any approvals
for the development or rehabilitation of the Property;
 
(j) all refunds, rebates, reimbursements, credits and payments of any kind due
from or payable by any Governmental Agency for any taxes, special taxes,
assessments, or similar governmental or quasi-governmental charges or levies
imposed upon Borrower with respect to the Property or upon any or all of the
Property or arising out of the satisfaction of any conditions imposed upon or
the obtaining of any approvals for the development or rehabilitation 01 the
Property;

 
(k) all monies deposited by Borrower with or for the benefit of Lender pursuant
to any reserve, escrow or cash collateral agreements executed by Borrower in
favor of Lender;
 
(l) contract rights, accounts receivable, management agreements, business
records;
 
(m) all additions, accessions, replacements, substitutions, proceeds and
products of the real and personal property, tangible and Intangible, described
herein;

(The Property does not include any equipment, inventory, furniture, furnishings
or trade fixtures owned and supplied by tenants of the Property, except to the
extent of Borrower's landlord's lien (if any) therein.)
 
FOR THE PURPOSE OF SECURING:
 
1.  
repayment of indebtedness in the total principal amount of Three Million Eight
Hundred Fifty Thousand and 00/100 Dollars ($3,850,000.00) with interest,
additional interest, default interest, late charges, prepayment charges and
other sums and charges thereon (the "Loan"), evidenced by that certain Fixed
Rate Note, of even date herewith, and all modifications, extensions, renewals
and replacements thereof or judgments thereon (collectively, the "Note"),
executed by Borrower in favor of Lender, and with a final maturity date of April
11, 2015, the terms of which are incorporated by reference as though set forth
in full;

 
2.  
the payment of any additional amounts, with interest thereon, that may be
hereafter loaned by Lender to Borrower, which additional loans are evidenced by
a promissory note or notes containing a recitation that this Security Instrument
secures the payment of such note or notes.

3.  
payment of all sums advanced by Lender, its successors and assigns, or Trustee
to protect, cure for or maintain the Property, or any portion thereof, with
interest thereon at the Default Rate (as defined in the Note) and all sums
advanced by Lender or Trustee under the terms of or for the

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enforcement of the Loan Documents (defined below), with interest thereon at the
Default Rate (as defined in the Note);

4.  
observance, performance and discharge of every obligation, covenant or agreement
of Borrower contained herein or in the Note;

 
5.  
observance, performance and discharge of every obligation, covenant and
agreement of Borrower contained in any document, instrument or agreement now or
hereafter executed by Borrower which recites that the obligations thereunder are
secured by this Security Instrument, including, without limitation, payment of
all other sums, with interest thereon, which may hereafter be loaned to
Borrower, or its successors or assigns, by Lender, or its successors or assigns,
when evidenced by a promissory note or notes containing a recitation that they
are secured by this Security Instrument;

 
6.  
compliance with and performance of each and every material provision of any
declaration of covenants, conditions and restrictions pertaining to the Property
or any portion thereof; and

 
7.  
payment and performance of all obligations of Borrower arising from any and all
existing and future agreements with lender which may afford interest rate
protection to all or part of the Loan, when such agreement recites that the
obligations thereunder are secured by this Security instrument.

(The principal of and the interest on the indebtedness evidenced by the Note;
all charges, fees and other sums as provided In the loan Documents; and the
principal of and interest on any other indebtedness secured by this Security
Instrument are referred to herein, collectively, as the "Secured Obligations".)
 
PROVlDED,·HOWEVER, that if·the Secured Obligations shall have-been.-paid-in cash
and performed In full, then, in such case the Trustee, at Lender's direction,
shall, at the request and expense of Borrower, satisfy this Instrument and the
estate, right, title and interest of the Trustee and Lender in the Property
Shall cease, and upon payment to lender of all costs and expenses incurred for
the preparation of the release hereinafter referenced and all recording costs if
allowed by law, the Trustee and Lender shall release this Instrument and the
lien, operation and effect hereof by proper instrument.
 
The Note, this Security Instrument and any other document or instrument executed
by Borrower in connection with the Loan shall be collectively referred to as the
"Loan Documents: All initially capitalized terms used herein which are defined
in the Note shall have the same meaning herein unless the context otherwise
requires.
 
TO PROTECT THE SECURlTY OF THIS SECURlTY INSTRUMENT, BORROWER HEREBY COVENANTS
AND AGREES AS FOLLOWS:
 
ARTICLE 1. COVENANTS AND AGREEMENTS OF BORROWER
 
1.01 Payment of Secured Obligations. Borrower shall pay and perform as and when
due the Secured Obligations.
 
1,02 Performance of Other Obligations; Preservation, Maintenance and Management
of
Property. Borrower shall perform, comply with and abide by each and every one of
the covenants, agreements and conditions contained and set forth in the Note and
this Security Instrument Borrower:

(a) shall keep the Property in good condition and repair;
 
(b) shall not remove, demolish or structurally alter any of the Improvements
without the prior written consent of Lender; provided, however, Lender's consent
shall not be required in connection with cosmetic and non-structural
alterations;
 
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(c) shall complete promptly and in a good and workmanlike manner any Improvement
which may be now or hereafter constructed on the Property and promptly restore
in like manner any portion of the Improvements which may be damaged or destroyed
from any cause whatsoever, and pay when due all claims for labor performed and
materials furnished therefor;
 
(d) shall comply with and abide by all laws, ordinances, rules, regulations and
orders of governmental authorities now or hereafter affecting the Property or
any part thereof or requiring any alterations or improvements to be made
thereon, including without limitation, all Environmental Laws (as defined in
Section 1.03 hereof), and the Americans with Disabilities Act:
 
(e) shall comply with and abide by all of its obligations under any covenant,
condition, ; restriction or agreement of record affecting the Property;
 
(f) shall not commit or permit any waste or deterioration of the Property
 
(g) shall not allow changes in the use for which all or any part of the Property
is intended;

(h) shall maintain all certificates, licenses and permits necessary to keep the
Property operating in conformity with the use for which all or any part of the
Property is Intended;

(i)  shall not initiate or acquiesce in a change in the zoning classification of
the Property without Lender's prior written consent;

(j) shall insure that at all limes the Land constitutes one or more separate
legal lots complying with all subdivision or platting laws, ordinances, rules or
regulations applicable to the Property, or other laws relating to the division
Dr separation of real property;

(k) shall Insure that at all times the Land Is assessed for real estate tax
purposes as one Dr more wholly independent tax lot or lots, separate from any
adjoining land or improvements not constituting a part of such lot or lots, and
no other land or Improvements Is assessed and taxed together with the Property
or any portion thereof;

(l) shall not abandon the Property; and

(m) shall do any and all other acts which, from the character and use of the
Property, may be reasonably necessary to maintain, protect and preserve the
Property and protect the security of Lender.

The Property shall be managed by either: (I) Borrower or a person/entity
affiliated with Borrower approved by Lender for 50 long 85 Borrower or said
affiliated person/entity is managing the Property in a commercially prudent and
reasonable manner; or (iO a professional property management company approved by
Lender. Management by said affiliated person/entity or professional property
management company (in either case, the 'Property Manager") shall be pursuant to
a written agreement approved by Lender (the 'Management Agreement. In no event
shall any manager be removed or replaced or the terms of any Management
Agreement modified or amended without prior written consent of Lender.
Notwithstanding the provisions of any Management Agreement or any other
agreement now or hereafter existing or entered into (together with any and all
extensions, renewals, substitutions, replacements, amendments, modifications
and/or restatements thereof, the 'Management Agreements; to the contrary.
Borrower shall not pay any Property Manager, nor shall any Property Manager
accept, total management fees (i.e., on-site and off-site management fees or
other compensation, whether monetary or nonmonetary) ("Management Fees; in
excess of four percent (4%) of the effective gross income from the Property per
year, nor shall such Management Fees be payable in advance of receipt of such
income. The Management Agreements and all of the rights and interests thereunder
including, without limitation, the rights to Management Fees are and at all
times will be subject and subordinate to the Loan and the Loan Documents and to
any renewals, extensions, modifications, assignments, replacements, or
consolidations thereof, and the rights, privileges and powers of Lender
hereunder and thereunder. Such

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subordination shall be self-operative and no further instrument shall be
required to effect such subordination, but Borrower agrees to execute and
deliver, and to cause any Property Manager to execute and deliver, any
instrument which Lender may deem necessary or appropriate to confirm such
subordination. Such subordination means, among other things, that Management
Fees shall not be paid or accepted unless all current expenses attributable to
the ownership and operation of the Property, including, without limitation,
current expenses relating to Borrower's liabilities and obligations with respect
to the Loan and the Loan Documents (collectively, "operating Expenses"), have
been paid. In the event (x) of any Event of Default (defined below) under the
Loan Documents or under any Management Agreement then in effect, which default
is not cured within any applicable grace or cure period, (y) the debt service
coverage ratio applicable to the Property is less than 1.15 to 1.00 for the
twelve (12) month period immediately preceding the calculation, or (z) of the
bankruptcy or insolvency of the manager, or Borrower, if the Property Manager is
affiliated with Borrower, Lender shall have the right to immediately terminate,
or to direct Borrower to immediately terminate, such Management Agreement and to
retain, or to direct Borrower to retain, a new management agent approved by
Lender. All Rents generated by or derived from the Property shall first be
utilized solely for Operating Expenses, and none of the Rents generated by or
derived from the Property shall be diverted by Borrower and utilized for any
other purpose unless all such current expenses attributable to the ownership and
operation of the Property have been fully paid and satisfied.

1.03 Hazardous Waste. Borrower at all times shall keep the Property and
groundwater of the Property free of Hazardous Substances (defined below).
Borrower shall not permit its tenants or any third party to enter tile Property
to use, generate, manufacture, store, release, threaten release, or dispose of
Hazardous Substances in, on or about the Property; provided, however, that
Borrower may permit reasonable incidental use and storage of Hazardous
Substances on the Property provided that such use and storage complies with the
following: (a) such use and storage shall be limited to customary supplies which
are normal incidents of the ownership and management Of real property which is
similar to the Property ("Permitted Uses"); (b) no such products or supplies
create any risk of harm to persons or property. including, without limitation,
the Property; and (c) all such products and supplies are used and stored In
strict compliance with all applicable Environmental Laws (defined below).
Borrower shall give Lender prompt written notice of any claim by any person,
entity, or governmental agency that a violation of Environmental Laws has
occurred with respect to all or any portion of the Property, or that a release
or disposal of Hazardous Substances has occurred on the Property (except
Permitted Uses as may be permitted pursuant to the preceding sentence), or that
Hazardous Substances are present at the Property or otherwise affect the
Property (except Permitted Uses). Borrower, through its professional engineers
and at Its cost, shall promptly and thoroughly Investigate suspected Hazardous
Substances contamination of the Property and shall provide to Lender a detailed
description of the investigation, and any copies of reports at Borrower's
expense. Borrower shall forthwith remove, repair, clean up, and/or detoxify any
Hazardous Substances from the Property, to the extent that the presence
andlor maintenance of such Hazardous Substances in, on or about the Property
constitutes a violation of any federal, state or local law, ordinance, order,
decree or regulation now or hereafter in effect and applicable to Borrower or
the Property, and whether or not Borrower was responsible for the existence of
the Hazardous Substances in, on or about the Property. "Hazardous Substances"
shall mean (i) any 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; "acutely hazardous waste: "radioactive
waste,' "infectious waste," "biohazardous waste” “Toxic substance” "pollutant,"
"Toxic pollutant," and “contaminant," as well as any formulation not mentioned
herein intended to define, list, or classify substances by reason of deleterious
properties such as igniteabilty, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "EP toxicity,' or "TCLP toxicity"; (ii)
petroleum, natural gas, natural gas liquids, liquefied natural gas, synthetic
gas usable for fuel (or mixtures of natural gas and such synthetic gas) and 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; (iii) asbestos in any form; (IV) urea formaldehyde foam
insulation; (v) polychlorinated biphenyls (PCBs); (vi) radon; (vii) any other
chemical, material, or substance which is (because of its quantity,
concentration, or physical or chemical characteristics) limited or regulated for
health and safety reasons by any governmental authority, or which poses a
significant
 
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present or potential hazard to human health and safety or to the environment if
released into the workplace or the environment; (viii) any 'Hazardous Substance'
or terms of similar import as defined in the State where Property is located or
substances otherwise regulated or controlled in such State because of concerns
for health, safety and/or property, and (IX) lead-based paint. 'Environmental
Laws' means any and all requirements of courts including, without limitation,
state courts whose decisions may be based on the common law of the
aforementioned state} or governmental authorities relating to health, safety,
the environment or to any Hazardous substances, including, without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”), the Resource Conservation and Recovery Act ("RCRA”), the Hazardous
Substances Transportation Act, the Toxic Substances Control Act, the Clean Water
Act, the Endangered Species Act, the Clean Air Act, the Occupational Safety and
Health Act and all similar federal, state and local environmental statutes,
ordinances, and the rules, regulations, orders, decrees and guidance documents
related thereto, whether any of the foregoing shall not exist or shall hereafter
be enacted, decided, promulgated or published.

Borrower represents and warrants to Lender that to the best of Borrower's
knowledge, except as set forth In that certain Environmental Questionnaire
delivered by Borrower to Lender prior to the date hereof, and that certain
environmental site assessment delivered to Lender in connection with the Loan
(collectively, the "Environmental Report'): (A) during the period of Borrower's
ownership of the Property: (1) there has been no use, generation, manufacture,
storage, treatment, disposal, discharge, release, or threatened release of any
Hazardous Substances by any person on or around the Property except Permitted
Uses; and (2) there have been no Hazardous Substances transported over or
through the Property except In connection with Permitted Uses; (B) after
diligent inquiry, Borrower has no knowledge of, or reason to believe that there
has been: any use generation, manufacture, storage, treatment, disposal,
release, or threatened release of any Hazardous Substance, hazardous waste or
other waste by any prior owners or prior occupants of the Property or by any
third parties onto the Property; or any actual or threatened litigation or
claims of any kind by any person relating to these matters; (C) no Hazardous
Substances in excess of permitted levels or reportable quantities under
applicable Environmental Laws are present in or about the Property or any nearby
real property that could migrate to the Property; (0) no underground storage
tanks of any kind are or ever have been located in or about the Property; (E)
the Property and all operations and activities at, and the use and occupancy of,
the Property, comply with all applicable Environmental Laws; (F) Borrower and
every person currently having an interest in or conducting operations on the
Property has complied wHh, and is now in strict compliance with, every permit,
license, and approval required by all applicable Environmental Laws for all
activities and operations at, and the use and occupancy of, the Property; and
«(3) there are no claims related to Hazardous Substances pending or threatened
with regard to the Property or against Borrower or any indemnitor other than
Borrower (Individually or collectively, 'Indemnitorj under the Environmental
Indemnity (as hereinafter defined). Borrower represents and warrants that, to
the best of Borrower's knowledge, any written disclosure submitted by or on
behalf of Borrower to Lender concerning any release or threatened release, past
or present compliance by Borrower, or any other person of any Environmental Laws
applicable to the Property, and any environmental concerns relating to the
Property, was true and complete when submitted and continues to be true and
complete as of the date of this security Instrument
 
Borrower (1) releases and waives any future claims against Lender for indemnity
or contribution In the event Borrower becomes liable for Cleanup or other costs
under any Environmental Laws or under any Hazardous Substances-related claim;
(2) shall reimburse Lender, on demand, for all costs and expenses incurred by
Lender in connection with any review, approval, consent, or inspection relating
to the environmental provisions in this Security Instrument together with
interest, after demand, at the highest rate permitted under applicable law; and
(3) shall indemnify, defend, and hold Lender and Trustee harmless from and
against all losses, costs, claims, damages, penalties, liabilities, causes of
action, judgments, court costs, attorneys' fees and other legal expenses, costs
of evidence of title, cost of evidence of value, and other expenses
(collectively, "Expenses,,), including, without limitation, any Expenses
incurred or accruing after the foreclosure of the lien of this Security
Instrument, which either may suffer or incur and which directly or indirectly
arise out of or are in any way connected with the breach of any environmental
provision either In this Security Instrument or in any Loan Document or as a
consequence of any release or threatened release or the presence, use,
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storage, disposal, transportation, release, or threatened release of any
Hazardous Substances on or about the Property caused or permitted by Borrower,
any prior owner or operator of the Property, any adjoining landowner or any
other party, including, without limitation, the cost of any required or
necessary monitoring, investigation, repair, cleanup, remedy, or detoxification
of any Hazardous Substances and the preparation of any closure, remedial action,
or other required plans, whether that action is required or necessary by reason
of ads or omissions occurring prior to or following the recordation of this
Security Instrument. Borrower's obligations will survive the satisfaction,
release, or cancellation of the Loan, the release and reconveyance or partial
release and reconveyance of this Security Instrument, and the foreclosure of the
lien of this Security Instrument or deed in lieu thereof. Notwithstanding
anything in this paragraph to the contrary, this paragraph shall not apply to
the introduction and initial release of Hazardous Substances on the Property
from and after the date that Lender acquires title to the Property through
foreclosure or a deed in lieu of foreclosure (the "Transfer Date"); provided,
however, Borrower shall bear the burden of proof that the introduction and
initial release of such Hazardous Substances: (i) occurred subsequent to the
Transfer Date, (ii) did not occur as the result of any act or omission of
Borrower or its agents, and (iii) did not occur as a result of a continuing
leaching, seeping, migration or release of any Hazardous Substances introduced
prior to the Transfer Date in, on, under or near the Property.

 
To the extent permitted by applicable law, Lender or its agents,
representatives, alid employees may waive its lien against the Property or any
portion of it, including, without limitation, the Improvements and the Personal
Property, to the extent that the Property is found to be environmentally
Impaired and to exercise all rights and remedies of an unsecured creditor
against Borrower and all of Borrower's assets and property for the recovery of
any deficiency and environmental costs, including, without limitation, seeking
an attachment order. Borrower will have the burden of proving that Borrower or
any related party (or an affiliate or agent of Borrower or any related party)
was not In any way negligent in permitting the release or threatened release of
the Hazardous Substances.
 
Anything contained in this Security Instrument or in the Loan Documents to the
contrary notwithstanding, the Expenses will be exceptions to any nonrecourse or
exculpatory provision of the Loan Documents, and Borrower will be fully and
personally liable for the Expenses. That liability will not be Iimited to the
original principal amount of the obligations secured by this Security
Instrument, and Borrower's obligations will survive the foreclosure, deed in
lieu of foreclosure, release, reconveyance, or any other transfer of the
Property or this Security Instrument. For the purposes of any action brought
under this subsection, Borrower waives the defense of laches and any applicable
statute of limitations.
 
Lender and any other person or entity designated by Lender, Including, without
limitation, any representative of a governmental entity, and any environmental
consultant, and any receiver appointed by any court of competent Jurisdiction,
shall have the right, but not the obligation, to enter upon the Property at all
reasonable times to assess any and all aspects of the environmental condition of
the Property and its use, including, without limitation, conducting any
environmental assessment or audit (the scope of which shall be detennined by
Lender) and taking samples of soli, groundwater or other water, air, or building
materials, and conducting other invasive testing. Borrower shall cooperate with
and provide access to Lender and any such person or entity designated by Lender.
 
If recommended by the Environmental Report or any other environmental assessment
or audit of the Property, Borrower shall establish and comply with an operations
and maintenance program with respect to the Property, in form and substance
reasonably acceptable to Lender, prepared by an environmental consultant
reasonably acceptable to Lender, which program shall address any asbestos
containing material or lead based paint that may now or in the future be
detected at or on the Property. Without limiting the generality of the preceding
sentence, Lender may require (1) periodic notices or reports to Lender in form,
substance and at such intervals as Lender may specify, (2) an amendment to such
operations and maintenance program to address changing circumstances, laws or
other matters,
(3) at Borrower's sale expense, supplemental examination of the Property by
consultants specified by Lender, (4) access to the Property by Lender, its
agents or servicer, to review and assess the environmental condition of the
Property and Borrower's compliance with any operations and maintenance
 
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program, and (5) variation of the operations and maintenance program in response
to the reports provided by any such consultants.

 
1.04 Funds for Taxes, Insurance and Other Charges. Subject to applicable law or
to a written waiver by Lender, Borrower shall pay to Lender, on the day monthly
installments of principal and interest are payable under the Note (or on another
day designated in writing by Lender) until the Note is paid in full, a sum
(herein “Impounds” equal to one-twelfth (1/12) of: (a) all real property taxes
and assessments (general and special), and all other taxes and assessments of
any kind or nature whatsoever, including. without limitation, nongovernmental
levies or assessments such as maintenance charges, levies or charges resulting
from covenants, conditions and restrictions affecting the Property, which are
assessed or Imposed upon the Property or any portion of ii, or become due and
payable, and which create, may create or appear to create a lien upon the
Property, or any part thereof, or upon any person, property, equipment or other
facility used in the operation or maintenance thereof, or any tax or assessment
on the Property, or any portion of it, in lieu thereof Dr in addition thereto,
or any license fee, tax or assessment imposed on Lender and measured by or based
in whole or in part upon the amount of the outstanding Secured Obligations
(collectively, "Taxes”; (b) the yearly premium installments for fire and other
hazard insurance, rent loss insurance, commercial general liability insurance
and such other insurance covering the Property as Lender may require pursuant to
Section 1.07 hereof (collectively, “Insurance Premiums”; and (c) if this
Security Instrument is on a leasehold, the yearly fixed ground rent, if any,
under any ground lease affecting the Property or any portion thereof, all as
reasonably estimated initially and from time to time by Lender on the basis of
assessments and bills and reasonable estimates thereof. Lender may require
Borrower to pay to Lender, in advance, such other Impounds for other taxes,
charges, premiums, assessments and impositions in connection with Borrower or
the Property which Lender shall reasonably deem necessary to protect Lender's
interests (collectively "Other Impositions”. (The Taxes, Insurance Premiums,
Other Impositions, and other Hems for which Lender is authorized to collect
Impounds hereunder are referred to collectively as "Impositions".) Unless
otherwise provided by applicable law, Lender may require Impounds for Other
Impositions to be paid by Borrower In a lump sum or in periodic installments, at
Lender's option. Any waiver by Lender of a requirement that Borrower pays such
Impounds may be revoked by Lender a\ any time upon notice In writing to
Borrower.
 
Lender shall apply the Impounds to pay such Impositions so long as Borrower is
not in breach of such rates, ground rent, Taxes, assessments, Insurance Premiums
and other Impositions and so long as Borrower is not in breach of any covenant
or agreement in this Security Instrument. Lender shall make no charge to
Borrower for holding and applying the Impounds, annually analyzing such
accounts, or for verifying and compiling said assessments and bills, unless
Lender pays Borrower interest, earnings or profits on the Impounds and
applicable law permits Lender to make such a charge. If requested by Lender,
Borrower shall cause to be furnished to Lender a tax reporting service contract
covering the Property of the type, duration and with a company satisfactory to
Lender. Unless applicable law requires Interest, earnings or profits to be paid,
Lender shall not be required to pay Borrower any Interest, earnings or profits
on the Impounds. Lender shall give to Borrower, without charge, an annual
accounting of the Impounds, showing credits and debits to the Impounds and the
purpose for which each debit to the Impounds was made. The Impounds are pledged
as additional security for all sums secured by this Security Instrument.
 
If the Impounds held by Lender at the time of the annual accounting thereof
exceed the amounts deemed necessary by Lender to provide for the payment of such
Impositions, as they fall due, or exceed the amounts permitted to be held by
applicable law, if no Event of Default is in effect under any of the Loan
Documents, Lender shall credit such excess Impounds on the next monthly
installment or installments of Impounds due. If at any time the amount of the
Impounds held by Lender shall be less than is sufficient to pay such Impositions
as they fall due, Borrower shall pay to Lender the amount necessary to make up
the deficiency within thirty (30) days after notice from Lender to Borrower
requesting payment thereof.
 
Upon the occurrence of any Event of Default under any of the Loan Documents or
Borrower's breach of any covenant or agreement of Borrower In this security
Instrument, Lender may apply, in any amount and in any order as Lender shall
determine, any Impounds held by Lender at the time of
 
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application, (i) to pay Impositions which are now or will hereafter become due,
or (il) as a credit against the sums secured by this Security Instrument. Upon
payment in full of all sums secured by this Security Instrument or upon
Defeasance (as defined in the Note, if so defined), Lender shall promptly refund
to Borrower any Impounds held by Lender.

 
1.05 Application of Payments. Unless applicable law provides otherwise, all
payments received by Lender from Borrower under the Note or this Security
Instrument shall be applied by Lender in the following order of priority: (i) to
interest payable on the Note; (ii) to principal due on the Note; (iii) to
interest payable on advances made pursuant to Section 1.14 hereof; (iv) to
principal of advances made pursuant to Section 1.14 hereof; (v) to amounts
payable to Lender by Borrower under Section 1.04 hereof; and (vi) any other sums
secured by this Security Instrument In such order as Lender, at Lender's option,
may determine; provided, however, that Lender may, at Lender's option, apply any
sums payable pursuant to Section 1.14 hereof prior to Interest on and principal
of the Nota, but such application shall not otherwise affect the order of
priority of application specified in this Section 1.05.
 
1.06 Charges; Liens. Unless Lender shall be collecting (and Borrower shall have
paid as required) Impounds pursuant to Section 1.04 above, Borrower shall pay,
at Borrower's cost and expense, all Impositions attributable to the Properly,
the Note, this Security Instrument, or any part thereof or interest therein by
Borrower making or causing to be made payment, when due, directly to the payee
thereof, or in such other manner as Lender may designate in writing. Borrower
shall promptly furnish to Lender all notices of amounts due under this Section
1.06, and if Borrower shall make payment directly, Borrower shall promptly
furnish to Lender receipts evidencing such payments. Borrower shall pay and
promptly discharge, at Borrower's cost and expense, all liens, encumbrances and
charges upon, and the claims of all persons supplying labor or materials to or
in connection with, the Property, or any part thereof or interest therein,
without regard to whether such lien, encumbrance, charge or claim is or may be
senior and superior to, equal with or junior and inferior to the lien of this
Security Instrument. If Borrower shall fail to pay, remove and discharge any
such lien, encumbrance, charge or claim, then in addition to any other right or
remedy of Lender, Lender may, but shall not be obligated to, discharge the same,
either by paying the amount claimed to be due or by procuring the discharge of
such lien, encumbrance, charge or claim by depositing in a court a bond or the
amount claimed or otherwise giving security for such claim, or by procuring such
discharge in such manner as is or may be prescribed by law. Borrower shall,
immediately upon demand therefor by Lender, pay to Lender an amount equal to all
costs and expenses incurred by Lender in connection with the exercise by Lender
of the foregoing right to discharge any such lien, encumbrance, charge or claim,
together with interest thereon from the date of such expenditure at the Default
Rate.
 
Borrower shall give Lender prompt written notice of (a) the proposed creation of
any county, municipal, quasi governmental or other improvement or special
district of any nature or (b) any action in respect to such district, which may
affect the Property, including, without limitation, any proposed service plan or
modification of such plan, proposed organization of such district and election
in regard to such organization, the proposed issuance of bonds by such district
and election in regard to such issuance and the proposed inclusion of the
Properly in any such district, and Borrower shall not consent to the creation of
any such district or any such action in respect to such district without the
prior written consent of Lender, which consent shall not be unreasonably
withheld.
 
1.07 Required Insurance; Delivery of Policies. Borrower shall at all times
provide, maintain and keep in force or cause to be provided, maintained and kept
In force, at no expense to Trustee or Lender, policies of insurance in form and
amounts, covering such casualties, risks, perils, liabilities and other hazards
>IS provided below. All such insurance policies shall be written by a company or
companies authorized and admitted to Issue insurance In the State where the
Property is located and having a rating of A2 or better for ratings by Moody's
Investors Service, Inc., or A or better for ratings by Fitch Investors Service,
LP. or Standard & Poor's Ratings Services.
 
(a) Borrower shall initially maintain, until Lender shall otherwise indicate in
writing, the following insurance:
 
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(1) Property Insurance. Borrower, at its sole cost and expense, shall keep all
Improvements, boilers and machinery, and all other Personal Property of Borrower
now or hereafter situated on the Property insured during the term of this
Security Instrument against loss or damage by fire and against loss or damage by
other risks now embraced by 'Special Form" or "All Risk" coverage, so called,
(including without limitation, riot and civil commotion, vandalism, malicious
mischief, water, fire, burglary and theft) without any exclusion for terrorism,
boiler and machinery coverage (If applicable), flood and/or earthquake Insurance
(if applicable), all as may be required by lender, in amounts at all times
sufficient to prevent Lender from becoming a co-insurer within the terms of the
applicable policies and under applicable insurance law, providing for
deductibles (not to exceed the lesser of 1% of the face amount of any such
policy or $10,000), maintained in an amount not less than 100% of the full
replacement cost of the Improvements and betterments and Personal Property
(equivalent to the insurable value of the Improvements and Personal Property as
determined by an appraisal acceptable to Lender), on an agreed amount basis,
without deduction for depreciation and without reference to co­insurance (an
insurance to value provision is not permitted in the policy).

 
(2) Liability Insurance. Borrower shall also provide commercial general
liability insurance, on the so-called "occurrence" form naming Lender as an
additional insured, including personal injury, death and property damage
liability, and against any and all claims, including all legal liability to the
extent insurable and imposed upon Lender and all court costs and legal fees and
expenses, in an amount not less than One Million Dollars ($1,000,000), combined
single limit policy, Two Million Dollars ($2,000,000) In the aggregate, for
personal injury and property damage, to be without a deductible.
 
(3) Business Income Insurance. "Business income" and/or "rental income"
insurance, each naming Lender as loss payee, in an amount sufficient to avoid
any co insurance penalty and to provide proceeds which will cover a period of
not less than twelve (12) months from the date of casualty or loss; the term
"rental income" shall mean the sum of (A) the total then ascertainable Rents
payable under the Leases (defined below) and (8) the total ascertainable amount
of all other amounts to be received by Borrower from third parties which are the
legal obligation of the tenants under such Leases, reduced to the extent such
amounts would not be received because of operating expenses not incurred during
a period of non occupancy of that portion of the Property then not being
occupied.
 
(4) Flood Insurance. If the Property is now, or hereafter becomes, situated in a
federally designated special flood hazard area, then Borrower shall obtain and
maintain at all times thereafter, a policy of flood insurance in such amount as
lender may, from time to time require, and shall otherwise comply with the
requirements of the National Flood Insurance Program. A Life of Loan Flood
Hazard Certificate shall be provided to lender identifying the Flood Hazard Zone
in which the Property is situated.
 
(5) Law and Ordinance Insurance. If any of the Improvements or the use of the
Property shall at any time constitute a legal non-conforming structure or use,
Borrower shall obtain an "Ordinance or Law Coverage" or "Enforcement"
endorsement, which shall Include coverage for (A) loss of value On an amount no
less than 100% of the full replacement cost of the Improvements), (8) demolition
and debris removal costs On an amount not less than 15% of the policy limit or
insured value), and (C) increased costs of construction (in an amount not less
than 15% of the policy limit or insured value).
 
(6) Builder's Risk Insurance. At all times during which structural construction,
repairs or alterations are being made with respect 10 the Improvements, Borrower
shall also maintain (A) owner's contingent or protective liability insurance
covering claims not covered by or under the terms or provisions of the
above-mentioned commercial general liability insurance policy; and (B) the
insurance provided for in subsection (1) above written in a so-called builder's
risk completed value form (w) on a non-reporting basis, (Xl against all risks
insured against pursuant to the first sentence of this paragraph, (y) Including
permission to occupy the Property, and (z) with an Agreed Amount endorsement
waiving co­insurance provisions.
 
(7) Workers' Compensation Insurance. If Borrower has employees, Borrower shall
also maintain workers' compensation, subject to the statutory limits of the
state where the Property

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Is located, and employer's liability insurance with a limit of at least
$1,000,000 per accident and per disease per employee, with respect to any work
or operations on or about the Property.

(b) The original policy or policies and renewals thereof (or, at the sole option
of Lender, duplicate originals or certified copies thereof), together with
receipts evidencing payment of the premium therefor, shall be deposited with
Lender, and Borrower hereby assigns to lender the proceeds of such policy or
policies as additional security for the Secured Obligations. Not more than
forty-five (45) days after closing the Loan, Borrower shall deliver to Lender
the Origin,.1 policy or policies (or, at the sole option of Lender, duplicate
originals or certified copies thereof). Such insurance may be provided in one
policy or separate policies for hazard Insurance, rental or business Income
Insurance, general liability, earthquake, environmental or flood (or other
special perils) insurance. Each such policy of insurance shall contain a
non-contributing loss payable clause and a mortgagee clause in favor of and In
form acceptable to Lender for policies referred to under subsections 1.07(a)(I),
(3), (4), (5), and (6), and naming Lender as an additional insured for policies
referred to under subsections 1.07(a) (2) and (7), and shall provide for not
less than thirty (30) days prior written notice to Lender of any intent to
modify, cancel, or terminate the policy or policies or the expiration of such
policies of insurance, and must include a Lender's Loss Payable endorsement, and
such other endorsements as required by Lender, including a replacement cost
endorsement and agreed amount endorsement. If the insurance required under this
Section 1.07 or any portion thereof is maintained pursuant to a blanket policy,
Borrower shall furnish to Lender a certified copy of such policy, together with
an Original Evidence of Insurance (Accord Form 2B) indicating that Lender (and
its successors and/or assigns) is an insured under such policy in regard to the
Property and showing the amount of coverage apportioned to the Property which
coverage shall be in an amount sufficient to satisfy the requirements hereof.
Not less than thirty (30) days prior to the expiration dates of each policy
required of Borrower hereunder, Borrower will deliver to Lender a renewal policy
or policies marked "premium paid" or accompanied by other evidence of payment
and renewal satisfactory to Lender, and In the event of foreclosure of this
Security Instrument, any purchaser or purchasers of the Property shall succeed
to all rights of Borrower, including, without limitation, any rights to unearned
premiums, in and to all insurance policies assigned and delivered to Lender
pursuant to the provisions of this Section 1.07.
 
(C) Notwithstanding the foregoing, at any time while any amounts remain
outstanding under the Loan, upon the written request of Lender, Borrower shall
be required to maintain such insurance as may from time to time be required
under Lender's then current underwriting guidelines.

1.08 Payment of Premiums. If Lender shall collect and Borrower shall pay in full
Impounds for premiums in accordance with the provisions of Section 1.04 above,
Borrower shall be deemed to have "paid" the premiums for the purposes of this
Section 1.0B. in the event Borrower falls to provide, maintain, keep in force or
deliver to Lender the policies of insurance required by this Security Instrument
or by any Loan Document, Lender may (but shall have no obligation to) procure
such insurance or single-Interest insurance for such risks covering Lender's
interest, and Borrower will pay all premiums thereon and reimburse Lender for
all amounts paid or incurred by Lender In connection therewith promptly upon
demand by Lender, and until such payment is made by Borrower, the amount of all
such premiums shall be added to the principal amount of the Loan and shall bear
interest at the Default Rate.
 
1.09 casualties; Insurance and Condemnation Proceeds. In the event of a casualty
or a taking by eminent domain, the following provisions shall apply in
connection with the Restoration (defined below) of the Property:
 
(a) If the Property shall be damaged or destroyed, in whole or in part, by fire
or other casualty, or if the Property or any portion thereof is taken in any
condemnation or eminent domain proceeding, Borrower shall give prompt notice of
such damage or taking to Lender and shall promptly commence and diligently
prosecute the completion of the repair and restoration of the Property as nearly
as possible to the condition of the Property was in immediately prior to such
fire or other casualty or taking, with such alterations as may be approved by
Lender (the 'Restoration").
 
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(b) The term "Net Proceeds' for purposes of this Section 1.09 shall mean: 0) the
net amount of all insurance proceeds under the policies carried pursuant to
Section 1.07 hereof as a result of such damage or destruction, after deduction
of Lender's reasonable costs and expenses (including, without limitation,
attorneys' fees), if any, in collecting the same, or (ii) the net amount of all
awards and payments received by Lender with respect to a taking referenced in
Section 1.17 hereof, after deduction of lender's reasonable costs and expenses
including, without limitation, attorneys' fees), if any, In collecting the same,
whichever the case may be. If (i) the Net Proceeds do not exceed $50,000 (the
"Net Proceeds Availability Threshold”); (ii) the costs of completing the
Restoration as reasonably estimated by Borrower shall be less than or equal to
the Net Proceeds; (iii) no Event of Default exists under the Note, this Security
Instrument or any of the other Loan Documents; (iv) the Property and the use
thereof after the Restoration will be in compliance with, and permitted under,
all applicable zoning laws, ordinances rules and regulations (Including, without
limitation, laws relating to legal nonconforming structures or uses and all
applicable Environmental Laws; (v) (A) if the Net Proceeds are insurance
proceeds, less than twenty-five percent (25%) of the total floor area of the
Improvements has been damaged or destroyed, or rendered unusable as a result of
such fire or other casualty; or (9) if the Net Proceeds are condemnation awards,
less than 25% of the Property is taken, such Property that is taken is located
along the perimeter or periphery of the Property, no portion of the Improvements
is located on such Property, and such taking does not materially impair access
to the Property; and (vi) Lender shall be satisfied that any operating deficits,
including, without limitation, all scheduled payments of principal and interest
under the Note which will be incurred with respect to the Property as a result
of the occurrence of any such fire or other casualty or taking, whichever the
case may be, will be covered out of (1) the Net Proceeds, or (2) other funds of
Borrower. then the Net Proceeds will be disbursed directly to Borrower.

(c) If the Net Proceeds are greater than the Net Proceeds Availability
Threshold, such Net Proceeds shall, subject to the provisions of the leases that
are superior to the lien of this Security Instrument or with respect to which
subordination and non-disturbance agreements binding upon Lender have been
entered Into and such subordination and non-disturbance agreements apply to the
deposits of Net Proceeds, be forthwith paid to Lender to be held by lender in a
segregated account to be made available to Borrower for the Restoration in
accordance with the provisions of this Subsection 1.09(c).

The Net Proceeds held by lender pursuant to Subsection 1.09(c) hereof shall be
made available to Borrower for payment or reimbursement of Borrower's expenses
in connection with the Restoration, subject to the following conditions:
 
(1) no Event of Default exists under the Note, this Security Instrument or any
of the other Loan Documents;
 
(2) Lender shall, within a reasonable period of time prior to a request for an
initial disbursement, be furnished with an estimate of the cost of the
Restoration accompanied by an independent architect's opinion based on due
professional investigation as to such costs and appropriate plans and
specifications for the Restoration, such plans and specifications and cost
estimates to be subject to Lender's approval, not to be unreasonably withheld or
delayed;

 
(3) the Net Proceeds, together with any cash or cash equivalent deposited by
Borrower with lender, are sufficient to cover the cost of the Restoration as
such costs are certified by the independent architect;
 
(4) Net Proceeds are less than the outstanding principal balance of the Note;
 
(5) (A) If the Net Proceeds are Insurance proceeds, less than sixty percent
(60%) of the total floor area of the Improvements has been damaged or destroyed,
or rendered unusable as a result of such fire or other casually; or (B) if the
Net Proceeds are condemnation awards, less than 25% of the Property Is taken,
such Property that is taken is located along the perimeter or periphery of the
Property, no portion of the Improvements is located on such Property and such
taking does not materially impair access to the Property;

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(6) Lender shall be satisfied that any operating deficits, including, without
limitation, all scheduled payments of principal and interest under the Note
Which will be incurred with respect to the Property as a result of the·
occurrence of any such fire or other casually or taking, whichever the case may
be, will be covered out of (1) the Net Proceeds. or (2) other funds of Borrower;

 
(7) Lender shall be satisfied that. upon completion of the Restoration, the
gross cash flow and the net cash flow of the Property will be restored to a
level sufficient to cover all carrying costs and operating expenses of the
Property, including, without limitation, debt service on the Note at a coverage
ratio (after deducting all required reserves as required by Lender from net
operating Income) of at leas11.55 to 1.0, which coverage ratio shall be
determined by Lender on the basis of the Applicable Interest Rate (as defined in
the NOTE);
 
(8) the Restoration can reasonably be completed on or before the earliest to
occur of (A) six (6) months prior to the Maturity Date (defined in the Note),
(B) the earliest date required for such completion under the terms of any Major
Leases (defined below) and (C) such time as may be required under applicable
zoning law, ordinance rule or regulation in order 10 repair and restore the
Property to as nearly as possible the condition it was in immediately prior to
such fire or other casualty or to such taking, as applicable;
 
(9) the Property and use thereof after the Restoration will be in compliance
with, and permitted under, all applicable zoning laws, ordinances, rules and
regulations including, without limitation, laws relating to legal nonconforming
structures or uses and all applicable Environmental Laws; and
 
(10) each Major Lease in effect as of the date of the occurrence of such fire or
other casualty shall remain In full force and effect during and after the
completion of the Restoration without abatement of rent beyond the time required
for Restoration.

For purposes hereof, the term "Major Lease" shall mean (I) any Lease which (A)
provides for rental Income representing ten percent (10%) or more of the total
rental income for the Property, (B) covers ten percent (10%) or more of the
total space at the Property, in the aggregate, or (C) provides for a lease term
of more than ten (10) years Including options to renew and (ii) any instrument
guaranteeing or providing credit support for any Major lease.
 
(d) The Net Proceeds held by lender until disbursed in accordance with the
provisions of this Section 1.09 shall constitute additional security for the
Secured Obligations. If Borrower is entitled to Net Proceeds pursuant to the
terms hereof, the Net Proceeds (other than the Net Proceeds paid under the
policy described in Section 1.07(a)(3) hereof for loss of rents or business
interruption) shall be disbursed by Lender to, or as directed by, Borrower, In
an amount equal to the costs actually incurred from time to time for work ( in
place as part of the Restoration less customary retainage from time to time
during the course of the Restoration, not more frequently than once per month,
upon receipt of evidence satisfactory to Lender that (A) all materials installed
and work ( and labor performed (except to the extent that they are to be paid
for out of the requested disbursement) in connection with the Restoration have
been paid for in full, and (B) there exist no notices of pendency, stop orders,
mechanic's or materialman's liens or notices of intention to file the same. or
any other liens or encumbrances of any nature whatsoever on the Property arising
out of the Restoration which have not either been fully bonded and discharged of
record or in the alternative fully insured to the satisfaction of Lender by the
title company Insuring the lien of this Security Instrument. The Net Proceeds
paid under the policy described in Section 1.07(b)(3) shall be disbursed by
Lender to pay for debt service under the Loan. to pay other expenses incurred by
Borrower In connection with the ownership and operation of the Property, and the
remainder thereof, to, or as directed by, Borrower to pay for the cost of the
Restoration in accordance with this Section 1.09(d). Final payment shall be made
after submission to lender of all licenses, permits, certificates of occupancy
and other required approvals of governmental authorization having jurisdiction
and Casualty Consultant's (defined below) certification that the Restoration has
been fully completed.
 
(e) Lender shall have the use of the plans and specifications and all permits,
licenses and approvals required or obtained in connection with the Restoration.
The identity of the contractors,

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subcontractors and materialmen engaged in the Restoration, as well as the
contracts under which they have been engaged, shall be subject to prior review
and acceptance by lender and an independent consulting engineer selected by
Lender (the "casualty Consultant"), such acceptance not to be unreasonably
withheld or delayed. All costs and expenses incurred by Lender in connection
with making the Net Proceeds available for the Restoration, including, without
limitation, attorneys' fees and disbursements and the casualty Consultant's
fees, shall be paid by Borrower.

 
(f) If at any time the Net Proceeds or the undisbursed balance thereof shall
not, in the reasonable opinion of Lender, be sufficient to pay in full the
balance of the costs which are estimated by the casualty Consultant to be
incurred in connection with the completion of the Restoration, Borrower shall
deposit the deficiency in immediately available funds (the "Net Proceeds
Deficiency") witl1lender before any further disbursement of the Net Proceeds
shall be made. The Net Proceeds Deficiency deposited with Lender shall be held
by Lender and shall be disbursed for costs actually incurred in connection with
the Restoration on the same conditions applicable to the disbursement of the Net
Proceeds, and until so disbursed pursuant to this Section 1.09 shall constitute
additional security for the secured Obligations.
 
(g) Unless an Event of Default exists, Borrower shall settle any insurance
claims with respect to the Net Proceeds which in the aggregate are less than the
Net Proceeds Availability Threshold. Lender shall have the right to participate
in and reasonably approve any settlement for Insurance claims with respect to
the Net Proceeds which in the aggregate are greater than the Net Proceeds
Availability Threshold. If an Event Of Default exists, Borrower hereby
irrevocably empowers lender, at Lender's sale election, in the name of Borrower
as its true and lawful attorney-in-fact, to file and prosecute such claims and
to collect and to make receipt for any such payment. Notwithstanding the
foregoing, lender's failure 10 file and prosecute any such claims shall not
diminish or impair Lender's rights and remedies against Borrower under the Loan
Documents. If the Net Proceeds are received by Borrower, such Net Proceeds
shall, until the completion of the related work, be held in trust for Lender and
shall be segregated from other funds of Borrower to be used to pay for the cost
of the Restoration in accordance with the terms hereof.
 
(h) The excess, If any, of the Net Proceeds and the remaining balance, if any,
of the Net Proceeds Deficiency deposited with Lender after (i) the Casualty
Consultant certifies to Lender that the Restoration has been completed in
accordance with the provisions of this Section 1.09, and (ii) the receipt by
Lender of evidence satisfactory to lender that all costs incurred in connection
with the Restoration have been paid in full and all required permits, licenses,
certificates of occupancy and other required approvals of governmental
authorities having jurisdiction have been issued, shall be remitted by Lender to
Borrower, provided no Event of Default shall have occurred and shall be
continuing under the Note, this Security Instrument or any of the other Loan
Documents.
 
(I) All Net Proceeds not required (i) 10 be made available for the Restoration
or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Subsection
1.09(h) hereof shall be retained and applied by Lender toward the payment of the
secured Obligations whether or not then due and payable in such order, priority
and proportions as Lender shall determine, without Prepayment Charge, or, at
Lender's sole election, the same shall be paid, either in whole or in part, to
Borrower. If lender shall receive and retain Net Proceeds, the lien of this
Security Instrument shall be reduced only by the amount received and retained by
Lender and actually applied by Lender in reduction of the Secured Obligations.

BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT IT IS AWARE OF AND UNDERSTANDS
SCHOOLCRAFT V. ROSS (81 CAL APP. 3D 75 (1981)) AND ITS PROGENY AS WELL AS
CAUFORNIA CIVIL CODE SECTION 2924.7 AND CAUFORNIA FINANCIAL CODE SECTIONS 1227.3
AND 7462, WHICH PERMIT LENDER TO REQUIRE INSURANCE BUT OBLIGATE LENDER TO ALLOW
BORROWER TO USE CASUALTY INSURANCE PROCEEDS FOR THE PURPOSE OF REPAIRING OR
RESTORING THE REAL PROPERTY PLEDGED AS SECURITY FOR THE BORROWER'S OBUGATIONS TO
LENDER UNLESS LENDER'S SECURITY HAS BEEN IMPAIRED. BORROWER HEREBY ACKNOWLEDGES
AND AGREES THAT, IN THE EVENT OF A
 
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CASUALTY TO THE PROPERTY, IF BORROWER FAILS TO REPAIR OR RESTORE THE PROPERTY IN
A MANNER CONSISTENT WITH THE PROVISIONS OF THIS SECTION 1.09 ABOVE, REGAROLESS
OF WHETHER SUCH FAILURE IS THE RESULT OF ANY VOLUNTARY ACTION OR INACTION BY
BORROWER, OR ANY ACT OR DETERMINATION OF ANY GOVERNMENTAL AUTHORITY (WHETHER
PURSUANT TO ANY ZONNG, LAND USE OR OTHER ORDINANCE, CODE, REGULATION OR
REQUIREMENT OR OTHERWISE), SUCH FAILURE IS AND SHALL BE DEEMED A SUBSTANTIAL
IMPAIRMENT OF THE PROPERTY ENTITLING LENDER TO APPLY THE NET INSURANCE PROCEEDS
TO THE INDEBTEDNESS IN SUCH ORDER AND MANNER AS LENDER MAY ELECT, WHETHER OR NOT
DUE AND PAYABLE, WITH ANY EXCESS PAID TO BORROWER. BY CAUSING THOSE PERSONS
EXECUTING THIS SECURITY INSTRUMENT ON ITS BEHALF TO SEPARATELY INITIAL THIS
PROVISION BY PLACING THEIR INITIALS BELOW THIS PROVISION IN THE SPACE PROVIDED
BELOW, BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE TERMS OF THIS PROVISION
HAVE BEEN SPECIFICALLY BARGAINED FOR AND ARE A MATERIAL INDUCEMENT FOR LENDER TO
MAKE THE LOAN AND WITHOUT WHICH LENDER WOULD NDT MAKE THE LOAN.
INITIALS:~
 
a;:.,.
 
1.10 Assignment of Policies Upon Foreclosure. In the event of foreclosure of
this Security Instrument or other transfer of title or assignment of the
Property in extinguishment, in whole or in part, of the debt secured hereby, all
right, title and interest of Borrower In and to all policies of insurance
required by Section 1.07 hereof shall Inure to the benefit of and pass to the
successor in interest to Borrower or the purchaser or grantee of the Property.
 
1.11 Indemnification; Subrogation; Waiver of Offset. (a) Notwithstanding any
other provisions of this Security, Lender is not undertaking any obligations,
nor shall Lender have any obligations, under the Leases; or with respect to
agreements, contracts, certificates, instruments, franchises, permits, licenses
and other items which are part of the Property. If Lender or Trustee is made a
party to any litigation concerning the Note, this Security Instrument, any of
the Loan Documents. the Property or any part thereof or interest therein, or the
occupancy of the Property by Borrower, then Borrower shall Indemnify, defend and
hold Lender and Trustee harmless from all liability by reason of said
litigation, including, without limitation, attorneys' fees and expenses incurred
by Lender or Trustee as a result of any such litigation, whether or not any such
litigation is prosecuted to judgment. Lender and Trustee may employ an attorney
or attorneys selected by It to protect Its rights hereunder, and Borrower shall
pay to Lender and Trustee attorneys' fees and costs incurred by Lender and
Trustee. (b) Borrower waives any and all right to claim or recover against
Lender, Trustee, or their respective officers, employees, agents and
representatives, for loss of or damage to Borrower, the Property, Borrowers
property or the property of others under Borrower's control from any cause
insured against or required to be insured against by the provisions of this
Security Instrument
 
(c) All sums payable by Borrower pursuant to this Security Instrument or the
Note shall be paid without notice, demand, counterclaim, setoff, deduction or
defense and without abatement suspension, deferment, diminution or reduction,
and the obligations and liabilities of Borrower hereunder shall in no way be
released. discharged or otherwise affected (except as expressly provided herein)
by reason of: (i) any damage to or destruction of or any condemnation or similar
taking of the Property or any part thereof; 01) any restriction or prevention of
or Interference by any third party with any use of the Property or any part
thereof; (III) any title defect or encumbrance or any eviction from the
Property, the Improvements or any part thereof by title paramount or otherwise;
(Iv) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other Bile proceeding relating to Lender, or any
action taken with respect to this Security Instrument by any trustee or receiver
of Lender, or by any court, in any such proceeding; (v) any claim which Borrower
has or might have against Lender;
 
(vi) any default or failure on the part of Lender to perform or comply with any
of the terms hereof or of any other agreement with Borrower; or (vii) any other
occurrence whatsoever, whether similar or dissimilar to

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the foregoing and whether or not Borrower shall have notice or knowledge of any
of the foregoing. Except as expressly provided herein, Borrower waives all
lights now or hereafter conferred by statute or otherwise to any abatement,
suspension, deferment, diminution or reduction of any sum secured hereby and
payable by Borrower.

 
1.12 Utilities. Borrower shall payor shall cause to be paid when due all utility
charges which are incurred by Borrower for the benefit of the Property and all
other assessments or charges of a similar nature, whether or not suoh charges
are or may become liens thereon.
 
1.13 Actions Affecting Property. Borrower shall promptly give Lender written
notice of, and shall appear in and contest, any action Dr proceeding purporting
to affect the Property or any portion thereof or interest therein, or the
security of this Security Instrument or the rights or powers of Lender or
Trustee; and shall pay all costs and expenses, including, without limitation,
the cost of evidence of title and attorneys' fees, in any such action or
proceeding in which Lender or Trustee may appear.
 
1.14 Actions by Trustee or Lender to Preserve Property. If Borrower fails to
make any payment or to do any act as and in the manner provided in any of the
Loan Documents, Lender and/or Trustee, each at its own election, without
obligation so to do, without releasing Borrower from any obligation, and without
notice to or demand upon Borrower, may make or do the same in such manner and to
such extent as either may deem necessary to protect the security hereof. In
connection therewith (without limiting their general powers, whether conferred
herein, in any other Loan Documents or by law), Lender and Trustee shall have
and are hereby given the right, but not the obligation, (i) to enter upon and
take possession of the Property; (ii) to make additions, alterations, repairs
and improvements to the Property which they or either of them may consider
necessary or proper to keep the Property in good condition and repair; (iii) To
appear and participate in any action or proceeding affecting or which may affect
the Property or any portion thereof or Interest therein, the security of this
Security Instrument or the rights or powers of Lender or Trustee; (Iv) to pay,
purchase, contest or compromise any encumbrance, claim, charge, lien or debt
which in the judgment of either may affect or appears to affect the security of
this Security Instrument or be prior or superior hereto; and (v) in exercising
such powers, to pay necessary expenses, including, without limitation,
attorneys' fees and costs or other necessary or desirable consultants. Borrower
shall, immediately upon demand therefor by Lender and Trustee or either of them,
pay to Lender and Trustee an amount equal to all respective costs and expenses
incurred by such party In connection with the exercise of the foregoing rights,
Including, without limitation, costs of evidence of title, court costs,
appraisals, surveys and receiver's, trustee's and attorneys' fees and costs and
expenses, together with interest thereon from the date of such expenditure al
the Default Rate.
 
1.15 Transfers; Due On Sale/Encumbrance.
 
(a) Lender Reliance. Borrower acknowledges that Lender has examined and relied
on the experience of Borrower or its general partners, managing partners,
managing members, principals Of any direct or indirect legal or beneficial owner
of Borrower In owning and operating properties such as the Property in agreeing
to make the Loan, and will continue to rely on Borrower's ownership of the
Property as a means of maintaining the value of the Property as security for
payment and performance of the Secured Obligations. Borrower acknowledges that
Lender has a valid interest In maintaining the value of the Property so as to
ensure that, should Borrower default in the payment or the performance of the
Secured Obligations, Lender can recover the Secured Obligations by a sale of the
Property.
 
(b) Transfer Definitions. For purposes of this Section 1.15, an "Affiliated
Manager" shall mean any Property Manager In which Borrower, any Guarantor (as
hereinafter defined) or any Indemnitor has, directly or indirectly, any legal,
beneficial or economic interest; a "Restricted Party" shall mean Borrower, any
Guarantor, any Indemnitor, or any Affiliated Manager or any shareholder,
partner, member or non-member manager, or any direct or indirect legal or
beneficial owner of Borrower, any Guarantor, any Indemnitor, any Affiliated
Manager or any lien-member manager; a “Sale" shall mean a voluntary or
involuntary sale, conveyance or transfer of a legal or beneficial Interest; and
a "Pledge" shall mean a pledge of or grant of a security interest in a legal or
beneficial Interest; the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or

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activities of a person or entity, whether through ownership of voting
securities, by contract, by operation of law, or otherwise.

 
 
(c) No Sale/Encumbrance.

 
(1) Except as is set forth below in Section 1.1S(d) with respect to Permitted
Transfers (as hereinafter defined), Borrower shall not sell, convey, mortgage,
grant, bargain, encumber, pledge, assign, grant options with respect to, or
otherwise transfer or dispose of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether Dr not for
consideration or of record) the Property or any part thereof or any legal or
beneficial interest therein or permit a Sale or Pledge of an interest in any
Restricted Party (collectively a "Transfer”, without the prior written consent
of Lender, which consent may be withheld at Lender's sole election, regardless
of whether the conditions set forth in Subsection 1.15(e) hereof have been
satisfied, without limiting the foregoing, there shall be no subordinate
financing placed on any portion of the Property.

 
(2) A Transfer shall include, without limitation: (i) an installment sales
agreement wherein Borrower agrees to sell the Property or any part thereof for a
price to be paid in installments; (ii) an agreement by Borrower leasing all or a
substantial part of the property for other than actual occupancy by a space
tenant thereunder or a sale, assignment or other transfer of, or the grant of a
security interest in, Borrower's right, sale and interest in and to any Leases
or any Rents; (iii) if a Restricted Party is a corporation, any merger,
consolidation, Sale or Pledge of such corporation's stock or the creation or
issuance of new stock in such corporation; (IV) if a Restricted Party is a
limited Dr general partnership or joint venture, any merger or consolidation or
the change, removal, resignation or addition of any general partner or joint
venturer, or the Sale or Pledge of the partnership Interest of any limited
partner, general partner or joint venturer, or the Sale or Pledge of any profits
or proceeds relating to such partnership interest, or the creation or issuance
of new partnership interests; (v) if a Restricted Party is a limited liability
company, any merger or consolidation or the change, removal, resignation or
addition of any managing member or non-member manager (or If no managing member
or non-member manager, any member) or the sale or Pledge of the membership
interest of any member or any profits or proceeds relating to such membership
interest, or the creation 'or issuance of new membership interests; (vi) If a
Restricted Party is a trust or nominee trust, any merger or consolidation or the
Sale or Pledge of the legal or beneficial interests in such Restricted Party or
the creation or issuance of new legal or beneficial interests; (vii) the removal
or the resignation of the Property Manager (including, without limitation, an
Affiliated Manager) other than in accordance with Section 1.02 hereof; and
(viii) without limitation to the foregoing, any Sale or Pledge by any person or
entity which directly or indirectly controls Borrower of its direct or indirect
controlling interest in Borrower.
 
(d) Permitted Transfers.
 
(1) Notwithstanding the provisions of Sections 1.15(b) and (e) hereof, the
following transfers shall not be deemed to be a Transfer: (i) transfers by
devise or descent or by operation of law upon the death of a member, partner or
shareholder of a Restricted Party; (ii) the Sale, in one or a series of
transactions, of not more than forty-nine percent (49%) of the stock in a
Restricted Party; (iii) the Sale, in one or a series of transactions, of not
more than forty-nine percent (49%) of the limited partnership interests or
non-managing membership interests, as the case may be, in a Restricted Party;
(iv) inter vivos and testamentary transfers of the legal or beneficial interests
(including, without limitation, stock, partnership interests and membership
interests) in a Restricted Party (A) to an existing owner of a legal or
beneficial interest including, without limitation, a shareholder, limited
partner, general partner, joint venturer or member} in such Restricted Party on
the date hereof (an "Existing Owner”, (B) to a lineal descendant or spouse of an
Existing Owner, (C) to a trust, the beneficiary of which is (and so long as any
part of the Loan remains unpaid continues to be) an Existing Owner or a lineal
descendant or spouse of an Existing Owner, or (D) to a corporation, limited or
general partnership, limited liability company or other legal enemy which Is
(and so long as any part of the Loan remains unpaid continues to be wholly owned
and controlled by an Existing Owner; and (v) pursuant to Leases for which
Lender's consent is not required in accordance with the provisions of Section
1.26 (b) hereof; Notwithstanding the introductory clause of this paragraph, the
transfers described in clauses (i) through (iv) inclusive of this paragraph

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(collectively, "Permitted Transfers") shall be subject to lender's prior written
consent, which consent Lender shall provide upon satisfaction of the conditions
set forth in Subsection 1.15(e) hereof.

(e) Conditions Precedent. Lender's consent to any Transfer/Permitted Transfer.
regardless of whether Lender has consented to any previous Transfer/Permitted
Transfer, is subject to satisfaction of the following conditions precedent:
 
(1) Lender shall have received at least thirty (30) days prior written notice of
the Transfer/Permitted Transfer, together with copies of such documents and
information relating to the Transfer/Permitted Transfer as Lender may request,
including, without limitation, the Sale documents (including, without
limitation, purchase/sale agreement, If any), the terms and structure of the
Sale and the nature and structure of the Sale (including, without limitation,
debt/equity structure, if any).
 
(2) the Transfer/Permitted Transfer shall not result In a change In the control
of any Restricted Party or a change In the control or management of the Borrower
and the Property, or, in the alternative, the person{s) or entity(ies) proposed
to assume control of such Restricted Party and the person(s) or entity(ies)
proposed to assume control and management of the Borrower and the Property shall
be acceptable to Lender In all respects (Including, without limitation,
financial condition, credit history and management ability/experience and other
relevant criteria, all as determined by Lender);
 
(3) the Transfer/Permitted Transfer shall not release any Guarantor or
Indemnitor or their respective estates from their respective obligations under
the Loan Documents;
 
(4) the Transfer/Permitted Transfer shall not release the Borrower from Hs
obligations under the Note, this Security Instrument, or any other Loan
Documents;
 
(5) the Transfer/Permitted Transfer shall not have any adverse effect either on
the Borrower's compliance with the provisions of this Security Instrument,
including, without limitation, Section 1.29 (captioned "Single Purpose Entity")
and Section 1.30 (captioned "ERISA") hereof, or on the Borrower's status as a
continuing legal entity liable for the payment and performance of the Secured
Obligations;

(6) Borrower shall pay all of Lender's costs and expenses, including, without
limitation, attorneys' fees and costs, and title insurance costs (if any).
 
(f) Lender's Rights. Lender reserves the right to condition any consent required
hereunder upon a modification of the terms hereof (excludin9 a modification of
the interest rate, amortization term, maturity date, or payment schedule) and on
an assumption of the Note, this Security Instrument and the other Loan Documents
as so modified in connection with the proposed Transfer, payment of an
assumption fee (except with respect 10 Permitted Transfers) of one percent (1 %)
of the principal balance of the Note (the "Assumption Fee"), payment of a
$2,000.00 processing fee (the 'Processing Fee"), payment of expenses incurred by
Lender (Including attorneys' fees) In connection with any proposed Transfer (the
"Transfer Expenses"), the approval by a Rating Agency (defined below) of the
proposed transferee, and such other conditions and legal opinions as Lender
shall determine to be in the interest of Lender. If the holder of the Note shall
be a "real estate mortgage investment conduit" or "REMIC' (as such terms are
defined in Section 8600 of the United States Internal Revenue Code, as amended,
and any related United States Treasury Department regulations) (the "REMIC
Trust"), such opinions shall include, without limitation, an opinion of counsel
In form and substance satisfactory to Lender, from counsel approved by Lender,
stating that the tax qualification and status of the REMIC Trust as a REMIC will
not be adversely affected or impaired as a result of such modification or
assumption. The Transfer Expenses and the processing Fee shall be payable by
Borrower whether or not Lender consents to the Transfer. Lender shall not be
required to demonstrate any actual impairment of its security Dr any increased
risk of default hereunder in order to declare the Secured Obligations
immediately due and payable upon a Transfer without Lender's consent. Any
Transfer made in contravention of this Section

1.15 shall be null and void and of no force and effect. The provisions of this
Section 1.15 shall apply to
 
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every Transfer regardless of whether voluntary or no~ or whether or not Lender
has consented to any previous Transfer.

 
(g) Assumption and Release. Provided that no event of Default shall have
occurred and shall be continuing, Lender shall consent to a sale of the Property
and assumption of the Loan by the purchaser (transferee) and the release of
Borrower from liability under the Loan, except for any liability arising or
accruing prior to the closing of said assumption, upon (1) Borrower's completion
of an assumption application in such form as Lender may require from time to
time, (2) Lender’s review and approval, which approval shall not be.
unreasonably withheld, of the creditworthiness and other qualifications of the
proposed transferees (including, without Iimitation, the development, business
or management expertise of the proposed transferee, if deemed relevant under the
circumstances by Lender in its good faith judgment) under Lenders underwriting
criteria at the time 01 said assumption, (3) the execution by the transferee of
an assumption agreement in such form as Lender may require from time to time,
and (4) payment to Lender of the Assumption Fee, the Processing Fee and the
Transfer Expenses. In addition, in connection with said assumption, but subject
to all of the conditions referred to above in this Subsection 1.15(g), Lender
shall consent to the release of the Guarantor and Indemnitor, except for any
liability arising or accruing prior to the dosing of said assumption, provided
that Lender approves in writing substitute guarantor(s)/Indemnitor(s) acceptable
to Lender in Its sole discretion in terms of creditworthiness and other
qualifications under Lender's underwriting criteria at the time of said
assumption, and further provided that such substitute guarantor(s)/indemnitor
(s) execute guaranties and/or indemnities In form and content acceptable to
Lender.
 
BY CAUSING THOSE PERSONS EXECUTING THIS SECURITY INSTRUMENT ON ITS BEHALF TO
SEPARATELY INITIAL THIS PROVISION BY PLACING THEIR INITIALS BELOW THIS PROVISION
IN THE SPACE PROVIDED BELOW, BORROWER ACKNOWLEDGES AND WARRANTS THAT IT HAS READ
AND UNDERSTOOD THE PROVISIONS OF THIS SECTION 1.15 AND INITIALS THIS SECTION
1.15 AS PROOF OF THIS STATEMENT.
 
INITIALS::___
 
(h) Permitted "Soft Second" Debt. Notwithstanding anything to the contrary
contained in Sections 1.15 or 1.29 hereof, Lender shall consent to Borrower
incurring so called soft second", (I.e., unsecured and subordinate) debt (the
"Junior “), in accordance with the terms and conditions of the governing
organizational documents to the Borrower (the "Entity Documents") to the Junior
Lender (defined below), provided that no Event of Default has occurred and is
continuing, and further provided that, all of the foIlo11ring additional terms
and conditions are satisfied:
 
(1) Borrower shall pay Lender aft costs and expenses incurred In connection with
the Junior Debt including, without limitation, reasonable attorneys' fees, costs
and expenses and the customary fees of the Rating Agencies [defined below! in
connection with any Rating Agency Confirmation [defined below]); "Rating
Agencies" shall mean, prior to Securitization (defined below), Fitch, Inc.,
Moody's Investors Service, Inc., Standard & Poor’s Ratings Services, or any
other nationally· recognized rating agency designated by Lender, and after
Securitization, shall mean any of the foregoing that have rated any Securities
(as defined In Section 4.01 hereof); "Securitization" means the sale or
securitization of the Loan (or any portion thereof) in one or more transactions
through the issuance of Securities; "Rating Agency Confirmation" means that each
of the Rating Agencies shall have confirmed in writing that the occurrence 01
the event for which such Rating Agency Confirmation is sought shall not result
in a downgrade, qualification or withdrawal 01 the applicable rating or ratings
ascribed by the applicable Rating Agencies to any of the Securities then
outstanding, which confirmation may be granted or denied by the Rating Agencies
in their sole discretion; further, in the event that no Securities are
outstanding or the Loan is not part of a Securitization, "Rating Agency
Confirmation" means that Lender shall have given its prior written consent to
any action that would otherwise require a Rating Agency Confirmation, which
consent shall not be unreasonably withheld;
 
(2) The "Junior Lender" shall be DOWNEY SAVINGS & LOAN ASSOCIATION, FA, a
Federal association;

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(3) The Junior Debt shall in all respects be subject, subordinate and Inferior
In lien, right and claim to all liens securing the Secured Obligations,
including but not limited to the lien of the Security Instrument, whether
present or future rights, and to the rights of all tenants of the Property;

 
(4) The Guarantor under the Limited Recourse Obligations Guaranty, of even date
herewith executed in connection with the Loan, and the Indemnitors under the
Environmental Indemnification Agreement of even date herewith executed in
connection with the Loan, shall have unconditionally and irrevocably consented
to the Junior Debt in writing(s) delivered to Lender;
 
(5) Upon Lender's request, the Junior Lender shall execute and deliver to Lender
a Subordination Agreement In form and substance acceptable to Lender;
 
(6) Junior Lender or Borrower shall provide Lender with written notice of any
defaults under the Junior Debt together with an opportunity to cure such
defaults at the sole option of Lender;
 
(T) Actual payments of the payments due under the Junior Debt Documents (defined
below) shall not cause or result In an Event of Default under the loan Documents
or an event which, with the giving of notice and or the expiration any
applicable cure period, would constitute an Event of Default under the Loan
Documents, and such actual payments shall be made solely from excess cash now of
the Borrower, and there shall be no outstanding trade debt or other obligation
of the Borrower then existing which are unpaid, excepting those which are not
past due and for which Borrower has set aside sufficient working capital reserve
to pay the same as and when due;
 
(8) Evidence of the satisfaction of any conditions that lender may reasonably
establish to comply w~h any applicable Securitization requirements; and

(9) The documents (if any) proposed for evidencing the Junior Debt
(collectively, the •Junior Debt Documents") shall be delivered to the Lender for
its approval, and the Junior Debt Documents shall be in form and substance
acceptable to Lender, and lender's consent to the Junior Debt and the Junior
Debt Documents [If any) shall be subject to the following terms and conditions:
(i) The indebtedness secured by the Junior Debt shall in no event exceed the
amount which would result in a [combined] loan-to-value ratio (as determined by
Lender) based on a then-current appraisal acceptable to lender for the Total
Financing of greater than .60 to 1.00, and further the principal amount of the
loan secured by the Junior Debt shall in no event exceed the amount which would
result in a [combined} debt service coverage ratio (as determined by Lender for
the Total Financing of less than 1.45 to 1.00; as used herein, "Total Financing"
shall mean the combined/aggregate of the Loan and the loan secured by the Junior
Debt;
 
(ii) The loan secured by the Junior Debt shall be non-recourse as to the
Guarantors and Indemnitors referred to In Section 1.15(h)(5) above;
 
(iii) The maturity date of the loan secured by the Junior Debt shall be on or
after March 11. 2017; and
 
(iv) Documents shall not adversely affect. directly or Indirectly, expressly or
Implicitly, the bankruptcy remote structure of Borrower.
 
Lender's approval of the Junior Debt shall not be deemed to be a waiver of any
of the terms and conditions of Section 1.15 hereof, including without limitation
the requirement of Lander's consent, with respect to any other Transfers.
 
1.16 Survival of Warranties. Notwithstanding any investigation of the Property,
Borrower. Guarantor or Indemnitor by Lender, Borrower acknowledges: (a) that in
accepting the Note, this Security
 
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Instrument and the other loan Documents, lender is expressly and primarily
relying on the truth and accuracy of the representations, warranties and
covenants of Borrower, Guarantor and Indemnitor contained in any loan
application {a "Loan Application” or made to Lender in connection with the Loan
or contained in the Loan Documents or Incorporated by reference therein (the
"Warranties”; (b) that such reliance existed on the part of Lender prior to the
date hereof; (e) that the Warranties are a material inducement to Lender in
making the loan; and (d) that Lender would not make the Loan in the absence of
the Warranties. All Warranties shall survive the execution and delivery of this
Security Instrument and shall remain continuing obligations, representations,
warranties and covenants of Borrower so long as any portion of the Secured
Obligations remain outstanding.
 
1.17 Eminent Domain; Condemnation. Borrower shall promptly give lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Notwithstanding any taking by any public or
quasi-public authority through eminent domain or otherwise (including, without
limitation, any transfer made in Debt of or in anticipation of the exercise of
such taking), Borrower shall continue to pay the Secured Obligations at the time
and in the manner provided for its payment in the Note and in this Security
Instrument and the Secured Obligations shall not be reduced until any award or
payment therefor shall have been actually received and applied by Lender, after
the deduction of expenses of collection, to the reduction or discharge of the
Secured Obligations. Lender shall not be entitled to the interest paid on the
award by the condemning authority but shall be entitled to receive out of the
award Interest at the rate or rates provided in the Note. Borrower shall cause
the award or payment made in any condemnation or eminent domain proceeding,
which is payable to Borrower, to be applied In accordance with Section 1.09
hereof. In the event Borrower is not entitled to any award or payment pursuant
to Section 1.09 hereof, Borrower shall cause the award or payment to be paid
directly to lender. Lender may apply the award or payment to the reduction or
discharge of the Secured Obligations whether or not then due and payable. If the
Property Is sold, through foreclosure or otherwise, prior to the receipt by
Lender of the award or payment, lender shall have the right, whether or not a
deficiency judgment on the Note (to the extent permitted In the Note or herein)
shall have been sought, recovered or denied, to receive the award or payment, or
a portion thereof sufficient to pay the Secured Obligations. If in the event of
a total condemnation the award or payment is not sufficient to repay the Note in
full, Borrower shall immediately pay any remaining balance, together with all
accrued interest thereon. Nothing herein shall be construed to cure or waive any
Event of Default or notice of default hereunder or under any other Loan Document
or Invalidate any act done pursuant to such notice.
 
1.18 Additional Security. No other security now existing, or hereafter taken, to
secure the Secured Obligations shall be impaired or affected by the execution of
this Security Instrument and all additional security shall be taken, considered
and held as cumulative. The taking of additional security, execution of partial
releases of the security, or any extension of the time of payment of the Secured
Obligations shall not diminish the force, effect or lien of this Security
Instrument and shall not affect or impair the liability of any maker, surety or
endorser for the payment of the Secured Obligations. In the event lender at any
time holds additional security for any of the Secured Obligations, it may
enforce the sale thereof or otherwise realize upon the same, at its option,
either before, concurrently, or after a sale is made hereunder.
 
1.19 Property Use. The Property shall be used only for retail use and for no
other use without the prior written consent of Lender.
 
1.20 Successors and Assigns. Without in any way limiting or affecting the
provisions of Section 1.15 hereof, this Security instrument applies to, inures
to the benefit of and binds all parties hereto and their respective heirs,
legatees, devisees. administrators, executors, successors and assigns. The term
"Lender" shall mean the owner and holder of the Note, whether or not named as
Lender herein. In exercising any rights hereunder or taking any actions provided
for herein, Lender may act through its employees, agents, independent
contractors or servicers authorized by lender.
 
1.21 Inspections. Lender, or its agents, representatives or employees, are
authorized to enter at any reasonable time (and with due regard for rights of
tenants) upon or in any part of the Property
 
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for the purpose of inspecting the same and for the purpose of performing any of
the acts Lender is authorized to perform hereunder or under the terms of any of
the Loan Documents. Without limiting the generality of the foregoing, Lender
shall have the same right power and authority to enter and inspect the Property,
and the right to appoint a receiver on an ex parte basis, to enforce this right
to enter and inspect the Property.

 
1.22 [RESERVED.]
 
1.23 Lender's Powers. Without affecting the liability of any other person liable
for the payment of any obligations herein mentioned, and without affecting the
lien or charge of this Security Instrument upon any portion of the Property not
then or theretofore released as security for the full amount of all unpaid
obligations, Lender may, from time to time and without notice (i) release any
person so liable, (ii) extend the maturity or alter any of the terms of any such
obligation, (iii) grant other indulgences, (IV) release or reconvey, or cause to
be released or reconveyed at any time at Lender's option any parcel, portion or
all of the Property, (v) take or release any other or additional security for
any obligation herein mentioned, or (vi) make other arrangements with debtors in
relation thereto.
 
1.24 Books and Records; Financial Statements.
 
(a) Borrower, any Guarantor and any Indemnitor shall keep (and Borrower shall
cause any Guarantor and any Indemnitor to keep) adequate books and records of
account in accordance with generally accepted accounting principles ("GAAP,,),
or in accordance with other methods acceptable to Lender, consistently applied
and furnish to Lender:
 
(1) quarterly and annual (or, if requested by Lender and the Loan has not yet
been securitized or sold as a whole loan, monthly) certified rent rolls signed
and dated by Borrower, deterring the names of all tenants of the Improvements,
the portion of Improvements occupied by each tenant, the base rent and any other
charges payable under each Lease and the term of each Lease, including the
expiration date, the extent to which any tenant is in default under any Lease,
and any other information as is reasonably required by Lender, within twenty
(20) days after the end of each calendar month, thirty (30) days after the end
of each fiscal quarter or sixty (60) days after the close of each fiscal year of
Borrower, as applicable;
 
(2) quarterly and annual (or If requested by Lender and the Loan has not yet
been securitized or sold as a whole loan, monthly) operating statements of the
Property, prepared and certified by Borrower in the form required by Lender,
detailing the revenues received. the expenses incurred and the net operating
Income before and after debt service (principal and interest) and major capital
improvements for each month and containing appropriate year to date information,
within twenty (20) days after the end of each calendar month, thirty (30) days
after the end of each fiscal quarter or sixty (60) days after the close of each
fiscal year of Borrower, as applicable;
 
(3) annual (or If requested by Lender and the Loan has not yet been securitized
or sold as a whole Loan, quarterly) balance sheets and profit and loss
statements of Borrower, any Guarantor and any Indemnitor in the form required by
Lender, prepared and certified by the respective Borrower, Guarantor and
Indemnitor; and
 
(4) an annual operating budget presented on a monthly basis consistent with the
annual operating statement described above for the Property, including cash flow
projections for the upcoming year, and all proposed capital replacements and
improvements at least fifteen (15) days prior to the start of each fiscal year.
 
(5) Borrower shall use its best efforts to obtain and furnish to Lender gross
annual sales and sales per square foot information for tenants of the Property
designated by Lender. Further, with respect to Leases under which the tenants
are obligated to provide financial or sales statements/information to Borrower,
as landlord under such Leases, Borrower agrees to promptly provide

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upon Lender's request all of the statements/information such tenants are
obligated to provide to Borrower pursuant to the Lease, provided that the
provisions of such Leases or any Subordination Non-Disturbance and Attornment
Agreement executed by such tenants in connection with the Loan allow or
authorize such statements/information to be provided to Lender or any first
lienholder/mortgagee of the Property.

(b) Upon request from Lender, Borrower, any Guarantor and any Indemnitor shall
furnish (and Borrower shall cause any Guarantor and any Indemnitor to furnish)
in a timely manner to Lender.
 
(1) If the Property is used for multi-family residential use, a property
management report for the Property, showing the number of inquiries made and/or
rental applications received from tenants or prospective tenants and deposits
received from tenants and any other information requested by Lender, in
reasonable detail and certified by Borrower (or an Officer, general partner,
member or principal of Borrower If Borrower is not an individual) to be true and
complete, but no more frequently than quarterly; and
 
(2) an accounting of all security deposits held in connection with any Lease of
any part of the Property, including the name and identification number of the
accounts in which such security deposits are held, the name and address of the
financial institutions in which such security deposits are held and the name of
the person to contact at such financial institution, along with any authority or
release necessary for Lender to obtain information regarding such accounts
directly from such financial institutions.
 
(c) Borrower, any Guarantor and any Indemnitor shall furnish (and Borrower shall
cause any Guarantor and any Indemnitor to furnish) Lender with such other
additional financial or management information (including, without limitation,
state and federal tax returns) as may, from time to time, be reasonably required
by lender in form and substance satisfactory to Lender.
 
(d) Borrower, any Guarantor and any Indemnitor shall furnish (and Borrower shall
cause any Guarantor and any Indemnitor to furnish) to Lender and its agents
convenient facilities for the examination and audit of any such books and
records.
 
(e) Borrower shall pay a late fee of $500 to Lender each time Borrower fails to
deliver the required financial documents set forth above within the time set
forth above, if such delivery delinquency continues for ten (10) days after
written notice thereof.

1.25 Borrower Name(s); Matters Affecting Financing Statement Filings. At the
request of Lender, Borrower shall execute a certificate in form satisfactory to
Lender listing the trade-names or fictitious business names under which Borrower
intends to operate the Property or any business located thereon and representing
and warranting that Borrower does business under no other trade names or
fictitious business names with respect to the Property. Borrower will not change
any of the following without notifying the lender of such change in writing at
least thirty (30) days prior to the effective date of such change and without
first obtaining the prior written consent of the Lender:
 
(a) Borrower's name or identity including, without limitation, its trade name or
names);

(b) If Borrower Is an Individual, Borrower's principal residence;

(c) If Borrower is an organization, Borrower's corporate, partnership or other
structure;

(d) If Borrower is an organization, Borrower's jurisdiction of organization
(i.e., the jurisdiction, or state, under whose law the Borrower is organized);
or

(e) If Borrower is an organization, Borrower's place of business [If Borrower
has only one place of business) or Borrower's chief executive office of Borrower
has more than one place of business).
 
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upon any change in the matters referred to above Of permitted hereunder),
Borrower will, upon request of Lender, execute any financing statement
amendments, additional financing statements and other documents required by
Lender to reflect such change.

1.26 Leaseholds.
 
(a) Space Leases. Borrower shall deliver to Lender a signed copy of all Leases
(other than residential Leases) with respect to the Property or executed
counterparts thereof, now existing or hereafter made from time to time, within
thirty (30) days of signing, affecting all or any part of the Property, and
except as is set forth herein, all Leases now or hereafter entered Into with
respect to the Property shall be in form and substance subject to the approval
of Lender. Borrower shall not, without Lender's prior written consent, execute,
modify, surrender or terminate any Lease now existing or hereafter made
affecting all or any part of the Property; provided, however, that Borrower may
enter into Leases affecting the Property without Lender's consent if such Leases
(i) provide for a term of no less than three (3) years and no more than seven
(7) years and at least a market rental rate for comparable properties in the
geographic area of the Property (as determined by Lender); (ii) have been
negotiated at arms length with a bona fide Independent,   third·party tenant;
(iii) demise not more than fifteen (15%) percent of the lesser of gross square
footage of, or total Income generated by, the Improvements; (iv) do not contain
material modifications from the standard form of Lease previously approved by
Lender; (v) do not change the use of the Property In effect. at the time the
Loan was made; {vi) do not have a materially adverse effect on the value of the
Property taken as a whole; and (vii) are subject and subordinate to this
Security Instrument and the lessees thereunder agree to attorn to Lender. If the
Property is multifamily, self-storage, or mobile home park, the prior consent of
Lender shall not be required in connection with the making, modification or
termination of Leases in the ordinary course of business and In the exercise of
Borrower's prudent business judgment, provided 0) the term of such Leases
(including any renewal or extension term) shall be no less than six (6) months
and no more than eighteen (18) months and (ii) the rental rate for such Leases
shall be at least a market rental .rate for comparable properties in the
geographic area of the Property. Borrower shall pay a late fee of $500 to Lender
each time Borrower fails to deliver the required documents set forth above
within the time set forth above, if such delivery delinquency continues for ten
(10) days after written notice thereof.
 
1.27 Indemnity. In addition to any other indemnities to Lender specifically
provided for in this Security Instrument, Borrower hereby indemnifies and saves
Lender and its authorized representative harmless from and against any and all
losses, liabilities, suits, obligations, fines, damages, penalties, claims,
costs, charges and expenses, including, without limitation, architects',
engineers' and attorneys' fees and all disbursements which may be imposed upon,
incurred or asserted against Lender and its authorized representative by reason
of: (i) the construction of any Improvements, (ii) any capital improvements,
other work or things done in, on or about the Property or any part thereof,
(iii) any use, nonuse, misuse, possession, occupation, alteration, operation,
maintenance or management of the Property or any part thereof or any street,
drive, sidewalk, curb, passageway or space comprising a part thereof or adjacent
thereto, (iv) any negligence or willful act or omission on the part of Borrower
and its agents, contractors, servants, employees, licensees or invitees, (v) any
accident, injury including, without limitation, death) or damage to any person
or property occurring In. on or about the Property or any part thereof, (vi) any
lien or claim which may be alleged to have arisen on or against the Property or
any part thereof under the laws of the local or state government or any other
governmental or quasi governmental authority or any liability asserted against
Lender with respect thereto, (vii) any tax attributable to the execution,
delivery, ruing or recording of this Security Instrument or the Note, (viii) any
contest due to Borrower's actions or failure to act, permitted pursuant to the
provisions of this Security Instrument, (ix) any default under the Note or this
Security Instrument, (x) any claim by or liability to any contractor or
subcontractor perfol111ing work or any party supplying materials In connection
with the Property, (xi) any and all claims and demands whatsoever which may be
asserted against Lender by reason of any alleged obligations or undertaking on
its part to perform or discharge any of the terms, covenants, or agreements
contained In any Lease; or (xii) the payment of any commission, charge or
brokerage fee to anyone which may be payable in connection with the funding of
the loan .
 
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1.28 Representations and Warranties. Borrower covenants, represents and warrants
with and to Trustee and Lender that:

(a) Borrower Organization. Borrower is duly organized, validly existing and in
good standing (if applicable) under the laws of the jurisdiction of its
organization or formation, and Borrower is duly qualified to transact business
and holds all licenses, registrations or other approvals (or is otherwise
exempt), in each other jurisdiction in which the conduct of Borrower's business
requires such qualification, licenses, registrations or other approvals.
Borrower will continuously maintain its existence and good standing (ff
applicable) under the laws of the Jurisdiction of its organization or formation,
and Borrower will continuously maintain its qualification to transact business
and all licenses, registrations or other approvals (unless otherwise exempt), in
each other jurisdiction in which the conduct of Borrowers business requires such
qualification, licenses, registrations or other approvals.
 
(b) Borrower Authority. Borrower has all requisite power and authority to enter
into the Loan and to execute and deliver the Loan Documents, and to perform all
of the obligations required of Borrower thereunder. Borrower is not required to
make any filing with, or to obtain any permit, authorization, consent or
approval of, any person or entity as a condition to Borrower's entering into the
Loan, executing and delivering the Note, this Security Instrument, or any other
Loan Documents, or performing all of the obligations required of Borrower
thereunder, or if any such required permit, authorization, consent or approval
Is required, it has been obtained.
 
(c) Validity of Documents. The execution and delivery by Borrower of the Note,
this Security Instrument and other Loan Documents, and the performance by
Borrower of its obligations thereunder, do not violate any prohibition contained
In, conflict with, result in a breach of, give rise to any right of termination,
cancellation or acceleration under. constitute a default under, or require any
additional approval under (i) Borrower's partnership agreement or any other
organizational or constituent document or instrument pursuant to which Borrower
was formed or by which Borrowers operations are governed; (ii) any material
instrument or agreement to which Borrower is a part or by which Borrower is
bound or that affects the Property; or (iii) any law, rule, regulation,
ordinance, order, injunction or decree application to Borrower or to the
Property or any portion thereof.
 
(d) Warranty of Title. Borrower hereby fully warrants the title to the. Property
and will defend the same and the validity and priority of the lien and
encumbrance of this Security Instrument against the lawful claims of all persons
whomsoever;
 
(e) No Liens or Transfers. Borrower has not obtained, or agreed to obtain, any
loan from any person which could result In the creation of a lien upon the
Property, or any part thereof, to secure prepayment thereof, except for the lien
of the Loan. The Property is free and clear of all liens and encumbrances of any
kind, nature or description, save and except only for those matters set forth in
a schedule of exceptions to coverage in the title insurance policy approved by
Lender and insuring Lender's Interest in the Property. Further, Borrower has not
made or permitted any transfer Including, without limitation, a Transfer) which
will or could result in subordinate financing being placed on any portion of the
Property, and there is no outstanding Sale or Pledge of an Interest in a
Restricted Party.
 
(f) Litigation. There is not pending against Borrower (or any partner of
Borrower, if and to the extent applicable) any petition in bankruptcy, whether
voluntary or otherwise, any assignment for the benefit of creditors, any
petition seeking reorganization, liquidation or arrangement under the bankruptcy
laws of the United States or of any State thereof, or any other action brought
under the aforementioned bankruptcy laws; and, except as disclosed in the due
diligence searches obtained by Lender in connection with the closing of the
Loan, there is no action, suit, proceeding or investigation pending or, to
Borrower's knowledge, threatened, in any court or before any governmental agency
(including, without limitation, condemnation proceedings) involving Borrower (or
partner of Borrower, n and to the extent applicable) or the Property or any
portion thereof, including, without limitation, any action which would draw into
question the validity of the Loan or of Borrower's obligations under the terms
of the Note, this Security Instrument and any other Loan Document

(g) Status of Property.
 
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(1) No portion of the Improvements is located in an area identified by the
Secretary of Housing and Urban Development or any successor thereto as an area
having special flood hazards pursuant to the Flood Insurance Acts or, if any
portion of the Improvements is located within such area, Borrower has obtained
and will maintain the flood insurance described In Section 1.07 hereof.

 
(2) The Property and the present and contemplated use and occupancy thereof are
in substantial compliance with all applicable zoning ordinances, building codes,
land use and Environmental Laws and other similar laws. Without limiting the
foregoing, the Property is in substantial compliance with the Americans with
Disabilities Act of 1990 and all of the regulations promulgated thereunder. The
Land constitutes one or more separate tax lots and one or more separate legal
lots In compliance with all applicable subdivision regulations.
 
(3) All necessary certificates, licenses and other approvals, governmental and
otherwise, necessary for the operation of the Property and the conduct of its
business and all required zoning, building code, land use, environmental and
other similar permits or approvals, are in full force and effect as of the date
hereof and not subject to revocation, suspension, forfeiture or modification.
 
(4) The Property is served by all utilities required for the current or
contemplated use thereof, and all utility service is provided by public
utilities and the Property has accepted or is equipped to accept such utility
service.

(5) All public roads and streets necessary for service of and access to the
Property for the current or contemplated use thereof have been completed, are
serviceable and all-weather and are physically and legally open for use by the
public.
 
(6) The Property is served by public water and sewer systems.
 
(7) The Property is free from material damage by any cause whatsoever, and any
and all repairs required by Lender have been completed.
 
(8) All costs and expenses of any and all labor, materials, supplies and
equipment used in the construction ofthe Improvements have been paid In full.
 
(9) Borrower has paid in full for, and Is the owner of, all furnishings,
fixtures and equipment (other than tenants' property) used In connection with
the operation of the Property, free and clear of any and all security Inlerests,
liens or encumbrances, except the lien and security interest created hereby.

(10) All liquid and solid waste disposal, septic and sewer systems located on
the Property are in a good and safe condition and repair and in compliance with
all applicable laws.
 
(11) All the Improvements lie within the boundaries of the Land.
 
(h) No Foreign Person. Borrower is not a "foreign person", "foreign
corporation", "foreign partnership·, "foreign trust" or "foreign estate" or
other foreign entity as those terms are defined in Section 1445 of the United
states Internal Revenue Code, as amended, and the related United States Treasury
Department regulations.
 
(I) Separate Tax Lot. The Land is assessed for real estate lax purposes as one
or more wholly independent tax lot or lots, separate from any adjoining land or
improvements not constituting a part of such lot or lots, and no other land or
Improvements are assessed and taxed together With the Land or any portion
thereof.
 
(j) Financial Condition. Borrower is solvent, and no bankruptcy, reorganization,
insolvency or similar proceeding under any state or federal law with respect to
Borrower has been initiated. No

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petition in bankruptcy has ever been filed by or against Borrower, any
Guarantor, or any related entity, or any principal, general partner or member
thereof, in the last seven (7) years, and neither Borrower, any Guarantor nor
any related entity, or any principal, general partner or member thereof, in the
last seven (7) years has ever made any assignment for the benefit of creditors
or taken advantage of any insolvency act or any act for the benefit of debtors.
All Information In all financial statements, rent rolls, reports, certificates
and other documents submitted in connection with the Loan are accurate, complete
and correct In all material respects. There has been no adverse change in any
condition, fact, circumstance or event that would make any such information
inaccurate, Incomplete or otherwise misleading.

 
(k) Business Purposes. The Loan is solely for the business purpose of Borrower,
and is not for personal, family, household, or agricultural purposes.
 
(I) Taxes. Borrower and any guarantor of the Loan have filed all federal, state,
county, municipal, and city income and other tax returns required to have been
filed by them and have paid all taxes and related liabilities which have become
due pursuant to such returns or pursuant to any assessments received by them.
Neither Borrower nor any guarantor of the Loan knows of any basis for any
additional assessment In respect of any such taxes and related liabilities for
prior years.
 
(m) No Change In Facts or Circumstances. All Information in all financing
statements, rent rolls, reports, certificates and other documents submitted in
connection with the Loan are accurate, complete and correct in all respects.
There has been no adverse change in any condition, fact, circumstance or event
that would make any such information inaccurate, incomplete or otherwise
misleading.
 
(n) Disclosure. Borrower has disclosed 10 Lender all material facts and has not
failed to disclose any material fact that could cause any representation of
warranty made herein to be materially misleading.
 
(0) Illegal Activity. No portion of the Property has been or will be purchased,
Improved, equipped or furnished with proceeds of any illegal activity, and, to
the best of Borrower's knowledge, there are no illegal activities or activities
relating to any controlled substance at the Property.
 
(p) Contracts. All contracts, agreements, consents, waivers, documents and
writings of every kind or character at any time to which Borrower is a party to
be delivered to Lender pursuant to any of the provisions Of the Loan Documents
are valid and enforceable against Borrower and, to the best knowledge of
Borrower, are enforceable against all other parties thereto, and, to Borrower's
actual knowledge, in all respects are what they purport to be and, to the best
knowledge of Borrower, to the extent that any such writing shall Impose any
obligation or duty on the party thereto or constitute a waiver of any rights
which any such party might otherwise have, said writing shall be valid and
enforceable against said party In accordance with Its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws affecting the fights of creditors generally.
 
(q) Transfer of Property. To the best of Borrower's knowledge, there is no
concurrent or subsequent escrow to be opened or closed upon the closing of the
Loan which would have the effect of transferring all or any portion of the
Property.
 
1.29 Single Purpose Entity. Borrower covenants, represents, warrants and agrees
Ihat it has not done any of the following and shall not do any of the following;
 
(a) engage In any business or activity other than the acquisition, development,
ownership, operation, leasing and managing and maintenance of the Property, and
entering into the Loan and activities incidental thereto;
 
(b) acquire or own any material assets other than (i) the Property, and (ii)
such incidental Personal Property as may be necessary for the operation of the
Property;

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(c) merge Into or consolidate with any person or entity or dissolve, terminate
or liquidate in whole or in part, transfer or otherwise dispose of all or
substantially all of its assets or change its legal structure, without in each
case Lender's consent;

(d) (i) fail to observe its organizational formalities or preserve its existence
as an entity duly organized, validly existing and in good standing (if
applicable) under the laws of the jurisdiction of its organization or formation,
and qualification to do business In the State where the Property is located. if
applicable, or (ii) without the prior written consent of Lender, amend, modify,
terminate or fall to comply with the provisions of Borrower's partnership
agreement, articles or certificate of incorporation, articles of organization or
similar organizational documents, as the case may be; principals or of any other
person or entity, participate in a cash management system with any other entity
or person or fail to use its own separate stationery. Invoices and checks;

(e) own any subsidiary or make any investment in. any person or entity without
the consent of Lender;

(f) comingle its assets with the assets of any of its members, general partners,
affiliates, principals or of any other person or entity, participate in a cash
management system with any other entity or person or fail to use its own
separate stationery, invoices and checks.

(g) incur any debt, secured or unsecured, direct or contingent (including,
without limitation, guaranteeing any obligation). other than the Loan, except
for trade payables in the ordinary course of its business of owning and
operating the Property, provided that such debt (i) is not evidenced by a note,
(ii) is paid within sixty (60) days of the date incurred, (iii) does not exceed
in the aggregate four percent (4%) of the outstanding principal balance of the
Note. and (iv) is payable 10 trade creditors and in amounts as are normal and
reasonable under the circumstances;
 
(h) fail to pay its debts and liabilities (including. without limitation, es
applicable, shared personnel and overhead expenses) from its assets as the same
shall become due;

(i) (i) fail to maintain its records (including. without limitation. financial
statements). books of account and bank accounts separate and apart from those of
the members, general partners, principals and affiliates of Borrower, the
affiliates of a member, general partner or principal of Borrower, and any other
person or entity, to permit Its assets or liabilities to be listed as assets or
liabilities on the financial statement of any other entity or person. or (iii)
include the assets or liabilities of any other person or entity on its financial
statements;
 
(j) enter Into any contract or agreement with any member, general partner,
principal or affiliate of Borrower. any Guarantor, or any member, general
partner, principal or affiliate thereof (other than a business management
services agreement with an affiliate of Borrower, provided that (i) such
agreement is acceptable to Lender. (ii) the manager, or equivalent thereof,
under such agreement holds itself out as an agent of Borrower, and (iii) the
agreement meets the standards set forth in this subsection (j) following this
parenthetical), except upon terms and conditions that are commercially
reasonable. Intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any member,
general partner, principal or affiliate of Borrower, any Guarantor, or any
member, general partner, principal or affiliate thereof;
 
(k) fall to correct any known misunderstandings regarding the separate identity
of Borrower or any member, general partner, principal or affiliate thereof or
any other person;
 
(I) guarantee or become obligated for the debts of any other entity or person or
hold itself out to be responsible for the debts of another person;
 
(m) make any loans or advances to any third party, including, without
limitation, any member, general partner, principal or affiliate of Borrower, or
any member, general partner, principal or affiliate thereof, and shall not
acquire obligations or securities of any member, general partner, principal or
affiliate of Borrower, or any member, general partner, or affiliate thereof;

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(n) fail to file its own tax returns or, if part of a consolidated group, fail
to be shown as a separate member of such group;

 
(o) fail either to hold itself out to the public as a legal entity separate and
distinct from any other entity or person Or to conduct its business solely in
its own name In order not (i) to mislead others as to the identity with which
such other party is transacting business, or (ii) to suggest that Borrower is
responsible for the debts of any third party including, without limitation, any
member, general partner, principal or affiliate of Borrower, or any member,
general partner, principal or affiliate thereof);
 
(p) fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;
 
(q) share any common logo with or hold Itself out as or be considered as a
department or division of (i) any general partner, principal, member or
affiliate of Borrower, (ii) any affiliate of a general partner, principal or
member of Borrower, or (iii) any other person or entity;
 
(r) fail to allocate fairly and reasonably any overhead expenses that are shared
with an affiliate, including, without limitation, paying for office space and
services performed by any employee of all corporate actions to the extent
permitted by applicable law;

(s) pledge its assets for the benefit of any other person or entity, other than
with respect to the Loan;

(t) fail to maintain a sufficient number of employees In light of its
contemplated business operations;
 
(u) fail to hold its assets in its own name;
 
 

(v) if Borrower is a corporation, fail to consider the interests of its
creditors in connection with all corporate actions to the extent permitted by
law;

(w) have any of its obligations (other than the Loan) guaranteed by an affiliate
except Guarantor; or
 
(x) fail to provide in its (i) articles of organization, certificate of
formation and/or operating agreement, as applicable, if Borrower is a limited
liability company, (ii) limited partnership agreement if Borrower is a limited
partnership or (iii) certificate of incorporation, if Borrower is a corporation,
that for SO long as the Loan is outstanding pursuant to the Note and this
Security Instrument, Borrower shall not file or consent to the filing of any
petition, either voluntary or Involuntary), to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or make an
assignment for the benefit of creditors without the affirmative vote of all of
the general partners/managing members/directors of Borrower.

Notwithstanding the foregoing, under the terms of the Subordination Agreement
referred to in Section 1.15(h) hereof, Junior Lender (defined in Section 1.15(h)
shall have the right, at Junior Lender's option, to cure monetary defaults or
monetary Events of default under the Loan Documents, and the provisions of this
Section t.29 shall not affect such right.
 
1.30 ERISA.
 
(a) Borrower shall not engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise by Lender
of any of its rights under the Note, this Security Instrument and the other Loan
Documents) to be a non-exempt (under a statutory or administrative class
exemption) prohibited transaction under either the Employee Retirement Income
Security Act of 1974, as amended ("ERISA') or the Internal Revenue Code.
 
(b) Borrower represents and warrants that, as of the date hereof and throughout
the term of this Security Instrument (1) Borrower is not and will not be an
"employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to
Title I of ERISA, (2) Borrower is not and will not be a "governmental plan"
within the meaning of Section 3(32) of ERISA; (3) Borrower is not and will not
be,

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and transactions by or with Borrower are not and will not be, subject 10 state
stalutes regulating investments and fiduciary obligations wilh respect to
governmental plans; and (4) one or more of the following circumstances is and
will be true:

 
(i) Equity interests (as defined in 29 C.F.R. §251 0.3-101 (b)(1)) in Borrower
are publicly-offered securities within Ihe meaning of 29 C.F.R. §251 0.3-101
(b)(2);
 
(II) Less than twenty-five percent (25%) of each outstanding class of equity
interests in Borrower are held by "benefit plan investors" within the meaning of
29 C.F.R. §2510.3­101 (1)(2); or

(iii) Borrower qualifies as an "operating company" or a "real estate operating
company" within the meaning of 29 C.F.R. §2510.3-101{c) or (e), or an Investment
company registered under The Investment Company Act of 1940,
 
At Lender's request from time to time throughout the term of this security
Instrument, Borrower shall deliver to Lender such certifications and other
evidence acceptable to Lender of Borrower's compliance with the covenants,
representations and warranties contained in this Section 1.30.
 
ARTICLE 2. DEFAULT
 
2.01 Events of Default. The occurrence of any of the following events shall be
an Event of Default hereunder (an "Event of Default):
 
(a) Borrower fails to pay any interest, principal or other monies due under the
Note or other Loan Documents on the date any such amount is due;
 
(b) if any of the Impositions or other charges referred to in Sections 1.04 or
1.06 hereof are not paid when the same is due and payable, except to the extent
sums sufficient to pay such Impositions or other charges have been deposited
with Lender in accordance with the terms of this Security Instrument;
 
(c) if the insurance policies required by Section 1.07 hereof are not kept in
full force and effect, or if such insurance policies are not delivered to Lender
upon request;
 
(d) any representation or warranty made by Borrower, any Indemnitor or any
person guaranteeing payment or performance of the Secured Obligations or any
portion thereof (whether one or more, a "Guarantor") in connection with the
Property, the Loan, or the application for the Loan proves to have been
materially false or materially misleading when made, or Borrower or any
Guarantor fails to disclose any material fact respecting the Property, the Loan,
or the application for the Loan;
 
(e) any governmental authority takes or Institutes any action, which in the sole
opinion of Lender, will adversely affect Borrower's condition, operations, or
ability to repay the Loan, or will adversely affect any Guarantor's condition.
operations. or ability to repay the Loan, if such action remains effective for
more than thirty (30) days;
 
(f) if Borrower violates or does not comply with any of the provisions of
special purpose entity requirements set forth in Section 1.29 (captioned "Single
Purpose Entity") hereof;
 
(g) Lender fails to have a legal, valid, binding, and enforceable first priority
lien acceptable to Lender on the Property;
 
(h) Borrower becomes insolvent or there is a material adverse change in the
assets, liabilities or financial position of Borrower, any general partner, or
any Guarantor,

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(i) any action or proceeding is commenced by any partner, principal, or member
in Borrower which seeks as one of its remedies the dissolution of Borrower or
any partner, principal, or member (as applicable) in Borrower;

 
(j) any governmental authority, or any court at the instance thereof, assumes
control over the affairs or operations of, or a receiver or trustee is appointed
over, or garnishment shall be issued or made against any substantial part of,
the property of Borrower or any guarantor of the Loan;
 
(k) Borrower or any Guarantor of the Loan admits in writing its inability to pay
its debts when due, or makes an assignment for the benefit of creditors; or
Borrower or any Guarantor of the Loan applies for or consents to the appointment
of any receiver, trustee or similar officer of Borrower or any such Guarantor,
as the case may be, or for all or any substantial part of their respective
property; or Borrower or any such Guarantor institutes (by petition,
application, answer, consent or otherwise) any bankruptcy, Insolvency,
reorganization, arrangement, readjustment of debts, dissolution, liquidation, or
similar proceedings relating to Borrower or any such Guarantor, as the case may
be, or under the laws of any jurisdiction;
 
(l) a receiver, trustee or similar officer is appointed for Borrower or any
Guarantor of the Loan or for ali or any substantial part of their respective
property without the application Of consent of Borrower for any such Guarantor,
as the case may be, and such appointment is not discharged within sixty (60)
days (whether or not consecutive); or any bankruptcy, insolvency,
reorganization, arrangements, readjustment of debt, dissolution, liquidation Dr
similar proceedings is instituted (by petition, application or otherwise)
against Borrower or any such Guarantor and shall not be dismissed within sixty
(60) days;
 
(m) any Transfer or permitted Transfer (as defined in Section 1.15 hereof)
occurs without the prior written consent of Lender, including without limitation
a Sale, Pledge or an encumbrance of the Property, voluntarily Dr involuntarily,
by any lien or encumbrance other than this Security Instrument;
 
(n) the termination or dissolution of Borrower, any general partner in Borrower
Dr any Guarantor; or any action or proceeding Is commenced which seeks as one of
its remedies the dissolution of Borrower or any general partner in Borrower or
any Guarantor;
 
(o) if any default occurs under any guaranty or indemnity executed in connection
herewith (including, without limitation, the Environmental Indemnification
Agreement executed by Borrower and any other Indemnitor in connection with the
Loan [the "Environmental Indemnlty1) and such default continues after the
expiration of applicable grace periods, if any;
 
(p) if the Property becomes subject to any mechanic's, materialman's or other
lien other than a lien for local real estate taxes and assessments not then due
and payable and the lien shall remain undischarged of record (by payment,
bonding or otherwise) for a period of thirty (30) days;
 
(q) if any federal tax lien Is filed against Borrower, any member or general
partner of Borrower, any Guarantor, Dr any portion of the Property and same is
not discharged of record within thirty (3D) days alter same as filed; or
 
(r) if for more than thirty (30) days alter notice from Lender, Borrower shall
continue to be In default (other than the failure to pay monies due under the
Note or the other Loan Documents) under any term, covenant or condition of the
Note, this Security Instrument or the other Loan Documents not set forth in
Subsections 2.01(8) through (Q) above; provided that if suoh default cannot
reasonably be cured within such thirty (30) day period and Borrower shall have
commenced to cure such default within such thirty (30) day period and thereafter
diligently and expeditiously proceeds to cure the same, such thirty
 
(30) day period shall be extended for so long as it shall require Borrower in
the exercise of due diligence to cure such default, it being agreed that no such
extension shall be for a period in excess of sixty (60) days.

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All notice and cure periods provided herein or in any other Loan Document shall
run concurrently with any notice or cure periods provided by applicable laws.
All notices and cure periods described herein Dr in any other Loan Documents
shall not be applicable to any event which with the giving of notice, the
passage of time or both would constitute an Event of Default, if such event has
occurred as of the date on which Lender commences a nonjudicial foreclosure
proceeding (If such proceeding is allowed by law) with respect to another Event
of Default. Such event shall constitute an independent Event of Default
hereunder.

 
2.02 Acceleration Upon Default; Additional Remedies.
 
(a) Remedies. Upon the occurrence of any Event of Default, Lender mayor acting
by or through Trustee may take such action, without notice or demand, as It
deems advisable 10 protect and enforce its rights against Borrower in and to Ihe
Property, including, without limitation, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Lender or Trustee may determine, in their sole discretion, without impairing or
otherwise affecting Ihe other rights and remedies of Lender or Trustee:
 
(1) declare all Secured Obligations to be Immediately due and payable;
 
(2) institute proceedings, judicial or otherwise, for the complete foreclosure
of this Security Instrument under any applicable state or federal law In which
case the Property or any interest therein may be sold for cash or upon credit in
one or more parcels or in several interests or portions and in any order or
manner;
 
(3) with or without entry, to the extent permitted and pursuant to the
procedures provided by applicable state or federal law, institute proceedings
for the partial foreclosure of this Security Instrument for the portion of the
Secured Obligations then due and payable, subject to the continuing lien and
security interest of this Security Instrument for the balance of the Secured
Obligations not then due, unimpaired and without loss of priority;
 
(4) sell for cash or upon credit the Property or any part thereof and all
estate, claim, demand, right, title and interest of Borrower therein and rights
of redemption thereof, pursuant to power of sale or otherwise, at one or more
sales, in one or more parcels, at such time and place, upon such terms and after
such notice thereof as may be required or permitted by law;
 
(5) subject to the provisions of Section 10 (captioned "Exculpation") of the
Note, institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein, in the
Note or in the other Loan Documents;
 
(6) subject to the provisions of Section 10 (captioned "Exculpation") of the
Note, recover judgment on the Note either before, during or after any
proceedings for the enforcement of this Security Instrument or the other Loan
Documents;
 
(7) apply for the appointment of e receiver, trustee, liquidator or conservator
of the Property, without notice and without regard for the adequacy of the
security for the Secured Obligations and without regard for the solvency of
Borrower, any Guarantor, any Indemnitor or of any person, firm or other entity
liable for the payment of the Secured Obligations;
 
(8) subject to any applicable state or federal law, the license granted to
Borrower under Section 3.02 hereof shall automatically be revoked and Lender may
enter into or upon the Property, either personally or by its agents, nominees or
attorneys and dispossess Borrower and its agents and servants therefrom, without
liability for trespass, damages or otherwise and exclude Borrower and its agents
or servants wholly therefrom, and take possession of all rent rolls, Leases
(Including, without limitation, the form Lease and amendments and exhibits),
subleases (including, without limitation. the form sublease and amendments and
exhibits) and rental and license agreements with the tenants,

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subtenants and licensees, in possession of the Property or any part or parts
thereof; tenants', subtenants' and licensees' money deposits or other property
including, without limitation, any letter of credit) given to secure tenants',
subtenants' and licensees' obligations under Leases, subleases or licenses,
together with a list of the foregoing; all lists pertaining to current rent and
license fee arrears; any and all architects' plans and specifications, licenses
and permits, documents, books, records, accounts, surveys and property which
relate to the management, leasing, operation, occupancy, ownership, insurance,
maintenance, or service of or construction upon the Property and Borrower shall
surrender possession thereof and of the Property to Lender upon demand, and
thereupon Lender may (i) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Property and
conduct the business thereat; (ii) complete any construction on the Property in
such manner and form as Lender deems advisable; (iii) make alterations,
additions, renewals, replacements and improvements to or on the Property; (iv)
exercise all rights and powers of Borrower with respect to the Property, whether
in the name of Borrower or otherwise, including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand,
sue for, collect and receive all Rents of the Property and every part thereof;
(v) either require Borrower (A) to pay monthly In advance to Lender, or any
receiver appointed to collect the Rents, the fair and reasonable rental value
for the use and occupation of such part of the Property as may be occupied by
Borrower, or (B) to vacate and surrender possession of the Property to Lender or
to such receiver and, in default thereof, Borrower may be evicted by summary
proceedings or otherwise; and (vi) apply the receipts from the Property to the
payment of the Secured Obligations, In such order, priority and proportions as
Lender shall determine after deducting therefrom all expenses (Including,
without limitation, attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Impositions,
Insurance Premiums and other expenses in connection with the Property, as well
as just and reasonable compensation for the services of Lender, Its counsel,
agents and employees;

(9) exercise any and all rights and remedies granted to a secured party upon
default under the Uniform Commercial Code, Including, without limitation,: (I)
the right to take possession of the Personal Property and other UCC collateral
or any part thereof, and to take such other measures as Lender or Trustee may
deem necessary for the care, protection and preservation of the Personal
Property, and other UCC collateral, and (ii) request Borrower at its expense to
assemble the Personal Property and other UCC Collateral and make it available to
Lender at a convenient place acceptable to Lender. Any notice of sale,
disposition or other intended action by Lender or Trustee with respect to the
Personal Property and other UCC collateral sent to Borrower in accordance with
the provisions hereof at least ten (10) days prior to such action, shall
constitute commercially reasonable notice to Borrower;
 
(10) apply any sums then deposited in the Impounds and any other sums held in
escrow or otherwise by Lender In accordance with the terms of this Security
Instrument or any other Loan Document to the payment of the following items in
any order as determined by Lender:
 
(i) Taxes and Other Impositions;
 
(ii) Insurance Premiums;
 
(iii) Insurance Premiums;
 
(iv) amortization of the unpaid principal balance of the Note;
 
(11) all other sums payable pursuant to the Note, this Security Instrument and
the other Loan Documents, including, without Iimitation, advances made by Lender
pursuant to the terms of this Security Instrument;
 
(12) surrender the insurance policies maintained pursuant to Section 1.07
hereof, collect the unearned Insurance Premiums and apply such sums as a credit
on the Secured Obligations in such priority and proportion as Lender shall
determine, and in connection therewith, Borrower hereby appoints Lender as agent
and attorney-in-fact (which is coupled with an interest and is therefore
Irrevocable) for Borrower to collect such unearned Insurance Premiums;

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(13) apply the undisbursed balance of any Net Proceeds Deficiency deposit,
together with interest thereon, 10 the payment of the Secured Obligations in
such order, priority and proportions as Lender shall determine; or

(14) pursue such other remedies as Lender may have under applicable state or
federal law.

In the event of a sale, by foreclosure, power of sale, or otherwise, of less
than all of the Property, this Security Instrument shall continue as a lien and
security interest on the remaining portion of the Property unimpaired and
without loss of priority. Notwithstanding the provisions of this Section 2.02(a)
hereof to the contrary, If any Event of Default as described In clause (h). (I),
ID or (k) of Section 2.01 hereof shall occur, the entire unpaid Secured
Obligations shall be automatically due and payable, without any further notice,
demand or other action by Lender.
 
(b) Application of Proceeds. The purchase money, proceeds and avails of any
disposition of the Property, or any part thereof, or any other sums collected by
Lender pursuant to the Note, this Security Instrument or the other Loan
Documents, may be applied by Lender to the payment of the Secured Obligations in
such priority and proportions as Lender shall determine.
 
(c) Right to Cure Defaults. Upon the occurrence of any Event of Default or if
Borrower fails 10 make any payment or to do any act as herein provided. lender
may, but without any obligation to do so and without notice to or demand on
Borrower and without releasing Borrower from any obligation hereunder, make or
do the same in such manner and to such extent as Lender may deem necessary to
protect the security hereof. Lender or Trustee is authorized to enter upon the
Property for such purposes, or appear in, defend, or bring any action or
proceeding to protect its interest in the Property or to foreclose this Security
Instrument or collect the Secured Obligations. The cost and expense of any cure
hereunder (including, without limitation, attorneys' fees to the extent
permitted by law), with interest as provided In this Section 2.02(c) hereof,
shall constitute a portion of the Secured Obligations and shall be due and
payable to Lender upon demand. All such costs and expenses incurred by Lender or
Trustee in remedying such Event of Default or such failed payment or act or in
appearing in, defending, or bringing any such action or proceeding shall bear
Interest at the Default Rate (defined In the Note), for the period after notice
from Lender that such cost or expense was incurred to the date of payment to
Lender. All such costs and expenses incurred by Lender together with interest
thereon calculated at the Default Rate shall be deemed to constitute a portion
of the Secured Obligations and shall be immediately due and payable upon demand
by Lender therefor.
 
(d) Actions and Proceedings. Lender or Trustee has the right to appear In and
defend any action or proceeding brought with respect to the Property and, after
the occurrence and during the continuance of an Event of Default, to bring any
action or proceeding, in the name and on behalf of Borrower, which Lender
decides should be brought to protect its interest in the Property.
 
(e) Recovery of Sums Required To Be Paid. Lender shall have the right from time
to time to take action to recover any sum or sums which constitute a part of the
Secured Obligations as the same become due, without regard to whether or not the
balance of the Secured Obligations shall be due. and without prejudice to the
right of Lender or Trustee thereafter to bring an action of foreclosure, or any
other action, for a default or defaults by Borrower existing at the time such
earlier action was commenced.
 
(f) Examination of Books and Records. Lender, Its agents, accountants and
attorneys shall have the right upon reasonable prior notice to Borrower (unless
an Event of Default exists, In which case no notice shall be required), to
examine and audit, during reasonable business hours, the records, books,
management and other papers of Borrower and its affiliates or of any Guarantor
or Indemnitor which pertain to their financial condition or the income, expenses
and operation of the Property, at the Property or at any office regularly
maintained by Borrower, its affiliates or any Guarantor or Indemnitor where the
books and records are located. Lender and its agents shall have the right upon
notice to make copies and extracts from the foregoing records and other papers.

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(g) Other Rights, etc.

 
(1) The failure of Lender or Trustee to insist upon strict performance of any
term hereof shall not be deemed to be a waiver of any term of this Security
Instrument. Borrower shall not be relieved of Borrower's obligations hereunder
by reason of (1) the failure of Lender or Trustee to comply with any request of
Borrower, any Guarantor or any Indemnitor to take any action to foreclose this
Security Instrument or otherwise enforce any of the provisions hereof or of the
Note or the other Loan Documents, (2) the release, regardless of consideration,
of the whole or any part of the Property, or of any person liable for the
Secured Obligations or any portion thereof, or (3) any agreement or stipulation
by Lender extending the time of payment, changing the rate of interest, or
otherwise modifying or supplementing the terms of the Note, this Security
Instrument or the other Loan Documents.
 
(2) It Is agreed that the risk of loss or damage to the Property is on Borrower,
and Lender shall have no liability whatsoever for decline in value of the
Property, for failure to maintain the insurance policies required pursuant to
Section 1.07 hereof, or for failure to determine whether insurance in force is
adequate as to the amount of risks insured. Possession by Lender shall not be
deemed an election of judicial relief, if any such possession is requested or
obtained, with respect to any portion of the Property, or collateral not in
Lender's possession.
 
(3) Lender may resort for the payment of the Secured Obligations to any other
security held by Lender in such order and manner as Lender may elect. Lender or
Trustee may take action to recover the Secured Obligations, or any portion
thereof, or to enforce any covenant hereof without prejudice to the right of
Lender or Trustee thereafter to foreclose this Security Instrument The rights of
Lender or Trustee under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act
of Lender or Trustee shall be construed as an election to proceed under anyone
provision herein to the exclusion of any other provision. Neither Lender nor
Trustee shall be limited exclusively to the rights and remedies herein stated
but shall be entitled to every right and remedy now or hereafter afforded at law
or in equity.
 
(h) Right to Release Any Portion of the Property. Lender may release any portion
of the Property for such consideration as Lender may require without, as to the
remainder of the Property, in any way impairing or affecting the lien or
priority of this Security Instrument, or improving the position of any
subordinate lienholder with respect thereto, except to the extent that the
Obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may accept by
assignment, pledge or otherwise any other Property in place thereof as Lender
may require without being accountable for so doing to any other lienholder. This
Security Instrument shall continue as a lien and security Interest In the
remaining portion of the Property.

(i) Violation of Laws. If the Property Is not In compliance with applicable
laws, Lender may impose additional requirements upon Borrower in connection
herewith including, without limitation, monetary reserves or financial
equivalents.
 
(j) Right of Entry. Lender and its agents shall have the right to enter and
inspect the Property at all reasonable limes. Except in case of emergency, such
entries shall be with reasonable prior notice and shall be with due regard for
rights of tenants.
 
ARTICLE 3. ASSIGNMENT OF LEASES, RENTS. INCOME AND PROFITS
 
3.01 Assignment; Priority of Assignment. Borrower (referred to in this Article 3
as "Assignor") hereby irrevocably, absolutely, presently and unconditionally
grants, sells, assigns, transfers, pledges and sets over to Lender (referred to
in this Article 3 as "Assignee"):
 
(a) any and all Leases, together with all of Assignor's right, title and
interest in the Leases including, without Iimitation, all modifications,
amendments, extensions and renewals of the Leases and
 
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all rights and privileges Incident thereto and all demands of claims arising
thereunder (including, without limitation, any cancellation fees or other
premiums collected in connection with the Leases) or under any policies insuring
against loss of rents or profits;

 
(b) all Rents, including, without limitation, expenses paid by tenants; and
 
(c) all security deposits, guaranties and other security now or hereafter held
by Assignor as security for the perfonnance of the obligations of the tenants
under such Leases.
 
The foregoing assignment of Rents and Leases is intended by Assignor and
Assignee to create and shall be construed to create a present and absolute
assignment to Assignee of all of Assignor's right, title and interest in the
Rents and in the Leases and shall not be deemed to create merely an assignment
for security only for the payment of any Indebtedness or the performance of any
obligations of Assignor under any of the Loan Documents, This assignment is
Included within the text of this Security Instrument for convenience only, but
such inclusion shall not derogate from its effectiveness any other assignment of
Rents or Leases contained in any other Loan Documents or otherwise and all shall
be supplementary to one another.
 
Nothing contained herein shall operate or be construed to obligate Assignee to
perform any of the terms, covenants and conditions contained In any Lease or
otherwise to Impose any obligation upon Assignee with respect to any Lease,
including, without limitation, any obligation arising out of any covenant of
quiet enjoyment therein contained In the event the tenant under any such Lease
shall have been joined as a party defendant in any action to foreclose and the
estate of such tenant shall have been thereby terminated. Assignor and Assignee
further agree that, during the term of this Security Instrument, the Rents shall
not constitute property of Assignor (or of any estate of Assignor) within the
meaning of 11 u.s.c. §541 , as may be amended from time to time. Assignor hereby
represents and warrants that (i) Assignor has good title to the Leases and the
full power and light to assign the Leases; (ii) no other persons have any title
or interest in the Leases; (iii) the Leases are in full force and effect and
have not been modified except as set forth in the certified occupancy statement
delivered to and approved by Assignee; (Iv) there are no defaults under any of
the Leases; (v) no other assignments of all or any portion of the Rents or the
Leases exist or remain outstanding; (vi) all Rents due have been paid in full;
(vii) none of the Rents reserved in the Leases have been assigned or otherwise
pledged or hypothecated; (viii) none of the Rents have been collected for more
than one (1) month in advance (except a security deposit shall not be deemed
rent collected in advance); (IX) the property demised under the Leases have been
completed and the tenants under the Leases have accepted the same and have taken
possession of the same on a rent-paying basis; (x) there exist no offsets or
defenses to the payment of any portion of the Rents; (xl) Assignor has received
no notice from any tenant challenging the validity or enforceability of any
Lease; (xii) there are no agreements with the tenants under the Leases other
than expressly set forth in each Lease; (xiii) the Leases are valid and
enforceable against Assignor and the tenants set forth therein; (xiv) no Lease
contains an option to purchase, right of first refusal to purchase, or any other
similar provision; (xv) no person or entity has any possessory interest in, or
right to occupy, the Property except under and pursuant to a Lease; (xvi) each
Lease Is subordinate to this Security Instrument, either pursuant to its terms
or a recordable subordination agreement; (xvii) no Lease has the benefit of a
non-disturbance agreement that would be considered unacceptable to prudent
institutional lenders; (xviii) all security deposits relating to the Leases
reflected on the certified rent roll delivered to Assignee have been collected
by Assignor; and (xix) no brokerage commissions or finders fees are due and
payable regarding any Lease.

Assignor shall take such action and to execute, deliver and record such
documents as may be reasonably necessary to evidence such assignment, to
establish the priority thereof and to carry out the intent and purpose hereof.
If requested by Assignee, Assignor shall execute a specific assignment of any
Lease now or hereafter affecting all or any portion of tlhe Property and shall
cause the tenant or tenants thereunder to execute, deliver and record a
Subordination, Non-Disturbance and Attornment Agreement, in form and substance
reasonably satisfactory to Assignee.
 
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Assignor shall faithfully perform and discharge all of Assignor's obligations
under the Leases and to enforce all obligations undertaken by tenants
thereunder. Assignor shall defend Assignee in any action relating to the Leases
and shall indemnify, defend and hold Assignee harmless from and against any
claims of tenants or third parties with respect to the Leases. Assignor shall
not receive or collect any Rents in advance of the date due or waive or defer
any terms of the Leases without the consent of Assignee. Assignor shall not
pledge, assign or further encumber the Leases or any Rents or (except as is
permitted by Section 1.26(b) above) modify or terminate the Leases, or permit
any assignment or sublease thereunder, without Assignee's prior written consent.
Assignor Irrevocably appoints Assignee its true and lawful attorney-in-fact, at
the option of Assignee at any time and from time to time, to demand, receive and
enforce payment, to give receipts, releases and satisfactions, and to sue, in
the name of Assignor, Trustee or Assignee, for all such Rents, and apply the
same to the Secured Obligations.

 
3.02 Grant of Revocable License to Collect Rents. So long as an Event of Default
shall not have occurred and be continuing under this Security Instrument,
Assignee hereby grants to Assignor a revocable license to enforce the Leases, to
collect the Rents, to apply the Rents to the payment of the costs and expenses
incurred in connection with the Property and to any Secured Obligations. If
requested by Assignee, Assignor shall (a) give written notice to the tenants
under the Leases of the assignment of Rents and Leases by Assignor to Assignee
pursuant to Section 3.01 hereof, of too grant of the revocable license by
Assignee to Assignor pursuant to this Section 3.02, and of the respective rights
of Assignor and Assignee under this Article 3; and (b) obtain such tenants'
agreements to be bound by and comply with the provisions of such assignment and
grant. All Leases hereafter executed with respect to the Property shall contain
a reference to the foregoing assignment and grant and shall state that the
tenant executing such Lease shall be bound by and shall comply with the
provisions hereof.
 
3.03 Revocation of License; Assignee's Rights, upon the occurrence of an Event
of Default and at any time thereafter during the continuance thereof, subject to
applicable laws, the license granted to Assignor hereunder shall automatically
be revoked. Upon such revocation, Assignor shall promptly deliver to Assignee
all Rents then held by or for the benefit of Assignor. Assignee, In addition to
any other rights granted to Assignee under this Security Instrument, shall have
the right: (I) to notify the tenants under the Leases that Assignor's license to
collect Rents has been revoked, and, with or without taking possession of the
Property, to direct such tenant to thereafter make all payments of Rent and to
perform all obligations under this Lease to or for the benefit of Assignee or as
directed by Assignee; (ii) to enter upon the Property and to take over and
assume the management, operation and maintenance of the Property, to enforce all
Leases and collect all Rents due thereunder, to amend, modify, extend, renew and
terminate any or all Leases and execute new leases; and (iii) to perform all
other acts which Assignee shall determine to be necessary or desirable to carry
out the foregoing. Each tenant under any lease shall be entitled to rely upon
any notice from Assignee and shall be protected with respect to any payment of
Rent made pursuant to such notice, Irrespective of whether a dispute exists
between Assignor and Assignee with respect to the existence of an Event of
Default or the rights of Assignee hereunder. The payment of Rent to Assignee
pursuant to any such notice and the performance of obligations under any Lease
to or for the benefit of Assignee shall not cause Assignee to assume or be bound
by the provisions of such Lease including, without Iimitation, the duly to
return any security deposit to the tenant under such Lease unless and to the
extent such security deposit was paid to Assignee by Assignor. Assignor shall
indemnify, defend and hold Assignee harmless from and against any and all
losses, claims, damage or liability arising out of any claim by a tenant with
respect thereto,
 
3.04 Application of Rents; Security Deposits. All Rents received by Assignee
pursuant to this Security Instrument shall be applied by Assignee, as determined
by Assignee, to any of the following:

 
(i) the costs and expenses of collection, including, without limitation,
attorneys' fees and receivership fees, costs and expenses; (ii) the costs and
expenses incurred In connection with the management, operation and maintenance
of the Property; (iii) the establishment of reasonable reserves for working
capital and for anticipated or projected costs and expense, including, without
limitation, capital improvements which may be necessary or desirable or required
by law; and (iv) the payment of any indebtedness then owing by Assignor to
Assignee. In connection therewith, Assignor further agrees that all Rents
received by Assignee from any tenant may be allocated first, if Assignee so
elects, to the payment of all current obligations of such tenant under its Lease
and not to amounts which may be
 
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accrued and unpaid as of the date of revocation of Assignor's license to collect
such Rents. Assignee may, but shall have no obligation to, pursue any tenant for
the payment of Rent which may be due under its Lease with respect to any period
prior to the exercise of Assignee's rights hereunder or which may become due
thereafter. Assignor agrees that the collection of Rents by Assignee and the
application of such Rents by Assignee to the costs, expenses and obligations
referred to in this Section 3.04 shall not cure or waive any default or Event of
Default or invalidate any act including, without limitation, any sale of all or
any portion of the Property now or hereafter securing the Loan) done in response
to or as a result of such default or Event of Default or pursuant to any notice
of default or notice of sale issued pursuant to any Loan Document.

 
3.05 No Mortgagee in Possession. Nothing contained in this Security Instrument
shall be construed as constituting Assignee a "mortgagee in possession" in
absence of the taking of actual possession of the Property by Lender. In the
exercise of the powers herein granted Lender, no liability shall be asserted or
enforced against Assignee, all such liability being expressly waived and
released by Assignor.
 
ARTICLE 4. SECONDARY MARKET
 
4.01 Transfer of Loan. Lender may, at any time, sell, transfer or assign the
Note, this Security Instrument and the other Loan Documents, and any or all
servicing rights with respect thereto, or grant participations therein or issue
mortgage pass-through certificates or other securities evidencing a beneficial
Interest in a rated or unrated public offering or private placement (the
securities"). Lender may forward to each purchaser, transferee, assignee,
servicer, participant or investor in such Securities or any rating agency
("Rating Agency") rating such Securities (collectively, the 'Investor") and each
prospective Investor, all documents and information which Lender now has or may
hereafter acquire relating to the Loan and to Borrower, and the Property,
whether furnished by Borrower, or otherwise, as Lender determines necessary or
desirable. Borrower shall cooperate with Lender in connection with any transfer
made or any Securities created pursuant to this Security Instrument, including,
without limitation, the delivery of an estoppel certificate in accordance
therewith, and such other documents as may be reasonably required by Lender.
Borrower shall also furnish and Borrower consents to Lender furnishing to such
Investors or such prospective Investors or Rating Agency any and all information
concerning the Property, the Leases, the financial condition of Borrower as may
be requested by Lender, any Investor or any prospective Investor or Rating
Agency in connection with any sale, transfer or participation interest. Lender
may retain or assign responsibility for servicing the Note, this Security
Instrument, and the other Loan Documents, or may delegate some or all of such
responsibility and/or obligations to a servicer (including, without limitation,
any subservicer or master servicer) or agent. Lender may make such assignment or
delegation on behalf of the Investors if the Note is sold or this Security
Instrument or the other Loan Documents are assigned. All references to "Lender"
In the Loan Documents shall refer to and Include any such servicer or agent, to
the extent applicable, In each case as designated by Lender from time to time.
 
4.02 Conversion to Registered Form. At the request and the expense of Lender,
Borrower shall appoint, as its agent, a registrar and transfer agent (the
"Registrar") acceptable to Lender which shall maintain, subject to such
reasonable regulations as it shall provide, such books and records as are
necessary for the registration and transfer of the Note In a manner that Shall
cause the Note to be considered to be in registered form for purposes of Section
163(1) of the U.S. Internal Revenue Code. The option to convert the Note into
registered form once exercised may not be revoked. Any agreement setting out the
rights and obligations of the Registrar shall be subject to the reasonable
approval of Lender. Borrower may revoke the appointment of any particular person
as Registrar, effective upon the effectiveness of the appointment of a
replacement Registrar. The Registrar Shall not be entitled to any fee from
Lender or any other Lender in respect of transfers of the Note and this Security
Instrument (other than taxes and governmental charges and fees).
 
4.03 Estoppel Certificate. Upon any transfer or proposed transfer contemplated
by Section 4.01 above, at Lender's request, Borrower, or any guarantors or
indemnitors shall provide an estoppel

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certificate to the Investor or any prospective Investor in such form, substance
and detail as Lender, such Investor or prospective Investor may require.

 
ARTICLE 5. FURTHER ASSURANCES
 
5.01 Recording of Security Instrument; Other Assurances. Borrower forthwith upon
the execution and delivery of this Security Instrument and thereafter, from time
to time, will cause this Security Instrument and any of the Loan Documents
creating a lien or security Interest or evidencing the lien hereof upon the
Property and each instrument of further assurance to be filed, registered or
recorded In such manner and in such places as may be required by any present or
future law In order to publish notice of and fully to protect and perfect the
lien or security interest hereof upon, and the interest of Lender in, the
Property. Borrower will pay all taxes, filing, registration or recording fees,
and all expenses incident to the preparation, execution, acknowledgment and/or
recording of the Note, this Security Instrument, the other Loan Documents, any
note or deed of trust or mortgage supplemental hereto, any security instrument
with respect to the Property and any instrument of further assurance, and any
modification or amendment of the foregoing documents, and all federal, state,
county and municipal taxes, duties, imposts, assessments and charges arising out
of or in connection with the execution and delivery of this Security Instrument,
any deed of trust or mortgage supplemental hereto, any security instrument with
respect to the Property or any instrument of further assurance, and any
modification or amendment of the foregoing documents, except where prohibited by
law so to do.
 
5.02 Further Acts. Borrower will, at the cost of Borrower, and without expense
to Lender, do, execute, acknowledge and deliver all and every such further acts,
deeds, conveyances, deeds of trust, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Lender and Trustee the Property and rights hereby deeded,
mortgaged, granted, bargained, sold. conveyed, confirmed, pledged, assigned,
warranted and transferred or Intended now or hereafter so to be, or which
Borrower may be or may hereafter become bound to conveyor assign to Lender, or
for carrying out the intention or facilitating the performance of the terms of
this Security Instrument or for filing, registering or recording this Security
Instrument, or for complying with all applicable laws. Borrower, on demand, will
execute and deliver and hereby authorizes Lender to execute in the name of
Borrower or without the signature of Borrower to the extent Lender may lawfully
do so, one or more financing statements, chattel mortgages or other instruments,
to evidence more effectively the security Interest of Lender in the Property.
Borrower grants to Lender an Irrevocable power of attorney coupled with an
interest for the purpose of exercising and perfecting any and all rights and
remedies available to Lender at law and in equity, including, without
limitation, such rights and remedies available to Lender pursuant to this
paragraph. Borrower specifically agrees that all power granted to Lender under
this Security Instrument may be assigned by Lender to its successors or assigns
as holder of the Note.
 
5.03 Changes in Laws Regarding Taxation; Documentary Stamps.
 
(a) In the event of the passage after the date of this Security Instrument of
any law of the state where the Property is located deducting from the value of
real property for the purpose of taxation any lien or encumbrance thereon or
changing in any way the laws for the taxation of mortgages or loans secured by
mortgages for slate or local purposes or the manner of the collection of any
such taxes, and imposing a tax, (including, without limitation, a withholding
tax) either directly or indirectly, on this Security Instrument, the Note or the
Loan, Borrower shall, if permitted by law. pay any tax imposed as a result of
any such law within the statutory period or within fifteen (1S) days after
demand in Lender, whichever is less, provided, however, that if, In the opinion
of the attorneys for Lender, Borrower is not permitted by law to pay such taxes,
Lender shall have the right, at its option, to declare the Loan due and payable
on a date specified in a prior notice to Borrower of not less than thirty (30)
days. Any prepayment made by Borrower pursuant to the terms of this paragraph
shall be made without any Prepayment Charge (as defined In the Note),
 
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(b) If at any time the United states of America, any state thereof, or any
governmental subdivision of any such State, shall require revenue or other
stamps to be affixed to the Note or this Security Instrument, Borrower will,
upon demand, pay for the same, with interest and penalties thereon, if any.

ARTICLE 6. STATE-SPECIFIC PROVISIONS/MODIFICATIONS AND OTHER PROVISIONS
 
6.01 Inconsistencies. In the event of any conflicts between the terms and
conditions of this Article 6 and the remainder of this Security Instrument, the
terms and conditions of this Article 6 shall govern, but only to the extent of
any such conflicts.
 
6.02 No Border Zone Property. Borrower hereby represents and warrants that the
Property has not been designated as a Border Zone Property under the provisions
of California Health and Safety Code, Sections 25220 et. Seq. or any regulation
adopted in accordance therewith, and there has been no occurrence or condition
on any real property adjoining or in the vicinity of the Property that is
reasonably likely to cause the Property or any part thereof to be designated as
Border Zone Property.
 
6.03 Environmental Impairment. In furtherance of and not in limitation of any
other provisions of this Security Instrument, including without limitation
Section 1.03:
 
In accordance with California Code of Civil Procedure Section 726.5, Lender may
waive its lien against the Property or any portion thereof, together with
fixtures or personal property thereon, to the extent such property is found to
be environmentally impaired, and may exercise any and all rights and remedies of
an unsecured creditor against Borrower and all of Borrower's assets and property
for the recovery of any deficiency, including, without limitation, seeking an
attachment order under California Code of Civil Procedure Section 483.010. No
such waiver shall be final or binding on Lender unless and until a final money
judgment is obtained against Borrower. As between Lender and Borrower, for
purposes of California Code of Civil Procedure Section 726.5, Borrower shall
have the burden of proving that the release or threatened release was not
knowingly or negligently caused or contributed to, or knowingly or willfully
permitted or acquiesced to by Borrower or any related party (or any affiliate or
agent of Borrower or any related party) and that Borrower made written
disclosure of the release to Lender or that Lender otherwise obtained actual
knowledge thereof prior to the making of the loan evidenced by the Note.
Notwithstanding anything to the contrary contained in this Security Instrument
or the other Loan Documents, Borrower shall be fully and personally liable for
all judgments and awards entered against Borrower pursuant to California Code of
Civil Procedure 726.5 and such liability shall be an exception to any
non-recourse or exculpatory provision in this Security Instrument or the other
Loan Documents and shall not be limited to the original principal amount of the
obligations secured by this Security Instrument. Borrower's obligations
hereunder shall survive the foreclosure, deed in lieu of foreclosure, release,
reconveyance or any other transfer of the Property or this Security Instrument.
For the purpose of any action brought under this Section, Borrower hereby waives
the defense of laches and any applicable statute of limitations. For purposes of
California Code of Civil Procedure 726.5, the acts, knowledge and notice of each
"726.5 Party" shall be attributed to and be deemed to have been performed by the
party or parties then obligated on and liable for payment of the Note. As used
herein, '726.5 Party" shall mean Borrower, any successor owner to Borrower of
all or any portion of the Property, any related party of Borrower or any such
successor and any affiliate or agent of Borrower, any such successor or any such
related party.
 
Borrower hereby confirms the right of Lender (or a receiver appointed by Lender
to enter upon and inspect all or any portion of the Property for the purpose of
determining the existence, location, nature and magnitude of any past or present
release or threatened release of any hazardous substance into, onto, beneath, or
from the Property in accordance with Section 2929.5 of the California Civil
Code. All reasonable costs and expenses incurred by Lender pursuant to this
provision or pursuant to Section 2929.5 of the California Civil Code, including,
without limitation, costs of consultants and contractors, costs of repair of any
physical Injury to the Property normal and customary to the tests and studies,
court costs and attorneys' fees, costs and expenses, whether incurred in
litigation or not and whether before or
 
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alien judgment, shall be payable by Borrower and the Indemnitor(s) (other than
Borrower) under the Environmental Indemnification Agreement executed in
connection with the Loan ("Indemnitor(s),) and, to the extent advanced or
incurred by Lender, shall be reimbursed to Lender by Borrower and the
lndemnitor(s) upon demand. This provision is separate and several, and shall
survive merger into any Judgment.

 
In addition, Lender shall have the right to appoint a receiver when permitted
under Section 564 of the California Code of Civil Procedure, including, without
limitation, in order to enforce Lender's rights under Section 2929.5 of the
California Civil Code. The receiver shall have all of the rights and powers to
the fullest extent permitted by law. The receiver shall have the right to apply
Rents to cleanup, remediation or other response action concerning the release or
threatened release of Hazardous Materials, whether or not such actions are
pursuant to an order of any federal, state or local governmental agency.
 
6.04 Waiver of Rights Regarding Condemnation Proceeds. Borrower unconditionally
and irrevocably waives all rights of a property owner under Section 1265.225(a)
of the California Code of Civil Procedure or any successor statute providing for
the allocation of condemnation proceeds between a property owner and a lien
holder.
 
6.05 Evasion of Prepayment Terms. If an Event of Default shall occur, a tender
of any payment of principal by Borrower, its successors or assigns or by anyone
on behalf of Borrower, its successors or assigns, In excess of the amount which
would have been payable had the Event of Default not occurred, shall constitute
an evasion of the prepayment terms of the Note, as incorporated herein by
reference, and shall be deemed to be a voluntary prepayment thereunder and any
such payment, to the extent permitted by law, must include the prepayment charge
computed in accordance with the terms of the Note.
 
6.06 Waiver of Section 2822. Borrower hereby waives, to the extent applicable to
Borrower, any right or privilege to which it may be entitled under Section 2822
of the California Civil Code or otherwise to designate the portion of the
Limited Recourse Obligations Guaranty executed in connection with the Loan (the
"Guaranty”) which is to be satisfied by a partial payment (whether voluntary, as
a result of judgment or otherwise) of the Loan. In such event, Borrower
acknowledges and agrees that the terms and provisions of the Guaranty shall
govern.
 
6.07 Power of Sale and Other Provisions.
 
For any sale under the power of sale granted by this Security Instrument,
Lender, its successors and assigns, may elect to cause the Property or any part
thereof to be sold as follows:
 
(a) Lender may proceed as if all of the Property were real property, in
accordance with subparagraph (d) below, or Lender may elect to treat any of the
Property which consists of a right in action or which is property that can be
severed from the Property without causing structural damage thereto as if the
same were personal property, and dispose of the same in accordance with
subparagraph
 
 
(c) below, separate and apart from the sale of real property, the remainder of
the Property being treated as real property.

 
(b) Lender may cause any such sale or other disposition to be conducted
immediately following the expiration of any grace period, if any, herein
provided (or immediately upon the expiration of any redemption period required
by law) as specified in subparagraph (a) above or Lender may delay any such sale
or other disposition for such period of time as Lender deems to be in its best
interest. Should Lender desire that more than one such sale or other disposition
be conducted, Lender may at its option, cause the same to be conducted
simultaneously. or successively on the same day, or at such different days or
limes and in such order as Lender may deem to be in its best interest.
 
(c) Should Lender elect to cause any of the Property to be disposed of as
personal property as permitted by subparagraph (a) above, it may dispose of any
part hereof in any manner now or

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hereafter permitted by Article 9 of the California Uniform Commercial Code or in
accordance with any other remedy provided by law. Both Borrower and Lender shall
be eligible to purchase any part or all of such property at any such
disposition. Any such disposition may be either public or private as Lender may
so elect, subject to the provisions of the California Uniform Commercial Code.
Lender shall give Borrower at least ten (10) days' prior written notice of the
time and place of any public sale or other disposition of such property or of
the time at or after which any private sale or any other intended disposition is
to be made, and if such notice is sent to Borrower as provided in subparagraph
(k) hereof, it shall constitute reasonable notice to Borrower.

(d) Should Lender elect to sell the Property which is real property or which
Lender has elected to treat as real property, upon such election Lender or
Trustee shall give such Notice of Default and Election to Sell as may then be
required by law. Thereafter, upon the expiration of such time and the giving of
such Notice of Sale as may then be required by law, Trustee, at the time and
place specified in the Notice of Sale, shall sail such Property, or any portion
thereof specified by Lender, at public auction to the highest bidder for cash in
lawful money of the United States, subject, however, to the provisions of
subparagraph (i) hereof. Trustee for good cause may, and upon request of Lender
shall, from time to time, postpone the sale by public announcement thereof at
the time and place noticed therefor, If the Property consists of several lots or
parcels, Lender may designate the order in which such lots or parcels shall be
offered for sale or sold. Any person, including Borrower, Trustee or Lender, may
purchase at the sale. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or Implied, whereupon such
purchaser or purchasers Shall be let into immediate possession.
 
(e) In the event of a sale or other disposition of any such property, or any
part thereof, and the execution of a deed or other conveyance, pursuant thereto,
the recitals therein of facts, such as a default, the giving of notice of
default and notice of sale, demand that such sale should be made, postponement
of sale, terms of sale, sale, purchaser, payment of purchase money, and any
other fact affecting the regularity or validity of such sale or disposition,
shall be conclusive proof of the truth of such facts for purposes of such sale,
conveyance or other disposition; and any such deed of conveyance shall be
conclusive against all persons as to such facts recited therein for purposes of
such conveyance.
 
(f) Lender and/or Trustee shall apply the proceeds of any sale or disposition
hereunder to payment of the following: (1) the expenses of such sale or
disposition together with Trustee's fees and reasonable attorneys' fees, and the
actual cost of publishing, recording, mailing and posting notice; (2) the cost
of any search and/or other evidence of title procured in connection therewith
and transfer tax on any deed or conveyance; (3) all su!'1s expended under the
terms hereof, not then repaid, with accrued interest in the amount provided
herein; (4) all other sums secured hereby; and (5) the remainder If any to the
person or persons legally entitled thereto.
 
(g) The acknowledgement of the receipt of the purchase money, contained in any
deed of conveyance executed as aforesaid, shall be sufficient to discharge
Borrower from all obligations and to evidence the proper application oftne
consideration therefor.
 
(h) Borrower hereby expressly waives any right which it may have to direct the
order in which any of the Property shall be sold in the event of any sale or
sales pursuant hereto.

(i) Upon any sale of the Property, whether made under a power of sale herein
granted or pursuant to judicial proceedings, If the holder of the Note is a
purchaser at such sale, it shall be entitled to use and apply all or any portion
of the indebtedness then secured hereby for or in settlement or payment of all
or any portion of the purchase price of the property purchased, and, in such
case, this Security Instrument, the Note and documents evidencing expenditures
secured hereby shall be presented to the person conducting the sale in order
that the amount of said indebtedness so used or applied may be credited thereon
as having been paid.
 
(j) No remedy herein conferred upon or reserved to Trustee or Lender is intended
to be exclusive of any other remedy herein or by law provided, but each shall be
cumulative and shall be in
 
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addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute. Every power or remedy given by this instrument
to Trustee or Lender, or to which either of them may be otherwise entitled, may
be exercised from time to time and as often as may be deemed expedient by
Trustee or Lender, and either of them may pursue inconsistent remedies. If there
exists additional security for the performance of the obligations secured
hereby, the holder of the Note, at its sole option and without limiting or
affecting any rights or remedies hereunder, may exercise any of the rights and
remedies to which it may be entitled hereunder either concurrently with whatever
other rights it may have in connection with such other security or in such order
as it may determine.

 
(iI) Borrower hereby requests that every notice of default and every notice of
sale be given in accordance with the provisions of Section 7.05 hereof except as
otherwise required by statute. Borrower may, from time to time, change the
address to which notice of default and sale hereunder shall be sent by both
filing a request therefor, In the manner provided by the California Civil Code,
Section 2924b, and sending a copy of such request to Lender, its successors or
assigns in accordance with the provisions of Section 7.05 hereof.
 
6.08 California Uniform Commercial Code. In furtherance of and not in limitation
of any other provisions of this Security Instrument, including without
limitation Section 2.02(a):
 
Upon the occurrence of an Event of Default under this Security Instrument,
Lender, pursuant to the appropriate provisions of the California Uniform
Commercial Code, shall have an option to proceed with respect to both the real
property portion of the Property and the Personal Property in accordance with
its rights, powers and remedies with respect to such real property, in which
event the default provisions of the California Uniform Commercial Code shall not
apply. Such option shall be revocable by Lender as to all or any portion of the
Personal Property at any time prior to the sale of the remainder of the
Property. In such event Lender shall designate Trustee to conduct the sale of
the Personal Properly in combination with the sale of the remainder of the
Property. Should Lender elect to sell the Personal Property or any part thereof
which is real property or which Lender has elected to treat as real property or
which may be sold together with the real property as provided above, Lender or
Trustee shall give such notice of default and election to sell as may then be
required by law. The parties agree that if Lender shall eject to proceed with
respect to any portion of the Personal Property separately from such real
properly, ten (10) days notice of the sale of the Personal Property shall be
reasonable notice. The reasonable expenses of retaking, holding, preparing for
sale, selling and the like incurred by Lender shall include, but not be limited
to, reasonable attorneys' fees, costs and expenses, and other expenses incurred
by Lender.
 
6.09 Forbearance by Lender Not A Waiver. Borrower waives to the extent permitted
by law, notice of election to mature or declare due the whole of the Secured
Obligations. Any forbearance by Lender in exercising any right or remedy
hereunder, or otherwise afforded by applicable law, shall not be a waiver of or
preclude the exercise of any tight or remedy. The acceptance by Lender of
payment of any sum secured by this Security Instrument after the due date of
such payment shall not be a waiver of Lender’s right either to require prompt
payment when due of all other sums so secured or to declare an Event of Default
for failure to make prompt payment The procurement of Insurance or the payment
of taxes of other liens or charges by Lender shall not be a waiver of Lender’s
right to accelerate the maturity of the Secured Obligations nor shall Lender's
receipt of any awards, proceeds or damages under this Security Instrument
operate to cure or waive Borrower's default in payment of sums secured by this
Security Instrument
 
6.10 Additional Costs. In furtherance of and not in limitation of any other
provisions of this Security Instrument, including without limitation Section
7.09:
 
Borrower shall pay all reasonable Costs incurred by Lender in connection with
the documentation, modification, workout, collection or enforcement of the Loan
or any of the Loan Documents (as applicable), including probate, appellate and
bankruptcy proceedings, any post-judgment proceedings to collect or enforce any
Judgment or order relating to the Loan or any of the Loan Documents (as
applicable), and all such Costs shall be included as additional Secured
Obligations
 
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bearing Interest at the Default Rate set forth in the Note until paid. In any
action to foreclose the lien hereof or otherwise enforce Lender's rights and
remedies hereunder, there shall be allowed and Included as additional Secured
Obligations all Costs which may be paid or incurred by or on behalf of Lender.
For the purposes hereof 'Costs' means all expenditures and expenses which may be
paid or Incurred by or on behalf of Lender including repair costs, payments to
remove or protect against liens, attorneys' fees, costs and expenses, receivers'
fees, appraisers' fees, engineers' fees, accountants' fees, independent
consultants' fees (including environmental consultants), all costs and expenses
Incurred in connection with any of the foregoing, Lender's out-of-pocket costs
and expenses related to any audit or inspection of the Property, outlays for
documentary and expert evidence, stenographers' charges, stamp taxes,
publication costs, and costs (which may be estimates as to Items to be expended
after entry of an order or judgment) for procuring all such abstracts of title,
title searches and examination, titIe insurance policies, and similar data and
assurances with respect to title as Lender may deem reasonably necessary either
to prosecute any action or to evidence to bidders at any sale of the membership
interests in Borrower the true condition of the title to, or the value of, the
Property. Further, all 'Costs" shall include such other costs, expenses and fees
as may be Incurred by Lender in the protection of the Property and the
maintenance of the lien of this Deed of Trust, including, attorneys' fees, costs
and expenses in any litigation or proceeding affecting this Deed of Trust, the
Note, the other Loan Documents, the Property or the Personal Property, Including
probate, appellate, and bankruptcy proceedings, and any post·judgment
proceedings to collect or enforce any judgment or order relating to this Deed of
Trust or the other Loan Documents, to obtain any court order or the appointment
of a receiver to enforce Lender's rights pursuant to Section 564 of the
California Code of Civil Procedure and/or Section 2929.5 of the California Civil
Code or in preparation for the commencement or defense of any action or
proceeding, shall be Immediately due and payable to Lender, with interest
thereon at the Default Rate, and shall be secured by this Deed of Trust. This
provision Is separate and several, and shall survive the merger of this
provision into any judgment.

 
6.11 Default Rate. The "highest rate permitted under applicable law" referred to
In Section 1,03 shall mean the Default Rate (as defined in the Note) if such a
rate Is not specified by applicable law.
 
ARTICLE 7. MISCELLANEOUS
 
7.01 Amendments. This Instrument cannot be waived, changed, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, discharge or termination is
sought.

7.02 Borrower Waiver of Rights; Waiver of Automatic Stay.
 
(a) Borrower waives to the extent permitted by law, (i) the benefit of all laws
now existing or that may hereafter be enacted providing for any appraisement
before sale of any portion of the Property, (ii) all rights of valuation,
appraisement, stay of execution, reinstatement and redemption laws and
marshaling in the event of foreclosure of the liens hereby created, (iii) all
rights and remedies which Borrower may have or be able to assert by reason of
the laws of the state where the Property is located pertaining to the rights and
remedies of sureties, (iv) the right to assert any statute of limitations as a
bar to the enforcement of the lien of this Security Instrument or to any action
brought to enforce the Note or any other obligation secured by this Security
Instrument, and (v) any rights, legal or equitable, to require marshaling of
assets or to require upon foreclosure sales in a particular order. Lender shall
have the right to determine the order in which any or all of the Property shall
be subjected to the remedies provided herein. Lender shall have the right to
determine the order in which any or all portions of the Secured Obligations are
satisfied from the proceeds realized upon the exercise of the remedies provided
herein.
 
(b) WITHOUT LIMITING ANY OF THE FOREGOING SET FORTH IN SUBSECTION (a) ABOVE,
BORROWER HEREBY AGREES THAT, IN CONSIDERATION OF LENDER'S AGREEMENT TO MAKE THE
LOAN AND IN RECOGNITION THAT THE FOLLOWING COVENANT IS A MATERIAL INDUCEMENT FOR
LENDER TO MAKE THE LOAN, IF BORROWER SHALL (b) FILE WITH ANY BANKRUPTCY COURT OF
COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION

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UNDER ANY SECTION OR CHAPTER OF THE BANKRUPTCY CODE, OR SIMILAR LAW OR STATUTE:
(ii) BE THE SUBJECT OF ANY ORDER FOR RELIEF ISSUED UNDER THE BANKRUPTCY CODE OR
SIMILAR LAW OR STATUTE; (iii) FILE OR BE THE SUBJECT OF ANY PETITION SEEKING ANY
REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION,
DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT
OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS; (iv)
HAVE SOUGHT OR CONSENTED TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE,
RECEIVER, CONSERVATOR, OR LIQUIDATOR; OR (v) BE THE SUBJECT OF AN ORDER.
JUDGMENT OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A
PETITION FILED AGAINST ANY BORROWER FOR ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY, INSOLVENCY
OR RELIEF FOR DEBTORS. THEN, SUBJECT TO COURT APPROVAL, LENDER SHALL THEREUPON
BY ENTITLED AND BORROWER HEREBY IRREVOCABLY CONSENTS TO, AND WILL NOT CONTEST,
AND AGREES TO STIPULATE TO RELIEF FROM ANY AUTOMATIC STAY OR OTHER INJUNCTION
IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE OR SIMILAR LAW OR STATUTE
(INCLUDING, WITHOUT LIMITATION, REUEF FROM ANY EXCLUSIVE PERIOD SET FORTH IN
SECTION 1121 OF THE BANKRUPTCY CODE) OR OTHERWISE AVAILABLE TO LENDER AS
PROVIDED IN THE NOTE AND THE LOAN DOCUMENTS, AND AS OTHERWISE PROVIDED BY LAW,
AND BORROWER HEREBY IRREVOCABLY WAIVES ITS RIGHT TO OBJECT TO SUCH RELIEF.

 
7.03 Statements by Borrower. Borrower shall, within ten (10) days after written
notice thereof from Lender, deliver to Lender (or any person designated by
Lender) a written statement, in form satisfactory to Lender, fully acknowledged,
stating the unpaid principal of and interest on the Note and any other amounts
secured by this Security Instrument and staling whether any offset, counterclaim
or defense exists against such sums and the obligations of this Security
Instrument.
 
7.04 Loan Statement Fees, Lender or its authorized loan servicing agent may
impose a service charge for any statement requested by Borrower regarding the
Secured Obligations; provided, however, that such amount may not exceed the
maximum amount allowed by law at the time request for the statement is made.
 
7.05 Notices. Whenever Borrower, Trustee or Lender shall desire to give or serve
any notice, demand, request or other communication with respect to this Security
Instrument, each such notice, demand, request or communication shall be given in
witting at the address of the intended recipient set forth below by any of the
following means: (a) personal service including, without limitation, service by
overnight courier service): (b) electronic communication, whether by telex,
telegram or telecopying (If confirmed in writing sent by personal service or by
registered or certified, first class mall, return receipt requested); or (c)
registered or certified, first class mail, return receipt requested:
 

 
If to Lender:
ARTESIA MORTGAGE CAPITAL CORPORATION
 
1180 NW Maple Street, Suite 202
 
Issaquah, Washington 98027
 
Attn: Servicing Department
 
Fax: (425) 313·1005
with a copy to:
BEST & FLANAGAN LLP
 
225 South Sixth street, Suite 4000
 
Minneapolis, Minnesota 55402
 
Attn: Bradley F. Williams
 
Fax: (812) 339-5897

If to Lender:
ARTESIA MORTGAGE CAPITAL CORPORATION
 
1180 NW Maple Street, Suite 202
 
Issaquah, Washington 98027
 
Attn: Servicing Department
 
Fax: (425) 313·1005
with a copy to:
BEST & FLANAGAN LLP
 
225 South Sixth street, Suite 4000
 
Minneapolis, Minnesota 55402
 
Attn: Bradley F. Williams
 
Fax: (812) 339-5897

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If to Borrower. CALIFORNIA VALLEY ASSOCIATES 1150 First Avenue, Suite 920 King
of Prussia, Pennsylvania 19506 Tel: (610) 68D-3511 Fax: (610) 992-1166
 
with a copy to: TUPITZA & BRYMAN, P,C. Attorneys for Managers, Inc. 212 West Gay
Street West Chester, Pennsylvania 19380 Attn: Jeffrey Bryman Tel: (610) 696-2600
Fax: (610) 344-7199

 
 
If to Trustee: COMMONWEALTH LAND TITLE 3131 Camino Del Rio, Suite 1400 San
Diego, California 92103 Attn: Anni Fnedertcksen Fax: (619) 686-2181

 
Such addresses may be changed by notice to the other parties given In the same
manner as provided above. Any notice, demand or request sent pursuant to either
subsection (a) or (b) hereof shall be deemed received upon such personal service
or upon dispatch by electronic means, and, If sent pursuant to subsection (e)
shall be deemed received five (5) days following deposit in the mail.
 
7.06 Captions. The captions or headings at the beginning of each Section hereof
are for the convenience onhe parties and are not a part of this Security
Instrument.
 
7.07 Savings Clause; Invalidity of Certain Provisions. Notwithstanding any
provisions in the Note or in this Security Instrument to the contrary, the total
liability for payments in the nature of Interest, including, without limitation,
prepayment charges, default Interest and late fees, shall not exceed the limits
imposed by the laws of the state where the Property is located or the United
states of America relating to maximum allowable charges of interest. Lender
shall not be entitled to receive, collect or apply, as interest on the Secured
Obligations, any amount in excess of the maximum lawful rate of interest
permitted to be charged by applicable laws. If Lender ever receives, collects or
applies as interest such amount which would be excessive, such interest shall be
applied to reduce the unpaid principal balance of the Note, and any remaining
excess shall be paid over to person or persons legally entitled thereto. Every
provision of this Security Instrument is intended to be severable. In the event
any term or provision hereof is declared to be illegal, invalid or unenforceable
for any reason whatsoever by a court of competent jurisdiction, such illegality
or invalidity shall not affect the balance of the terms and provisions hereof,
which terms and provisions shall remain binding and enforceable.
 
7.08 Provisions Regarding Trustees. At any time, or from time to time, without
notice therefor and without notice to Borrower, upon written request of Lender
and presentation of this Security Instrument and the Note secured hereby for
endorsement. and without affecting the personal liability of any person for
payment of the Secured Obligations (subject to the limitations on recourse set
forth in the Note) or the effect of this Security Instrument upon the remainder
of the Property, Trustee [or the one acting] may (i) reconvey any part of the
Property, (ii) consent In writing to the making of any map or plat thereof.
(iii) join in granting any easement thereon, or (iv) join in any extension
agreement or any agreement subordinating the lien or charge hereof.
 
Trustee shall not be liable for any error of judgment or act done by Trustee, or
be otherwise responsible or accountable under any circumstances whatsoever.
Trustee shall not be personally liable in case of entry by it or anyone acting
by virtue of the powers herein granted it upon the Property for debts contracted
or liability or damages incurned in the management or operation of the Property.
All monies received by Trustee shall, until used or applied as herein provided,
be held in trust for the
 
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purposes for which they were received, but need not be segregated in any manner
from any other monies (except to the extent required by law) and Trustee shall
be under no liability for interest on any monies received by it hereunder.

 
Trustee may resign by giving of notice of such resignation in writing to Lender.
If Trustee shall die, resign or become disqualified from acting, or shall fail
or refuse to exercise its powers hereunder when requested by Lender so to do, or
if for any reason and without cause Lender shall prefer to appoint a substitute
trustee to act instead of the ol1glnal Trustee named herein, or any prior
successor or substitute trustee, Lender shall have full power to appoint a
substitute trustee and, if preferred, several substitute trustees in succession
who shall succeed to all the estate, rights, powers and duties of the aforenamed
Trustee. Upon appointment by Lender and upon recording of the substitution in
the land records of the County where the Property Is located, any new Trustee
appointed pursuant to any of the provisions hereof shall, without any further
act, deed or conveyance, become vested with all the estates, properties, rights,
powers and trusts of its predecessor in the rights hereunder with the same
effect as if originally named as Trustee herein.
 
7.09 Subrogation. To the extent that proceeds of the Note are used to pay any
outstanding lien. charge or prior encumbrance against the Property, such
proceeds have been or will be advanced by Lender at Borrower's request and
Lender shall be subrogated to any and all rights and liens held by any owner or
holder of such outstanding liens, charges and prior encumbrances, irrespective
of whether said liens, charges or encumbrances are released.
 
7.10 Costs and Expenses; Attorneys' Fees for Preparation and Enforcement
 
(a) Borrower acknowledges and confirms that Lender shall Impose certain
administrative processing and/or commitment fees in connection with (I) the
extension, renewal, modification, amendment and termination of the Loan, (ii)
the release or substitution of collateral therefor, (10) obtaining certain
consents, waivers and approvals with respect to the Property, or (iv) the review
of any Lease or proposed Lease or the preparation or review of any
subordination, non-disturbance and attornment agreement (the occurrence of any
of the above shall be called an "Event”. Borrower further acknowledges and
confirms that it shall be responsible for the payment of all costs of
reappraisal of the Property or any part thereof, whether required by law,
regulation, Lender or any governmental or quasi­governmental authority. Borrower
hereby acknowledges and agrees to pay, immediately, with or without demand, all
such fees (as the same may be increased or decreased from time to time), and any
additional fees of a Similar type or nature which may be imposed by Lender from
time to time, upon the occurrence of any Event or otherwise. Whenever it is
provided for herein that Borrower pay any costs and expenses, such costs and
expenses shall include, but not be limited to, all attorneys' fees and
disbursements of Lender.
 
(b) Borrower shall pay all attorneys' fees Incurred by Lender in connection with
(i) the preparation of the Note, this Security Instrument and the other Loan
Documents, and (ii) the Items set forth In Section 7.08(a} above. In addition,
Borrower shall pay to Lender on demand any and all expenses, including, without
limitation, attorneys' fees and costs, incurred or paid by Lender in protecting
its interest in the Property or in collecting any amount payable hereunder or in
enforcing its rights hereunder with respect to the Property (including, without
limitation, commencing any foreclosure action), whether or not any legal
proceeding is commenced hereunder or thereunder, together with interest thereon
at the Default Rate from the date paid or Incurred by Lender until such expenses
are paid by Borrower.

As used in this Security Instrument, the terms 'attorneys' fees' or "attorneys'
fees and costs' or "attorneys' fees, costs and expenses· shall mean the
reasonable attorneys' fees and the costs and expenses of counsel to Lender
(Including, without limitation, in-house counsel employed by Lender), which may
include, without limitation, printing, duplicating, telephone, fax, air freight
and other charges, and fees billed for law clerks, paralegals, librarians.
expert witnesses and others not admitted to the bar but performing services
under the supervision of an attorney and all such fees, costs and expenses
incurred with respect to trial, appellate proceedings, arbitrations,
out-of-court negotiations, workouts and
 
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settlements, and bankruptcy or Insolvency proceedings (including, without
limitation, seeking relief from stay in bankruptcy proceedings), and whether or
not any action or proceeding is brought or is concluded with respect to the
matter for which such fees, costs and expenses were incurred, and whether or not
the Lender 15 the prevailing party. Lender shall also be entitled to its
attorneys' fees, costs and expenses incurred in any post-judgment action or
proceeding to enforce and collect the judgment. In the event of any litigation
concerning the enforcement, validity or interpretation of the Loan Documents,
the prevailing party shall be entitled to recover and the losing party shall
pay, all costs, charges and expense (including attorneys' fees incurred by the
prevailing party, whether or not the suit proceeds to final judgment. This
Section 7.10 is separate and several, shall survive the discharge of this
Security instrument, and shall survive the merger of this Security Instrument
into any judgment on this Security Instrument.

 
7.11 No Merger of Lease. If both the Borrower's and tenant's estate under any
Lease Dr any portion thereof which constitutes a part of the Property shall at
any time become vested in one owner, this Security Instrument and the lien
created hereby shall not be destroyed or terminated by application of the
doctrine of merger unless Lender so elects as evidenced by recording a written
declaration so stating, and, unless and until Lender so elects, Lender shall
continue to have and enjoy all of the rights and privileges of Lender as to the
separate estates. In addition, upon the foreclosure of the lien created by this
Security Instrument on the Property pursuant to the provisions hereof, any
leases or subleases then existing and affecting all or any portion of the
Property shall not be destroyed or terminated by application of the law of
merger or as a matter of law or as a result of such foreclosure unless Lender or
any purchaser at such foreclosure sale shall so elect No act by or on behalf of
Lender or any such purchaser shall constitute a termination of any Lease or
sublease unless Lender or such purchaser shall give written notice thereof to
such tenant or subtenant.
 
7.12 Governing Law. This Security Instrument shall be governed by and construed
in accordance with the laws of the State where the Property is located.
 
7.13 Joint and Several Obligations. If this Security Instrument Is signed by
more than one party, all obligations herein contained shall be deemed to be the
joint and several obligations of each party executing this Security Instrument.
Any married person signing this Security Instrument agrees that recourse may be
had against community assets and against his or her separate property for the
satisfaction of all obligations contained herein.
 
7.14 Interpretation. In this Security Instrument the singular shall Include the
plural and the masculine shall include the feminine and neuter and vice versa,
if the context so requires.
 
7.15 Reconveyance by Trustee, Upon written request of Lender Slating that all
sums secured hereby have been paid, and upon surrender of this Security
Instrument and the Note to Trustee for cancellation and retention and upon
payment by Borrower of Trustee's fees, Trustee shall reconvey to Borrower, or to
the person or persons legally entitled thereto, without warranty, any portion of
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 any reconveyance may be described as "the person or persons legally
entitled thereto." Such grantee shall pay Trustee a reasonable fee and Trustee's
costs Incurred in $0 reconveying the Property.
 
7.18 Counterparts. This document may be executed and acknowledged in
counterparts, all of which executed and acknowledged counterparts shall together
constitute a single document. Signature and acknowledgment pages may be detached
from the counterparts and attached to a single copy of this document to
physically form one document, which may be recorded.
 
7.17 Effect of Security Agreement; Fixture Filing. To the extent of the
existence of any Personal Property encumbered by this Security Instrument, this
Security instrument constitutes both (a) a security agreement Intended to create
a security Interest in such Personal Property in favor of Lender; and, (b) a
financing statement filed as a fixture filing in the real estate records of the
county in which the
 
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Property is located with respect to any and all Fixtures Included within the
Personal Property with respect to any goods or other personal property that may
now be or hereafter become sue/) fixtures. The information in the subsections
below this paragraph is provided in connection with the filing of this Security
Instrument as a financing statement as referred to above, and the Borrower
hereby represents and warrants sue/) Information to be true and complete as of
the date Of this Security Instrument. This Security Instrument shall be
self-operative with respect to sue/) Personal Property, but Borrower shall, upon
the request of Lender, execute and deliver to Lender, in form and content
satisfactory to Lender, sue/) financing statements, descriptions of property and
sue/) further assurances as Lender may determine from time to time to be
necessary or desirable to create, perfect, continue and preserve the lien and
encumbrances hereof and the security interest granted herein upon and in the
Personal Property specifically described herein, or generally described and
Intended to be the subject of the security interest, lien and encumbrance hereby
created, granted and conveyed. Lender, at the expense of Borrower, may cause
such statements, descriptions and assurances as provided in this Security
Instrument to be recorded and re-recorded, filed and refiled, at such times and
in such places as may be required or permitted by law to so create, perfect and
preserve the lien and encumbrance hereof upon all of the Personal Property. By
signing this Security Instrument, Borrower authorizes Lender to file sue/)
financing statements before, on or after the date hereof, and to file such
amendments or continuation statements, all as Lender determines necessary or
desirable from time to time to perfect or continue the lien of the lender's
security interest in the Personal Property.

(a) The Borrower is the record owner of the real estate described in this
Security Instrument. The name and mailing address of the record owner of the
real estate described In this Security Instrument is set for the In the first
paragraph of this Security Instrument

(b) The name, mailing address, type of organization and state of formation of
the Debtor (Borrower') is set forth in the first paragraph of this Security
Instrument. The Organizational Identification Number of the Borrower is CA
198618900006.

 
(c) The name and mailing address of the Secured Party (Lender) is:
 
ARTESIA MORTGAGE CAPITAL CORPORATION 1180 NW Maple Street, Suite 202 Issaquah,
Washington 98027 Attn: Servicing Department
 
(d) This document covers goods which are or are to become fixtures.

7.18 Spouse's Separate Property. Any Borrower who is a married person expressly
agrees that recourse may be had against his or her separate property, Subject to
the limitations on recourse set forth In Section 1 D of the Note.
 
7.19 Offsets. No Secured Obligations shall be deemed to have been offset or to
be offset or compensated by all or part of any claim, cause of action,
counterclaim or cross claim, whether liquidated or unliquidated, which Borrower
or any successor to Borrower now or hereafter may have or may claim to have
against lender; and, in respect to the Indebtedness now or hereafter secured
hereby, Borrower waives, to the fullest extent permitted by law, the benefits of
any law which authorizes or permits sue/) offsets.
 
7.20 Construction of this Security Instrument, Borrower and Lender agree that
this Security Instrument shall be Interpreted In a fair, equal and neutral
manner as to each of the parties.
 
7.21 Clerical Error. In the event Lender at any time discovers that the Note,
any other note secured by this Security Instrument, this Security Instrument or
any other Loan Document contains an error that was caused by a clerical mistake,
calculation error, computer malfunction, printing error or similar error,
Borrower agrees, upon notice from Lender, to re-execute any documents that are
necessary
 
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to correct any such error(s}. Borrower further agrees that lender win not be
liable to Borrower for any damages incurred by Borrower that are directly or
indirectly caused by any such error.

 
7.22 lost, Stolen, Destroyed or Mutilated loan Documents. In the event of the
loss, theft or destruction of the Note, any other note secured by this Security
Instrument or any other Loan Document, or in the event of the mutilation of any
of the Loan Documents, upon Lender's surrender to Borrower of the mutilated Loan
Document, Borrower shall execute and deliver to Lender a loan Document in form
and content identical to, and to serve as a replacement of, the lost, stolen,
destroyed, or mutilated Loan Document and such replacement shall have the same
force and effect as the lost, stolen, destroyed, or mutilated Loan Document, and
may be treated for all purposes as the original copy of such Loan Document
 
7.23 Time is of the Essence. Time is of the essence in the performance of each
provision of this Security Instrument.
 
7.24 Legislation Affecting Lender's Rights. If enactment or expiration of
applicable laws has the effect of rendering any material provision of the Note
or this Security Instrument unenforceable according to its terms, Lender, at its
option, may demand immediate payment in full of all sums secured by this
Security Instrument and may invoke any remedies permitted under this Security
Instrument.
 
7.25 RESERVED.
 
7.26 Exhibits and Riders. The exhibits and riders, if any, attached hereto are
incorporated herein by reference and made a part hereof.
 
7.27 Successors and Assigns. Without in anyway limiting or affecting the
provisions of Section 1.15 hereof, all of the terms, covenants, provisions and
conditions herein contained shall be for the benefit of, apply to, and bind the
heirs, successors and assigns of the Borrower and the Lender, and are intended
and shall be held to be covenants running with the Land.
 
7.28 Declaration of No Offset. The Borrower represents and warrants to the
Lender that the Borrower has no knowledge of any offsets, counterclaims or
defenses to the principal of the Secured Obligations, or to any part thereof. or
the interest thereon, either at law or in equity.
 
7.29 Entire Agreement. This Security Instrument and the other loan Documents
contain the entire agreement between the Borrower and the Lender relating to or
connected with the Loan. Any other agreements relating to or connected with the
Loan not expressly set forth in this Security Instrument and/or other Loan
Documents are null and void and superseded in their entirety by the provisions
of this Security Instrument and the other Loan Documents.
 
7.30 No Joint Venture or Partnership. The relationship of the Borrower and the
Lender created hereby is strictly of debtor-creditor and nothing contained
herein or in any other documents or instrument secured hereby shall be deemed or
construed to create a partnership or joint venture between Borrower and lender.
 
7.31 No Lender Obligations.
 
(a) Notwithstanding any of the provisions contained herein with respect to
Lender taking a security interest in the Leases, Lender is not undertaking the
performance of any obligations under the Leases.
 
(b) By accepting or approving anything required to be observed, performed or
fulfilled or to be given to Lender pursuant to this Security Instrument, the
Note or the other Loan Documents, including without limitation, any officer's
certificate. balance sheet, statement of profit and loss or other financial
statement, survey, appraisal, or insurance policy, Lender shall not be deemed to
have warranted,

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consented to, or affirmed the sufficiency, the legality or effectiveness of
same, and such acceptance or approval thereof shall not constitute any warranty
or affirmation with respect thereto by Lender.

 
7.32 Estoppel Certificates. After request by Lender, Borrower, within ten (10)
days, shall furnish Lender or any proposed assignee with a statement, duly
acknowledged and certified, setting forth the amount of the original principal
amount of the Note, the unpaid principal amount of the Note, the rate of
interest of the Note, the terms of payment and maturity date of the Note, the
date Installments of interest and/or principal were last paid, that, except as
provided in such statement, there are no defaults or events which with the
passage of time or the giving of notice or both, would constitute an Event of
Default under the Note or this Security Instrument, that the Note and this
Security Instrument are valid, legal and binding obligations and have not been
modified or if modified, giving particulars of such modification, whether any
offsets or defenses exist against the Secured Obligations and, if any are
alleged to exist, a detailed description thereof, that all Leases are In full
force and effect and (provided the Property is not a residential multifamily
property) have not been modified (or if modified, setting forth all
modifications), the date to which the Rents thereunder have been paid pursuant
to the Leases, whether Dr not, to the best knowledge of Borrower, any of the
tenants under the Leases are In default under the Leases, and, if any of the
tenants are In default, setting forth the specific nature of all such defaults,
the amount of security deposits held by Borrower under each Lease and that such
amounts are consistent with the amounts required under each Lease, and as to any
other matters reasonably requested by Lender and reasonably related to the
Leases, the Secured Obligations. the Property or this Security Instrument
 
7.33 Renewals and Extensions. Any renewal or extension, modification or
amendment of the Note and/or this Security Instrument will not operate to
release, in any manner, the liability of Borrower or any other party liable for
the Loan and their respective successors in interest.
 
7.34 Incorporation. The terms and conditions of all the other Loan Documents are
hereby incorporated by reference.
 
[Signatures on Following Pages}].
 
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IN WITNESS WHEREOF, Borrower has executed this Security Instrument as of the day
and year first above written.
 
[ADD WITNESS IF REQUIRED.] BORROWER:

 
CALIFORNIA VALLEY ASSOCIATES, a New York limited partnership
 
By: Managers, Inc., a Pennsylvania corporation, General Partner
 
By:
 
[Missing Graphic Reference]
 

 
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Or Commonwealth
 
CERTIFICATION PURSUANT TO GOVERNMENT CODE SECTION 27361.7

 
I certify under penalty of perjury that the notary seal on the document to which
this statement is attached reads as follows:
 

 
Name ofNotary: Commission Number:
NancyJo Mosser 00037817
Date Commission Expires
October 27, 2005
County where bond is filed:
N/A
Manufacturer/Vendor Number.
N/A
Place of Execution:
Volusia County, FL
Date:
March 8, 2005

Name ofNotary: Commission Number:
NancyJo Mosser 00037817
Date Commission Expires
October 27, 2005
County where bond is filed:
N/A
Manufacturer/Vendor Number.
N/A
Place of Execution:
Volusia County, FL
Date:
March 8, 2005

March 22, 2005
Date
 
[Missing Graphic Reference]
 
Place of Execution: Margaret J. Craft San Diego, California Type or Print Name
 
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EXHIBIT A LEGAL DESCRIPTION OF PROPERTY
The Property is located in San Bernardino County, California, and is legally
described as follows:
 
All that certain real property situated In the County of San Bernardino, State
of California, described as follows:
 
Parcel I, 2, 3, 5, 6, 7 and 8 of Parcel Map No. 6163, in the Town of Yucca
Valley, County of San Bernardino, Stale of California, as per plat recorded in
Book 60 of Parcel Maps, Pages 57 through 62 inclusive records of said County.
 
EXCEPTING from Parcels 5 and 6 those portions conveyed to San Bernardino County
Flood Control Distrid by deed recorded March 5, 1981 as Instrument No.
81-047682, Official Records of said County.
 
Together with those non exclusive easements for ingress, egress, automobile
parking, public utilities, pedestrian movement, loading and unloading, over,
across, through and under the 'Common Area" as said Common Area is defined in
that certain Declaration of Establishment of Protective Covenants, Conditions
and Restrictions and Grants of Easements dated October 29, 1979 and recorded on
November 1,1979, In Book 9805, Page 112, of Official Records and as such Common
Area is shown on Exhibit ·C" attached thereto.
 
And together with those non exclusive easements for Ingress, egress, pedestrian
walkways and vehicular parking over and across the Common Area of Lots 66 and 67
of Tract No. 4856, In the County of San Bernardino, State of California, as per
map recorded in Book 70 of Maps, Pages 94 thru 97 inclusive in the office of the
County Recorder of said County as "Exed" on a map attached to Exhibit ·C" in
that certain instrument entitled 'Reciprocal Easement Agreement' and recorded
July 13, 1979 in Book 9727, Page 344.
 
And together with those non-exclusive easements for driveways, sidewalks and
walkways over the Common Areas of Parcel No. 1 of Parcel Map No. 5947, in the
County of San Bernardino, State of California, as per map recorded in Book 56 of
Parcel Maps, Pages 57 and 58, records of said County, and a 10 foot wide utility
easement over the Northerly 10 feet of said Parcel No.1 as contained in that
certain Mutual Parking and Access Agreement recorded on February 17, 1981 as
Instrument No. 81­033496, Official Records of said County.
 
Excepting therefrom that portion of said land, as shown in Partial Reconveyance
recorded May 9, 1996 as Instrument No. 19960163747 of Official Records, and more
particularly descr1bed as follows:
 
Parcel B of Parcel Map 6163, in the Town of Yucca Valley, County of San
Bernardino, State of California, as per map recorded in Book 60. Page(s) 57
through 62, Inclusive of Parcel Maps, in the office of the County Recorder of
said County.
 
Together with those non exclusive easements for ingress, egress, automobile
parking, utilities, pedestrian movement, loading and unloading, over, across,
through and under the "Common Area" as said Common Area is defined in that
certain Declaration Establishment of Protection Covenants, Conditions and
Restrictions and Grants of Easements dated October 29, 1979, and recorded on
November 1, 1979, in Book 9805, Page(s) 112, Official Records and as such Common
Area is shown on Exhibit "C”: attached thereto.
 
And together with those non exclusive easements for ingress, egress, pedestrian
walkways and vehicular palll:ing over and across the Common Area of Lots 66 and
67 of Tract 4856, in the San Bernardino, State of California, as per map
recorded in Book 70, Page(s) 94 thru 97, of Maps, inclusive in the office of the
County Recorder of said Counly as "Exed" on a map attached 10 Exhibit "C· in
that
 
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v •• ..
certain instrument entitled "reciprocal easement agreement" and recorded July
13, 1979, in Book 9727, Page 344, Official Records.
 
And together with those non-exclusive easements for driveways, sidewalks, and
walkways over the Common Areas of Parcel 1 of Parcel Map 5947, In the County of
San Bernardino, State of California, as per map recorded In Book 56 of Parcel
Maps, Pege(s) 57 and 58, Records of said County, and a
10.00 foot wide utility easement over the Northerly 10.00 feet of said Parcel 1
as contained in that certain mutual parking and access agreement recorded on
February 17, 1981, as Instrument No. 81­033496, Official Records.
 
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