EX-10.10 PROMISSORY NOTE



 





Exhibit
10.10

 





MERS MIN: 8000101-0000004477-5




LOAN AGREEMENT




Dated as of January 18, 2007




Between




COLE AS KATY TX, LP,

as Borrower




and




BEAR STEARNS COMMERCIAL MORTGAGE, INC.,

as Lender




 





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
	 	 	1	 
	Section 1.1 Definitions
	 	 	1	 
	Section 1.2 Principles of Construction
	 	 	24	 
	II. GENERAL TERMS
	 	 	24	 
	Section 2.1 Loan Commitment; Disbursement to Borrower
	 	 	24	 
	Section 2.2 Interest Rate
	 	 	25	 
	Section 2.3 Loan Payment
	 	 	26	 
	Section 2.4 Prepayments
	 	 	27	 
	Section 2.5 Defeasance
	 	 	28	 
	Section 2.6 Release of Property
	 	 	31	 
	Section 2.7 Cash Management
	 	 	32	 
	Section 2.8 Release of Out Parcel
	 	 	34	 
	III. CONDITIONS PRECEDENT
	 	 	34	 
	Section 3.1 Conditions Precedent to Closing
	 	 	34	 
	IV. REPRESENTATIONS AND WARRANTIES
	 	 	38	 
	Section 4.1 Borrower Representations
	 	 	38	 
	Section 4.2 Survival of Representations
	 	 	46	 
	V. BORROWER COVENANTS
	 	 	46	 
	Section 5.1 Affirmative Covenants
	 	 	46	 
	Section 5.2 Negative Covenants
	 	 	55	 
	VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS
	 	 	61	 
	Section 6.1 Insurance
	 	 	61	 
	Section 6.2 Casualty
	 	 	65	 
	Section 6.3 Condemnation
	 	 	65	 
	Section 6.4 Restoration
	 	 	66	 
	VII. RESERVE FUNDS
	 	 	70	 
	Section 7.1 Required Repairs
	 	 	70	 
	Section 7.2 Tax and Insurance Escrow Fund
	 	 	71	 
	Section 7.3 Replacements and Replacement Reserve
	 	 	72	 
	Section 7.4 Excess Cash Reserve Fund
	 	 	76	 
	Section 7.5 Reserve Funds, Generally
	 	 	77	 
	VIII. DEFAULTS
	 	 	78	 
	Section 8.1 Event of Default
	 	 	78	 
	Section 8.2 Remedies
	 	 	80	 
	Section 8.3 Remedies Cumulative; Waivers
	 	 	81	 
	IX. SPECIAL PROVISIONS
	 	 	81	 
	Section 9.1 Securitization
	 	 	81	 
	Section 9.2 Securitization
	 	 	82	 
	Section 9.3 Exculpation
	 	 	83	 
	Section 9.4 Matters Concerning Manager
	 	 	85	 
	Section 9.5 Servicer
	 	 	85	 
	Section 9.6 Splitting the Loan
	 	 	85	 
	X. MISCELLANEOUS
	 	 	86	 
	Section 10.1 Survival
	 	 	86	 






 









 






	 	 	 	 	 
	 	 	Page
	Section 10.2 Lender’s Discretion
	 	 	86	 
	Section 10.3 Governing Law
	 	 	86	 
	Section 10.4 Modification, Waiver in Writing
	 	 	86	 
	Section 10.5 Delay Not a Waiver
	 	 	86	 
	Section 10.6 Notices
	 	 	87	 
	Section 10.7 Trial by Jury
	 	 	87	 
	Section 10.8 Headings
	 	 	88	 
	Section 10.9 Severability
	 	 	88	 
	Section 10.10 Schedules Incorporated
	 	 	90	 
	Section 10.11 Offsets, Counterclaims and Defenses
	 	 	90	 
	Section 10.12 No Joint Venture or Partnership; No Third Party Beneficiaries
	 	 	90	 
	Section 10.13 Publicity
	 	 	90	 
	Section 10.14 Waiver of Marshalling of Assets
	 	 	91	 
	Section 10.15 Waiver of Counterclaim
	 	 	91	 
	Section 10.16 Conflict; Construction of Documents; Reliance
	 	 	91	 
	Section 10.17 Brokers and Financial Advisors
	 	 	91	 
	Section 10.18 Prior Agreements
	 	 	91	 
	Section 10.19 Joint and Several Liability
	 	 	92	 
	Section 10.20 Certain Additional Rights of Lender (VCOC)
	 	 	92	 






 









 






SCHEDULES




	 	 	 	 	 
	Schedule I

	 	–
	 	Rent Roll
	Schedule II

	 	–
	 	Required Repairs — Deadlines for Completion
	Schedule III

	 	–
	 	Intentionally Deleted
	Schedule IV

	 	–
	 	Tenant Direction Letter
	Schedule V

	 	–
	 	Identified Affiliates
	Schedule VI

	 	–
	 	Out Parcel Release Conditions







 









 








LOAN AGREEMENT




     THIS LOAN AGREEMENT, dated as of January 18, 2007 (as amended, restated, replaced,
supplemented or otherwise modified from time to time, this “Agreement”), between BEAR STEARNS
COMMERCIAL MORTGAGE, INC., a New York corporation, having an address at 383 Madison Avenue, New
York, New York 10179 (“Lender”) and COLE AS KATY TX, LP, a Delaware limited partnership, having its
principal place of business at 2555 E. Camelback Road, Ste. 400, Phoenix, Arizona 85016
(“Borrower”).



W I T N E S S E T H:




     WHEREAS, Borrower desires to obtain the Loan (as hereinafter defined) from Lender; and



     WHEREAS, Lender is willing to make the Loan to Borrower, subject to and in accordance with the
terms of this Agreement and the other Loan Documents (as hereinafter defined).



     NOW THEREFORE, in consideration of the making of the Loan by Lender and the covenants,
agreements, representations and warranties set forth in this Agreement, the parties hereto hereby
covenant, agree, represent and warrant as follows:



     I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION. 



     Section 1.1 Definitions.



     For all purposes of this Agreement, except as otherwise expressly required or unless the
context clearly indicates a contrary intent:



     “Academy” shall mean Academy, LTD., a Texas limited partnership.



     “Academy Lease” shall mean that certain Lease, dated January 18, 2007, between Borrower, as
landlord, and Academy, as tenant, as the same has been previously amended and may be further
amended, substituted or replaced (but only to the extent permitted under this Agreement).



     “Accrued Interest” shall have the meaning set forth in Section 2.3.2 hereof.



     “actual knowledge” shall mean, with respect to Borrower, the conscious awareness of facts or
other information by Borrower after inquiry reasonable for an institutional owner of properties
similar to the Property.



     “Additional Insolvency Opinion” shall mean any subsequent Insolvency Opinion.



     “Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, is in
Control of, is Controlled by or is under common Control with such Person.



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     “Affiliated Loans” shall mean a loan made by Lender to an Affiliate of Borrower or Guarantor.



     “Affiliated Manager” shall mean any Manager that is an Affiliate of Borrower or Guarantor.



     “Agent” shall have the meaning set forth in Section 2.7.2 hereof.



     “Agreement” shall mean this Loan Agreement, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.



     “ALTA” shall mean American Land Title Association, or any successor thereto.



     “Annual Budget” shall mean the operating budget, including all planned Capital Expenditures,
for the Property prepared by Borrower in accordance with Section 5.1.11 hereof for the
applicable Fiscal Year or other period.



     “Anticipated Repayment Date” shall mean February 1, 2017.



     “Applicable Interest Rate” shall mean (i) prior to the Anticipated Repayment Date, the Initial
Interest Rate and (ii) on and after the Anticipated Repayment Date, the Revised Interest Rate.



     “Approved Annual Budget” shall have the meaning set forth in Section 5.1.11 hereof.



     “Assignment of Leases” shall mean that certain first priority Assignment of Leases and Rents,
dated as of the date hereof, from Borrower, as assignor, to Mortgage Electronic Registration
Systems, Inc., as nominee of Lender, as assignee, assigning to Lender all of Borrower’s interest in
and to the Leases and Rents of the Property as security for the Loan, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.



     “Award” shall mean any compensation paid or payable to Borrower by any Governmental Authority
in connection with a Condemnation in respect of all or any part of the Property.



     “Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary
petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b)
the filing of an involuntary petition against such Person under the Bankruptcy Code or any other
Federal or state bankruptcy or insolvency law, in which such Person colludes with, or otherwise
assists such Person, or cause to be solicited petitioning creditors for any involuntary petition
against such Person; (c) such Person filing an answer consenting to or otherwise acquiescing in or
joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code
or any other Federal or state bankruptcy or insolvency law; (d) such Person consenting to or
acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee,
or examiner for such Person or any portion of the Property; (e) such Person making an assignment
for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency
or inability to pay its debts as they become due.



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     “Bankruptcy Code” shall mean Title 11 of the United States Code, 11 U.S.C. §101, et
seq., as the same may be amended from time to time, and any successor statute or statutes
and all rules and regulations from time to time promulgated thereunder, and any comparable foreign
laws relating to bankruptcy, insolvency or creditors’ rights or any other Federal or state
bankruptcy or insolvency law.



     “Basic Carrying Costs” shall mean the sum of the following costs associated with the Property
for the relevant Fiscal Year or payment period: (a) Taxes, (b) Other Charges and (c) Insurance
Premiums.



     “Borrower” shall have the meaning set forth in the introductory paragraph hereto, together
with its successors and permitted assigns.



     “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which
national banks in New York, New York, or the place of business of any Servicer are not open for
business.



     “Capital Expenditures” shall mean, for any period, the amount expended for items capitalized
under GAAP (or another basis of accounting acceptable to Lender and consistently applied)(including
expenditures for building improvements or major repairs, leasing commissions and tenant
improvements).



     “Cash Management Account” shall have the meaning set forth in Section 2.7.2 hereof.



     “Cash Management Termination Event” shall mean (a) in the event the Cash Management Trigger is
caused by (ii) of the Cash Management Trigger definition, Borrower has cured such Event of Default
to the reasonable satisfaction of Lender, or (b) in the event the Cash Management Trigger is caused
by (iv) of the Cash Management Trigger definition, (x) if the Tenant resumes operating its business
at the Property or (y) Lender’s receipt of (a) one or more new leases entered into in accordance
with the terms of this Agreement (the “New Leases”) with one or more tenants reasonably acceptable
to Lender (the “New Tenants”) pursuant to which the New Tenants have leased space for a term which
is at least as long as the remaining term of the Academy Lease if the Academy Lease was then in
effect, on similar terms and at a similar rent as provided for in the Academy Lease and (b) tenant
estoppels reasonably acceptable to Lender from the New Tenants confirming that (i) the New Leases
are in full force and effect, (ii) to the New Tenants’ knowledge, neither Borrower nor the New
Tenants are in default under the New Leases, (iii) the New Tenants are in occupancy of
substantially all of the premises demised under the New Leases, and (iv) the New Tenants are open
for business in substantially all of the premises demised under the New Leases and are paying rent
without any right to offset or credit, provided, however, there shall not be more than two (2) Cash
Management Termination Events during the term of the Loan.



     “Cash Management Trigger” shall mean (i) if the Loan has not been repaid on or before the
Payment Date that is one (1) calendar month prior to the Anticipated Repayment Date (ii) an Event
of Default has occurred, (iii) the bankruptcy or insolvency of Borrower, the Property Manager or
Tenant, or (iv) Tenant ceases to operate its business at the Property.



     “Casualty” shall have the meaning set forth in Section 6.2 hereof.



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     “Casualty Consultant” shall have the meaning set forth in Section 6.4(b)(iii) hereof.



     “Casualty Retainage” shall have the meaning set forth in Section 6.4(b)(iv) hereof.



     “Clearing Account” shall have the meaning set forth in Section 2.7.1 hereof.



     “Clearing Bank” shall have the meaning set forth in Section 2.7.1 hereof.



     “Clearing Bank Agreement” shall have the meaning set forth in Section 2.7.1 hereof.



     “Closing Date” shall mean the date of the funding of the Loan.



     “Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended
from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury
regulations issued pursuant thereto in temporary or final form.



     “Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the
result or in lieu or in anticipation of the exercise of the right of condemnation or eminent
domain, of all or any part of the Property, or any interest therein or right accruing thereto,
including any right of access thereto or any change of grade affecting the Property or any part
thereof.



     “Condemnation Proceeds” shall have the meaning set forth in Section 6.4(b).



     “Consent Regarding Management Agreement” shall mean that certain Consent and Agreement, dated
as of the date hereof, among Lender, Borrower and Manager, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.



     “Control” shall mean the possession, directly or indirectly, of the power to direct or cause
the direction of management, policies or activities of a Person, whether through ownership of
voting securities, by contract or otherwise. “Controlled” and “Controlling” shall have correlative
meanings.



     “Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this
Agreement and the Note together with all interest accrued and unpaid thereon and all other sums
(including the Defeasance Payment Amount, any Yield Maintenance Premium and any Yield Maintenance
Default Premium) due to Lender in respect of the Loan under the Note, this Agreement, the Mortgage
or any other Loan Document.



     “Debt Service” shall mean, with respect to any particular period of time, scheduled principal
and interest payments due under this Agreement and the Note.



     “Debt Service Coverage Ratio” shall mean a ratio for the applicable period in which:



          (a) the numerator is the Net Operating Income (excluding interest on credit accounts and using
annualized operating expenses for any recurring expenses not paid monthly (e.g., Taxes and
Insurance Premiums)) for such period as set forth in the statements required hereunder, without
deduction for (i) actual management fees incurred in connection with the




4









 







operation of the Property, or (ii) amounts paid to the Reserve Funds, less (A) management fees
equal to the greater of (1) assumed management fees of three percent (3.0%) of Gross Income from
Operations or (2) the actual management fees incurred, and (B) assumed annual Replacement Reserve
Fund contributions equal to $0.10 per square foot of gross leasable area at the Property and (C)
Rollover Reserve Fund contributions equal to $0.16 per square foot of gross leaseable area; and




          (b) the denominator is the aggregate amount of principal and interest due and payable on the
then outstanding principal balance of the Note for such period.




     “Debt Service Coverage Ratio Determination Date” shall mean the date that Lender determines
the Debt Service Coverage Ratio in accordance with this Agreement.



     “Default” shall mean the occurrence of any event hereunder or under any other Loan Document
which, but for the giving of notice or passage of time, or both, would be an Event of Default.



     “Default Rate” shall mean, with respect to the Loan, a rate per annum equal to the lesser of
(a) the maximum rate permitted by applicable law or (b) four percent (4%) above the Applicable
Interest Rate.



     “Defeasance Date” shall have the meaning set forth in Section 2.5.1(a)(i) hereof.



     “Defeasance Deposit” shall mean an amount equal to the remaining principal amount of the Note,
the Defeasance Payment Amount, and any costs and expenses incurred or to be incurred in the
purchase of U.S. Obligations necessary to meet the Scheduled Defeasance Payments and any revenue,
documentary stamp or intangible taxes or any other tax or charge due in connection with the
transfer of the Note or otherwise required to accomplish the agreements of Sections 2.4 and
2.5 hereof (including, without limitation, any fees and expenses of accountants, attorneys
and the Rating Agencies incurred in connection therewith).



     “Defeasance Event” shall have the meaning set forth in Section 2.5.1(a) hereof.



     “Defeasance Expiration Date” shall mean the date that is two (2) years from the “startup day”
within the meaning of Section 860G(a)(9) of the Code for the REMIC Trust.



     “Defeasance Payment Amount” shall mean the amount (if any) which, when added to the remaining
principal amount of the Note, will be sufficient to purchase U.S. Obligations providing the
required Scheduled Defeasance Payments.



     “Disclosure Document” shall have the meaning set forth in Section 9.2 hereof.



     “Eligible Account” shall mean a separate and identifiable account from all other funds held by
the holding institution that is either (a) an account or accounts maintained with a federal or
state-chartered depository institution or trust company which complies with the definition of
Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or
state chartered depository institution or trust company acting in its fiduciary capacity which, in
the case of a state chartered depository institution or trust company, is subject to regulations



5









 







substantially similar to 12 C.F.R. §9.10(b), having in either case a combined capital and
surplus of at least Fifty Million and 00/100 Dollars ($50,000,000.00) and subject to supervision or
examination by federal and state authority. An Eligible Account will not be evidenced by a
certificate of deposit, passbook or other instrument.



     “Eligible Institution” shall mean a depository institution or trust company insured by the
Federal Deposit Insurance Corporation, the short term unsecured debt obligations or commercial
paper of which are rated at least “A-1+” by S&P, “P-1” by Moody’s and “F-1+” by Fitch in the case
of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in
which funds are held for more than thirty (30) days, the long-term unsecured debt obligations of
which are rated at least “AA” by Fitch and S&P and “Aa2” by Moody’s).



     “Embargoed Person” shall have the meaning set forth in Section 5.1.23 hereof.



     “Environmental Indemnity” shall mean that certain Environmental Indemnity Agreement, dated as
of the date hereof, executed by Borrower in connection with the Loan for the benefit of Lender, as
the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.



     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the regulations promulgated and the rulings issued thereunder.



     “Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.



     “Excess Cash Flow” shall have the meaning set forth in Section 2.7.2 hereof.



     “Excess Cash Reserve Account” shall have the meaning set forth in Section 7.4 hereof.



     “Excess Cash Reserve Fund” shall have the meaning set forth in Section 7.4 hereof.



     “Exchange Act” shall have the meaning set forth in Section 9.2 hereof.



     “Extraordinary Expense” shall have the meaning set forth in Section 5.1.11 hereof.



     “Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on
December 31 during each year of the term of the Loan.



     “Fitch” shall mean Fitch, Inc.



     “GAAP” shall mean generally accepted accounting principles in the United States of America as
of the date of the applicable financial report.



     “Governmental Authority” shall mean any court, board, agency, commission, office or other
authority of any nature whatsoever for any governmental unit (foreign, federal, state, county,
district, municipal, city or otherwise) whether now or hereafter in existence.



     “Gross Income from Operations” shall mean, for any period, all income, computed in accordance
with the GAAP (or another basis of accounting acceptable to Lender and consistently



6









 







applied), derived from the ownership and operation of the Property from whatever source during
such period, including, but not limited to, Rents from Tenants in occupancy, open for business and
paying full contractual rent without right of offset or credit, utility charges, escalations,
forfeited security deposits, interest on credit accounts, service fees or charges, license fees,
parking fees, rent concessions or credits, business interruption or other loss of income or rental
insurance proceeds or other required pass-throughs and interest on Reserve Accounts, if any, but
excluding Rents from month-to-month Tenants or Tenants that are included in any Bankruptcy Action,
sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any
Governmental Authority, refunds and uncollectible accounts, sales of furniture, fixtures and
equipment, Insurance Proceeds (other than business interruption or other loss of income or rental
insurance), Awards, unforfeited security deposits, utility and other similar deposits and any
disbursements to Borrower from the Reserve Funds, if any. Gross income shall not be diminished as
a result of the Mortgage or the creation of any intervening estate or interest in the Property or
any part thereof.



     “Guarantor” shall mean Cole Operating Partnership II, LP, a Delaware limited partnership.



     “Identified Affiliates” shall have the meaning set forth on Schedule V hereof.



     “Improvements” shall have the meaning set forth in the granting clause of the Mortgage.



     “Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such
date of (a) all indebtedness or liability of such Person (including, without limitation, amounts
for borrowed money and indebtedness in the form of mezzanine debt or preferred equity); (b)
obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations
for the deferred purchase price of property or services (including trade obligations); (d)
obligations under letters of credit; (e) obligations under acceptance facilities; (f) all
guaranties, endorsements (other than for collection or deposit in the ordinary course of business)
and other contingent obligations to purchase, to provide funds for payment, to supply funds, to
invest in any Person or entity, or otherwise to assure a creditor against loss; and (g) obligations
secured by any Liens, whether or not the obligations have been assumed (other than the Permitted
Encumbrances).



     “Indemnity” shall mean that certain Indemnity Agreement, dated as of the date hereof, executed
and delivered by Borrower and Guarantor in connection with the Loan to and for the benefit of
Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.



     “Independent Director” shall mean a director of a corporation or limited liability company who
is not at the time of initial appointment, or at any time while serving as an independent director
of such an entity, and has not been at any time during the preceding five (5) years: (a) a
stockholder, director (with the exception of serving as the independent director), officer,
employee, partner, attorney or counsel of the Borrower or any Affiliate of either of them; (b) a
customer, supplier or other person who derives any of its purchases or revenues from its activities
with the Borrower or any Affiliate of either of them; (c) a Person controlling or under common
control with any such stockholder, director, officer, partner, customer, supplier or other



7









 







Person; or (d) a member of the immediate family of any such stockholder, director, officer,
employee, partner, customer, supplier or other person. As used in this definition, the term
“control” means the possession, directly or indirectly, of the power to direct or cause the
direction of management, policies or activities of a Person, whether through ownership of voting
securities, by contract or otherwise.



     “Independent Manager” shall mean a manager of a limited liability company who is not at the
time of initial appointment, or at any time while serving as an independent manager of such an
entity, and has not been at any time during the preceding five (5) years: (a) a stockholder,
director (with the exception of serving as an independent director), manager (with the exception of
serving as an independent manager), officer, employee, partner, attorney or counsel of the Borrower
or any Affiliate of either of them; (b) a customer, supplier or other person who derives any of its
purchases or revenues from its activities with the Borrower or any Affiliate of either of them; (c)
a Person controlling or under common control with any such stockholder, director, manager, officer,
partner, customer, supplier or other Person; or (d) a member of the immediate family of any such
stockholder, director, manager, officer, employee, partner, customer, supplier or other person. As
used in this definition, the term “control” means the possession, directly or indirectly, of the
power to direct or cause the direction of management, policies or activities of a Person, whether
through ownership of voting securities, by contract or otherwise.



     “Initial Interest Rate” shall mean a rate of five and 606/1000 percent (5.6060%) per annum.



     “Insolvency Opinion” shall mean a non-consolidation opinion letter to be delivered by
Greenberg Traurig, LLP in connection with the Loan and pursuant to the terms of this Agreement.



     “Insurance Premiums” shall have the meaning set forth in Section 6.1(b) hereof.



     “Insurance Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.



     “Lease” shall mean any lease, sublease or subsublease, letting, license, concession or other
agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any
Person is granted a possessory interest in, or right to use or occupy all or any portion of any
space in the Property, and every modification, amendment or other agreement relating to such lease,
sublease, subsublease, or other agreement entered into in connection with such lease, sublease,
subsublease, or other agreement and every guarantee of the performance and observance of the
covenants, conditions and agreements to be performed and observed by the other party thereto.



     “Legal Requirements” shall mean, all federal, state, county, municipal and other governmental
statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities affecting the Property or any part thereof, or the construction, use,
alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in
force, and all permits, licenses and authorizations and regulations relating thereto, and all
covenants, agreements, restrictions and encumbrances contained in any instruments,



8









 







either of record or known to Borrower, at any time in force affecting the Property or any part
thereof, including, without limitation, any which may (a) require repairs, modifications or
alterations in or to the Property or any part thereof, or (b) in any way limit the use and
enjoyment thereof.



     “Lender” shall have the meaning set forth in the introductory paragraph hereto, together with
its successors and assigns.



     “Licenses” shall have the meaning set forth in Section 4.1.22 hereof.



     “Lien” shall mean, any mortgage, deed of trust, lien, pledge, hypothecation, assignment for
security, security interest, or any other encumbrance, charge or transfer of, on or affecting
Borrower, the Property, any portion thereof or any interest therein, including, without limitation,
any conditional sale or other title retention agreement, any financing lease having substantially
the same economic effect as any of the foregoing, the filing of any financing statement, and
mechanic’s, materialmen’s and other similar liens and encumbrances.



     “Loan” shall mean the loan made by Lender to Borrower pursuant to this Agreement.



     “Loan Documents” shall mean, collectively, this Agreement, the Note, the Mortgage, the
Assignment of Leases, the Environmental Indemnity, the Consent Regarding Management Agreement, the
Indemnity, and all other documents executed and/or delivered in connection with the Loan.



     “Management Agreement” shall mean the management agreement entered into among Manager, Cole
Operating Partnership II, L.P., and Cole Credit Property Trust II, Inc. pursuant to which Manager
is to provide management and other services with respect to the Property and certain other
properties, or, if the context requires, the Replacement Management Agreement.



     “Manager” shall mean Cole Realty Advisors, Inc. (f/k/a Fund Realty Advisors, Inc.) an Arizona
corporation, or, if the context requires, a Qualified Manager who is managing the Property in
accordance with the terms and provisions of this Agreement pursuant to a Replacement Management
Agreement.



     “Material Action” means, with respect to any Person, to file any insolvency or reorganization
case or proceeding, to institute proceedings to have such Person be adjudicated bankrupt or
insolvent, to institute proceedings under any applicable insolvency law, to seek any relief under
any law relating to relief from debts or the protection of debtors, to consent to the filing or
institution of bankruptcy or insolvency proceedings against such Person, to file a petition
seeking, or consent to, reorganization or relief with respect to such Person under any applicable
federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or
for such Person or a substantial part of its property, to make any assignment for the benefit of
creditors of such Person, to admit in writing such Person’s inability to pay its debts generally as
they become due, or to take action in furtherance of any of the foregoing.



9









 





     “Maturity Date” shall mean February 1, 2037, or such other date on which the final payment of
principal of the Note becomes due and payable as therein or herein provided, whether at such stated
maturity date, by declaration of acceleration, or otherwise.



     “Maximum Legal Rate” shall mean the maximum nonusurious interest rate, if any, that at any
time or from time to time may be contracted for, taken, reserved, charged or received on the
indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under
the laws of such state or states whose laws are held by any court of competent jurisdiction to
govern the interest rate provisions of the Loan.



     “Monthly Debt Service Payment Amount” shall mean a payment of interest only at the Initial
Interest Rate for the calendar month preceding the related Payment Date.



     “Moody’s” shall mean Moody’s Investors Service, Inc.



     “Mortgage” shall mean that certain first priority Deed of Trust, Security Agreement and
Fixture Filing, dated the date hereof, executed and delivered by Borrower to Daniel S. Huffenus, as
trustee for the benefit of Mortgage Electronic Registration Systems, Inc., as nominee of Lender as
security for the Loan and encumbering the Property, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.



     “Net Operating Income” shall mean, for any period, the amount obtained by subtracting
Operating Expenses for such period from Gross Income from Operations for such period.



     “Net Proceeds” shall have the meaning set forth in Section 6.4(b) hereof.



     “Net Proceeds Deficiency” shall have the meaning set forth in Section 6.4(b)(vi)
hereof.



     “Note” shall mean that certain Promissory Note, dated the date hereof, in the principal amount
of SIXTY EIGHT MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($68,250,000.00), made by
Borrower in favor of Lender, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time to time.



     “Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower which is
signed by an authorized officer of the general partner or managing member of Borrower.



     “Operating Expenses” shall mean the total of all expenditures incurred by or on behalf of
Borrower, computed in accordance with the GAAP (or another basis of accounting acceptable to Lender
and consistently applied), of whatever kind relating to the operation, maintenance and management
of the Property that are incurred on a regular monthly or other periodic basis, including without
limitation, utilities, ordinary repairs and maintenance, insurance, license fees, property taxes
and assessments, advertising expenses, management fees, payroll and related taxes, computer
processing charges, operational equipment or other lease payments as approved by Lender, and other
similar costs, but excluding depreciation, Debt Service, Capital Expenditures (including any
reserves therefore maintained by Borrower but not required hereunder), contributions to the Reserve
Funds, tenant expenditures related to the operation and maintenance of the Property to the extent
such items are the responsibility of Tenant under its Lease.



10









 





     “Other Charges” shall mean all ground rents, maintenance charges, impositions other than
Taxes, and any other charges, including, without limitation, vault charges and license fees for the
use of vaults, chutes and similar areas adjoining the Property, now or hereafter levied or assessed
or imposed against the Property or any part thereof.



     “Other Obligations” shall have the meaning as set forth in the Mortgage.



     “Out Parcel” shall have the meaning set forth in Section 2.8 hereof.



     “Out Parcel Release Amount” shall mean for Tract 3 and Tract 4 the amount set forth on
Schedule VII hereto.



     “Out Parcel Release Conditions” shall have the meaning set forth on Schedule VI hereof.



     “Payment Date” shall mean the first (1st) day of each calendar month during the term of the
Loan or, if such day is not a Business Day, the immediately preceding Business Day.



     “Permitted Encumbrances” shall mean, with respect to the Property, collectively, (a) the Liens
and security interests created by the Loan Documents, (b) all Liens, encumbrances and other matters
disclosed in the Title Insurance Policy, (c) Liens, if any, for Taxes imposed by any Governmental
Authority not yet due or delinquent, (d) the Leases existing as of the date hereof and any Leases
entered into after the date hereof in accordance with Section 5.1.20, and (e) such other title and
survey exceptions as Lender has approved or may approve in writing in Lender’s sole discretion,
which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use
of the Property (as currently used) or Borrower ’s ability to repay the Loan.



     “Permitted Investments” shall mean any one or more of the following obligations or securities
acquired at a purchase price of not greater than par, including those issued by Servicer, the
trustee under any Securitization or any of their respective Affiliates, payable on demand or having
a maturity date not later than the Business Day immediately prior to the first Payment Date
following the date of acquiring such investment and meeting one of the appropriate standards set
forth below:




     (i) obligations of, or obligations fully guaranteed as to payment of principal and
interest by, the United States or any agency or instrumentality thereof provided such
obligations are backed by the full faith and credit of the United States of America
including, without limitation, obligations of: the U.S. Treasury (all direct or fully
guaranteed obligations), the Farmers Home Administration (certificates of beneficial
ownership), the General Services Administration (participation certificates), the U.S.
Maritime Administration (guaranteed Title XI financing), the Small Business Administration
(guaranteed participation certificates and guaranteed pool certificates), the U.S.
Department of Housing and Urban Development (local authority bonds) and the Washington
Metropolitan Area Transit Authority (guaranteed transit bonds); provided, however, that the
investments described in this clause must (A) have a predetermined fixed dollar of principal
due at maturity that cannot vary or change, (B) if rated by S&P, must not have an “r”
highlighter affixed to their rating, (C) if such investments have a



11









 







variable rate of interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with that index, and (D)
such investments must not be subject to liquidation prior to their maturity;




     (ii) Federal Housing Administration debentures;




     (iii) obligations of the following United States government sponsored agencies: Federal
Home Loan Mortgage Corp. (debt obligations), the Farm Credit System (consolidated systemwide
bonds and notes), the Federal Home Loan Banks (consolidated debt obligations), the Federal
National Mortgage Association (debt obligations), the Student Loan Marketing Association
(debt obligations), the Financing Corp. (debt obligations), and the Resolution Funding Corp.
(debt obligations); provided, however, that the investments described in this clause must
(A) have a predetermined fixed dollar of principal due at maturity that cannot vary or
change, (B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C)
if such investments have a variable rate of interest, such interest rate must be tied to a
single interest rate index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to liquidation prior to their
maturity;




     (iv) federal funds, unsecured certificates of deposit, time deposits, bankers’
acceptances and repurchase agreements with maturities of not more than 365 days of any bank,
the short term obligations of which at all times are rated in the highest short term rating
category by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least
one Rating Agency in the highest short term rating category and otherwise acceptable to each
other Rating Agency, as confirmed in writing that such investment would not, in and of
itself, result in a downgrade, qualification or withdrawal of the initial, or, if higher,
then current ratings assigned to the Securities); provided, however, that the investments
described in this clause must (A) have a predetermined fixed dollar of principal due at
maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter
affixed to their rating, (C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a fixed spread (if any) and
must move proportionately with that index, and (D) such investments must not be subject to
liquidation prior to their maturity;




     (v) fully Federal Deposit Insurance Corporation-insured demand and time deposits in, or
certificates of deposit of, or bankers’ acceptances issued by, any bank or trust company,
savings and loan association or savings bank, the short term obligations of which at all
times are rated in the highest short term rating category by each Rating Agency (or, if not
rated by all Rating Agencies, rated by at least one Rating Agency in the highest short term
rating category and otherwise acceptable to each other Rating Agency, as confirmed in
writing that such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial, or, if higher, then current ratings assigned to
the Securities); provided, however, that the investments described in this clause must (A)
have a predetermined fixed dollar of principal due at maturity that cannot vary or change,
(B) if rated by S&P, must not have an “r” highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate must be tied to a single
interest rate index plus a fixed spread (if any) and must move



12









 







proportionately with that index, and (D) such investments must not be subject to
liquidation prior to their maturity;




     (vi) debt obligations with maturities of not more than 365 days and at all times rated
by each Rating Agency (or, if not rated by all Rating Agencies, rated by at least one Rating
Agency and otherwise acceptable to each other Rating Agency, as confirmed in writing that
such investment would not, in and of itself, result in a downgrade, qualification or
withdrawal of the initial, or, if higher, then current ratings assigned to the Securities)
in its highest long-term unsecured rating category; provided, however, that the investments
described in this clause must (A) have a predetermined fixed dollar of principal due at
maturity that cannot vary or change, (B) if rated by S&P, must not have an “r” highlighter
affixed to their rating, (C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a fixed spread (if any) and
must move proportionately with that index, and (D) such investments must not be subject to
liquidation prior to their maturity;




     (vii) commercial paper (including both non-interest-bearing discount obligations and
interest-bearing obligations payable on demand or on a specified date not more than one year
after the date of issuance thereof) with maturities of not more than 365 days and that at
all times is rated by each Rating Agency (or, if not rated by all Rating Agencies, rated by
at least one Rating Agency and otherwise acceptable to each other Rating Agency, as
confirmed in writing that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings
assigned to the Securities) in its highest short-term unsecured debt rating; provided,
however, that the investments described in this clause must (A) have a predetermined fixed
dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must
not have an “r” highlighter affixed to their rating, (C) if such investments have a variable
rate of interest, such interest rate must be tied to a single interest rate index plus a
fixed spread (if any) and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their maturity;




     (viii) units of taxable money market funds, which funds are regulated investment
companies, seek to maintain a constant net asset value per share and invest solely in
obligations backed by the full faith and credit of the United States, which funds have the
highest rating available from each Rating Agency (or, if not rated by all Rating Agencies,
rated by at least one Rating Agency and otherwise acceptable to each other Rating Agency, as
confirmed in writing that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the initial, or, if higher, then current ratings
assigned to the Securities) for money market funds; and




     (ix) any other security, obligation or investment which has been approved as a
Permitted Investment in writing by (a) Lender and (b) each Rating Agency, as evidenced by a
written confirmation that the designation of such security, obligation or investment as a
Permitted Investment will not, in and of itself, result in a downgrade, qualification or
withdrawal of the initial, or, if higher, then current ratings assigned to the Securities by
such Rating Agency;



13









 





     provided, however, that no obligation or security shall be a Permitted Investment if (A) such
obligation or security evidences a right to receive only interest payments or (B) the right to
receive principal and interest payments on such obligation or security are derived from an
underlying investment that provides a yield to maturity in excess of 120% of the yield to maturity
at par of such underlying investment.



     “Permitted Release Date” shall mean the date that is the fourth (4th) anniversary of the first
Payment Date.



     “Permitted Transfer” shall have the meaning set forth in Section 5.2.10(d) hereof.



     “Person” shall mean any individual, corporation, partnership, joint venture, limited liability
company, estate, trust, unincorporated association, any federal, state, county or municipal
government or any bureau, department or agency thereof and any fiduciary acting in such capacity on
behalf of any of the foregoing.



     “Personal Property” shall have the meaning set forth in the granting clause of the Mortgage.



     “Physical Conditions Report” shall mean that certain Property Conditions Report for Mortgage
Financing Purposes dated December 14, 2006 from IVI International, Inc.



     “Policies” shall have the meaning specified in Section 6.1(b) hereof.



     “Policy” shall have the meaning specified in Section 6.1(b) hereof.



     “Prepayment Rate” shall mean the bond equivalent yield (in the secondary market) on the United
States Treasury Security that as of the Prepayment Rate Determination Date has a remaining term to
maturity closest to, but not exceeding, the remaining term to the Anticipated Repayment Date as
most recently published in the “Treasury Bonds, Notes and Bills” section in The Wall Street Journal
as of such Prepayment Rate Determination Date. If more than one issue of United States Treasury
Securities has the remaining term to the Anticipated Repayment Date, the “Prepayment Rate” shall be
the yield on such United States Treasury Security most recently issued as of the Prepayment Rate
Determination Date. The rate so published shall control absent manifest error. If the publication
of the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall determine the
Prepayment Rate on the basis of “Statistical Release H.15 (519), Selected Interest Rates,” or any
successor publication, published by the Board of Governors of the Federal Reserve System, or on the
basis of such other publication or statistical guide as Lender may reasonably select.



     “Prepayment Rate Determination Date” shall mean the date which is five (5) Business Days prior
to the date that such prepayment shall be applied in accordance with the terms and provisions of
Section 2.4.1 hereof.



     “Property” shall mean the parcel of real property, the Improvements thereon and all personal
property owned by Borrower and encumbered by the Mortgage, together with all rights pertaining to
such property and Improvements, as more particularly described in the granting clauses of the
Mortgage and referred to therein as the “Property”.



14









 





     “Provided Information” shall mean any and all financial and other information provided at any
time by, or on behalf of, Borrower, Guarantor and/or Manager.



     “Qualified Manager” shall mean either (a) Manager; (b) [reserved]; or (c) in the reasonable
judgment of Lender, a reputable and experienced management organization (which may be an Affiliate
of Borrower) possessing experience in managing properties similar in size, scope, use and value as
the Property, provided, that Borrower shall have obtained prior written confirmation from the
applicable Rating Agencies that management of the Property by such Person will not cause a
downgrade, withdrawal or qualification of the then current ratings of the Securities or any class
thereof.



     “Rating Agencies” shall mean each of S&P, Moody’s and Fitch, or any other nationally
recognized statistical rating agency which has been approved by Lender.



     “Related Entities” shall have the meaning set forth in Section 5.2.10(e)(v) hereof.



     “Related Parties” shall have the meaning set forth in the definition of Special Purpose
Entity.



     “Related Party” shall have the meaning set forth in the definition of Special Purpose Entity.



     “REMIC Trust” shall mean a “real estate mortgage investment conduit” within the meaning of
Section 860D of the Code that holds the Note.



     “Rents” shall mean, all rents (including percentage rents), rent equivalents, moneys payable
as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all
oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues,
deposits (including, without limitation, security, utility and other deposits), accounts, cash,
issues, profits, charges for services rendered, all other amounts payable as rent under any Lease
or other agreement relating to the Property, including, without limitation, charges for
electricity, oil, gas, water, steam, heat, ventilation, air-conditioning and any other energy,
telecommunication, telephone, utility or similar items or time use charges, HVAC equipment charges,
sprinkler charges, escalation charges, license fees, maintenance fees, charges for Taxes, Operating
Expenses or other reimbursables payable to Borrower (or to the Manager for the account of Borrower)
under any Lease, and other consideration of whatever form or nature received by or paid to or for
the account of or benefit of Borrower or its agents or employees from any and all sources arising
from or attributable to the Property.



     “Replacement Management Agreement” shall mean, collectively, (a) either (i) a management
agreement for the Property with a Qualified Manager substantially in the same form and substance as
the Management Agreement, or (ii) a management agreement for the Property with a Qualified Manager,
which management agreement shall be reasonably acceptable to Lender in form and substance,
provided, with respect to this subclause (ii), Lender, at its option, may require that Borrower
shall have obtained prior written confirmation from the applicable Rating Agencies that such
management agreement will not cause a downgrade, withdrawal or qualification of the then current
rating of the Securities or any class thereof and (b) an assignment of management agreement and
subordination of management fees substantially in the



15









 







form then used by Lender (or of such other form and substance reasonably acceptable to
Lender), executed and delivered to Lender by Borrower and such Qualified Manager at Borrower’s
expense.



     “Replacement Reserve Account” shall have the meaning set forth in Section 7.3.1
hereof.



     “Replacement Reserve Fund” shall have the meaning set forth in Section 7.3.1 hereof.



     “Replacement Reserve Monthly Deposit” shall have the meaning set forth in Section
7.3.1 hereof.



     “Replacements” shall have the meaning set forth in Section 7.3.1 hereof.



     “Required Repair Account” shall have the meaning set forth in Section 7.1.1 hereof.



     “Required Repair Fund” shall have the meaning set forth in Section 7.1.1 hereof.



     “Required Repairs” shall have the meaning set forth in Section 7.1.1 hereof.



     “Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement
Reserve Fund, the Required Repair Fund and any other escrow fund established by the Loan Documents.



     “Restoration” shall mean the repair and restoration of the Property after a Casualty or
Condemnation as nearly as possible to the condition the Property was in immediately prior to such
Casualty or Condemnation, with such alterations as may be reasonably approved by Lender.



     “Restricted Party” shall mean collectively, Borrower, Guarantor, and any direct members or
general partners of Borrower or Guarantor.



     “Revised Interest Rate” shall mean the greater of (i) the Initial Interest Rate plus two
percent (2%) per annum, and (ii) the then current Ten Year Treasury Yield plus two percent (2%) per
annum, provided, however, the Revised Interest Rate shall not exceed the Initial Interest Rate plus
five percent (5%) per annum.



     “S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.



     “Sale or Pledge” shall mean a voluntary or involuntary sale, conveyance, assignment, transfer,
encumbrance, pledge, grant of option or other transfer or disposal of a legal or beneficial
interest, whether direct or indirect.



     “Scheduled Defeasance Payments” shall have the meaning set forth in Section 2.5.1(b)
hereof.



     “Securities” shall have the meaning set forth in Section 9.1 hereof.



     “Securities Act” shall have the meaning set forth in Section 9.2 hereof.



16









 





     “Securitization” shall have the meaning set forth in Section 9.1 hereof.



     “Security Agreement” shall have the meaning set forth in Section 2.5.1(a)(vi) hereof.



     “Servicer” shall have the meaning set forth in Section 9.5 hereof.



     “Servicing Agreement” shall have the meaning set forth in Section 9.5 hereof.



     “Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.



     “Special Purpose Entity” shall mean a corporation, limited partnership or limited liability
company that, since the date of its formation and at all times on and after the date thereof, has
complied with and shall at all times comply with the following requirements unless it has received
either prior consent to do otherwise from Lender or a permitted administrative agent thereof, or,
while the Loan is securitized, confirmation from each of the applicable Rating Agencies that such
noncompliance would not result in the qualification, withdrawal, or downgrade of the ratings of any
Securities or any class thereof:




     (i) is and shall be organized solely for the purpose of (A) in the case of Borrower,
acquiring, developing, owning, holding, selling, leasing, transferring, exchanging,
managing, operating and disposing of the Property, entering into and performing its
obligations under the Loan Documents with Lender, refinancing the Property in connection
with a permitted repayment of the Loan, and transacting lawful business that is incident,
necessary and appropriate to accomplish the foregoing; and (B) in the case of a Special
Purpose Entity that is a general partner or member in accordance with clauses (vii) and (ix)
below (a “General Partner”), holding a partnership or membership interest in Borrower,
acting as the General Partner of Borrower, entering into and performing its obligations
under the Loan Documents, causing Borrower to comply with its respective organizational
documents and otherwise dealing with its interests in Borrower;




     (ii) has not engaged and shall not engage in any business unrelated to (A) in the case
of Borrower, the acquisition, development, ownership, management or operation of the
Property and (B) in the case of the General Partner, the acquisition, ownership, sale,
financing, conveyance and disposition of its interests in Borrower;




     (iii) has not owned and shall not own any real property other than, in the case of
Borrower, the Property;




     (iv) does not have, shall not have and at no time had any assets other than (A) in the
case of Borrower, the Property and personal property necessary or incidental to its
ownership and operation of the Property; and (B) in the case of General Partner, its
interests in the Borrower;




     (v) to the fullest extent permitted by applicable law, has not engaged in, sought,
consented or permitted to and shall not engage in, seek, consent to or permit (A) any
dissolution, winding up, liquidation, consolidation or merger, or (B) any sale or other



17









 







transfer of all or substantially all of its assets or any sale of assets outside the
ordinary course of its business, except as permitted by the Loan Documents;




     (vi) except as permitted under the Loan Documents or unless required by applicable law,
shall not cause, consent to or permit any amendment of its limited partnership agreement,
articles of incorporation, articles of organization, certificate of formation, operating
agreement or other formation document or organizational document (as applicable) with
respect to the matters set forth in this definition without the consent of Lender;




     (vii) if such entity is a limited partnership, has and shall have at least one general
partner and has and shall have, as its only general partner, a Special Purpose Entity, which
(A) is a corporation or single-member Delaware limited liability company, (B) has at least
two (2) Independent Directors or Independent Managers, and (C) holds a direct interest as
general partner in the limited partnership of not less than 0.5% (or 0.1%, if the limited
partnership is a Delaware entity);




     (viii) if such entity is a corporation, has and shall have at least two (2) Independent
Directors, and shall not cause or permit the board of directors of such entity to take any
Material Action without the unanimous vote of one hundred percent (100%) of the members of
its board of directors including the Independent Directors;




     (ix) if such entity is a limited liability company (other than a limited liability
company meeting all of the requirements applicable to a single-member limited liability
company set forth in this definition of “Special Purpose Entity”), has and shall have at
least one (1) member that is a Special Purpose Entity, that is a corporation or a
single-member Delaware limited liability company, that has at least two (2) Independent
Managers and that directly owns at least one-half-of-one percent (0.5%) of the equity of the
limited liability company (or 0.1% if the limited liability company is a Delaware entity);




     (x) if such entity is a single-member limited liability company, (A) is and shall be a
Delaware limited liability company, (B) has and shall have at least two (2) Independent
Directors or Independent Managers serving as a manager, (C) shall not take any Material
Action and shall not cause or permit the members or managers of such entity to take any
Material Action, either with respect to itself or, if the company is a principal, with
respect to Borrower, in each case unless the Independent Directors or Independent Managers
then serving as manager of the company shall have consented in writing to such action, and
(D) has and shall have either (1) a member which owns no economic interest in the company,
has signed the company’s limited liability company agreement and has no obligation to make
capital contributions to the company, or (2) two natural persons or one entity that is not a
member of the company, that has signed its limited liability company agreement and that,
under the terms of such limited liability company agreement becomes a member of the company
immediately prior to the withdrawal or dissolution of the last remaining member of the
company;



18









 






     (xi) has not and shall not (and, if such entity is (a) a limited liability company, has
and shall have a limited liability company agreement or an operating agreement, as
applicable, (b) a limited partnership, has a limited partnership agreement, or (c) a
corporation, has a certificate of incorporation or articles that, in each case, provide that
such entity shall not) (1) to the fullest extent permitted by applicable law, dissolve,
merge, liquidate, consolidate; (2) except as permitted under the Loan Documents, sell all or
substantially all of its assets; (3) unless required by applicable law, amend its
organizational documents with respect to the matters set forth in this definition without
the consent of Lender; or (4) without the consent of its General Partner (which consent
shall, pursuant to the General Partner’s organizational documents, require the affirmative
vote of the Independent Directors or the Independent Managers): (A) file or consent to the
filing of any bankruptcy, insolvency or reorganization case or proceeding, institute any
proceedings under any applicable insolvency law or otherwise seek relief under any laws
relating to the relief from debts or the protection of debtors generally, file a bankruptcy
or insolvency petition or otherwise institute insolvency proceedings; (B) seek or consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any
similar official for the entity or a substantial portion of its property; (C) make an
assignment for the benefit of the creditors of the entity; or (D) take any action in
furtherance of any of the foregoing clauses (A) through (C);




     (xii) has at all times been and shall at all times intend to remain solvent and has
paid and shall pay its debts and liabilities (including, a fairly-allocated portion of any
personnel and overhead expenses that it shares with any Affiliate) from its assets as the
same shall become due, and has maintained and shall intend 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;




     (xiii) has not failed and shall not fail to correct any known misunderstanding
regarding the separate identity of such entity and has not identified and shall not identify
itself as a division of any other Person;




     (xiv) has maintained and shall maintain its bank accounts, books of account, books and
records separate from those of any other Person and, to the extent that it is required to
file tax returns under applicable law, has filed and shall file its own tax returns, except
to the extent that it is required by law to file consolidated tax returns and, if it is a
corporation, has not filed and shall not file a consolidated federal income tax return with
any other corporation, except to the extent that it is required by law to file consolidated
tax returns;




     (xv) has maintained and shall maintain its own records, books, resolutions and
agreements;




     (xvi) has not commingled and shall not commingle its funds or assets with those of any
other Person and has not participated and shall not participate in any cash management
system with any other Person, other than as contemplated herein;




     (xvii) has held and shall hold its assets in its own name;



19









 






     (xviii) has conducted and shall conduct its business in its name or in a name
franchised or licensed to it by an entity other than an Affiliate of itself or of Borrower,
except for business conducted on behalf of itself by another Person under a business
management services agreement that is on commercially-reasonable terms, so long as the
manager, or equivalent thereof, under such business management services agreement holds
itself out as an agent of Borrower or General Partner, as applicable;




     (xix) (A) has maintained and shall maintain its financial statements, accounting
records and other entity documents separate from those of any other Person; (B) has shown
and shall show, in its financial statements, its assets and liabilities separate and apart
from those of any other Person; and (C) has not permitted and shall not permit its assets to
be listed as assets on the financial statement of any of its Affiliates except as required
by GAAP (or another basis of accounting acceptable to Lender and consistently applied);
provided, however, that any such consolidated financial statement contains a note indicating
that the Special Purpose Entity’s separate assets and credit are not available to pay the
debts of such Affiliate and that the Special Purpose Entity’s liabilities do not constitute
obligations of the consolidated entity;




     (xx) has paid and shall pay its own liabilities and expenses, including the salaries of
its own employees, out of its own funds and assets, and has maintained and shall maintain a
sufficient number of employees in light of its contemplated business operations;




     (xxi) has observed and shall observe all partnership, corporate or limited liability
company formalities, as applicable;




     (xxii) has not incurred any Indebtedness other than (i) with respect to Borrower,
acquisition financing with respect to the Property; construction financing with respect to
the Improvements and certain off-site improvements required by municipal and other
authorities as conditions to the construction of the Improvements; and first mortgage
financings secured by the Property; and Indebtedness pursuant to letters of credit,
guaranties, interest rate protection agreements and other similar instruments executed and
delivered in connection with such financings, (ii) unsecured trade payables and operational
debt not evidenced by a note, (iii) Indebtedness incurred in the financing of equipment and
other personal property used on the Property, and (iv) unsecured loans from Affiliates used
to acquire the Property, which loans shall be repaid in full on or before the date hereof;




     (xxiii) shall have no Indebtedness other than (A) with respect to Borrower (i) the
Loan, (ii) liabilities incurred in the ordinary course of business relating to the ownership
and operation of the Property and the routine administration of Borrower, in amounts not to
exceed 2% of the outstanding principal balance of the Loan which liabilities are not more
than sixty (60) days past the date incurred, are not evidenced by a note and are paid when
due, and which amounts are normal and reasonable under the circumstances, and (iii) such
other liabilities that are permitted pursuant to this Agreement and (B) with respect to
General Partner, liabilities incurred in the ordinary course of business relating to its
partnership interests in Borrower, in amounts not to



20









 







exceed 2% of the outstanding principal
balance of the Loan which liabilities are not more than sixty (60) days past the date
incurred, are not evidenced by a note and are paid when due, and which amounts are normal
and reasonable under the circumstances;




     (xxiv) has not assumed, guaranteed or become obligated and shall not assume or
guarantee or become obligated for the debts of any other Person, has not held out and shall
not hold out its credit or assets as being available to satisfy the obligations of any other
Person or has not pledged and shall not pledge its assets for the benefit of any other
Person, in each case except as permitted pursuant to this Agreement, and, with respect to
General Partner only, except as it may be liable for the obligations of Borrower as the
General Partner thereof;




     (xxv) has not acquired and shall not acquire obligations or securities of its partners,
members or shareholders or any other owner or Affiliate;




     (xxvi) has allocated and shall allocate fairly and reasonably any overhead expenses
that are shared with any of its Affiliates, constituents, or owners, or any guarantors of
any of their respective obligations, or any Affiliate of any of the foregoing (individually,
a “Related Party” and collectively, the “Related Parties”), including, but not limited to,
paying for shared office space and for services performed by any employee of an Affiliate;




     (xxvii) has maintained and used and shall maintain and use separate invoices and checks
bearing its name and not bearing the name of any other entity unless such entity is clearly
designated as being the Special Purpose Entity’s agent;




     (xxviii) has not pledged and shall not pledge its assets to or for the benefit of any
other Person other than with respect to loans secured by the Property and no such pledge
remains outstanding except to Lender to secure the Loan;




     (xxix) has conducted and shall conduct its business so that each of the assumptions
made about it and each of the facts stated about it in the Insolvency Opinion are true;




     (xxx) has not permitted and shall not permit any Affiliate or constituent party
independent access to its bank accounts;




     (xxxi) has held itself out and identified itself and shall hold itself out and identify
itself as a separate and distinct entity under its own name or in a name franchised or
licensed to it by an entity other than an Affiliate of Borrower and not as a division or
part of any other Person,




     (xxxii) has maintained and shall maintain its assets in such a manner that it shall not
be costly or difficult to segregate, ascertain or identify its individual assets from those
of any other Person;




     (xxxiii) has not made and shall not make loans to any Person and has not held and shall
not hold evidence of indebtedness issued by any other Person or entity (other



21









 







than cash and
investment-grade securities issued by an entity that is not an Affiliate of or subject to
common ownership with such entity);




     (xxxiv) has not identified and shall not identify its partners, members or
shareholders, or any Affiliate of any of them, as a division or part of it, and has not
identified itself and shall not identify itself as a division of any other Person;




     (xxxv) other than capital contributions and distributions permitted under the terms of
its organizational documents, has not entered into or been a party to, and shall not enter
into or be a party to, any transaction with any of its partners, members, shareholders or
Affiliates except in the ordinary course of its business and on terms which are commercially
reasonable terms comparable to those of an arm’s-length transaction with an unrelated third
party;




     (xxxvi) has not had and shall not have any obligation to, and has not indemnified and
shall not indemnify its partners, officers, directors or members, as the case may be, in
each case unless such an obligation or indemnification is fully subordinated to the Debt and
shall not constitute a claim against it in the event that its cash flow is insufficient to
pay the Debt;




     (xxxvii) if such entity is a corporation, has considered and shall consider the
interests of its creditors in connection with all corporate actions;




     (xxxviii) has not had and shall not have any of its obligations guaranteed by any
Affiliate except as provided by the Loan Documents;




     (xxxix) has not formed, acquired or held and shall not form, acquire or hold any
subsidiary, except that General Partner of Borrower may acquire and hold its interest in
Borrower;




     (xl) has complied and shall comply with all of the terms and provisions contained in
its organizational documents;




     (xli) is, has always been and shall continue to be duly formed, validly existing, and
in good standing in the state of its incorporation or formation and in all other
jurisdictions where it is qualified to do business;




     (xlii) has paid all taxes that it owes and is not currently involved in any dispute
with any taxing authority;




     (xliii) is not now, nor has ever been, party to any lawsuit, arbitration, summons, or
legal proceeding that resulted in a judgment against it that has not been paid in full;




     (xliv) has no judgments or Liens of any nature against it except for tax liens not yet
due and the Permitted Encumbrances;



22









 






     (xlv) has provided Lender with complete financial statements that reflect a fair and
accurate view of the entity’s financial condition; and




     (xlvi) has no material contingent or actual obligations except with respect to
Borrower’s obligations related to the Property, and with respect to General Partner, its
obligations incurred as a result of holding its partnership interest in Borrower as the
General Partner thereof.



     “State” shall mean, the State or Commonwealth in which the Property or any part thereof is
located.



     “Successor Borrower” shall have the meaning set forth in Section 2.5.3 hereof.



     “Survey” shall mean a survey of the Property prepared by a surveyor licensed in the State and
satisfactory to Lender and the company or companies issuing the Title Insurance Policy, and
containing a certification of such surveyor satisfactory to Lender.



     “Tax and Insurance Escrow Fund” shall have the meaning set forth in Section 7.2
hereof.



     “Taxes” shall mean all real estate and personal property taxes, assessments, water rates or
sewer rents, now or hereafter levied or assessed or imposed against the Property or part thereof.



     “Tenant” shall mean any person or entity with a possessory right to all or any part of the
Property pursuant to a Lease or other written agreement.



     “Tenant Direction Letter” shall mean a letter in the form of Schedule IV attached hereto, or
such other form approved by Lender, from Borrower to the Tenant under each Lease (whether such
Lease is presently effective or executed after the Closing Date) directing such Tenant to send
directly to the Clearing Account all payments of Rent payable to Borrower under such Lease.



     “Ten Year Treasury Yield” shall mean the yield, calculated by linear interpolation (rounded to
three decimal places), of the yields of United States Treasury Constant Maturities with the terms
(one longer and one shorter) most nearly approximating those of U.S. Obligations having maturities
as close as possible to February 1, 2027, as determined by Lender on the basis of Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading U.S. Governmental
Security/Treasury Constant Maturities, or other recognized source of financial market information
selected by the Lender on the last Business Day of the week immediately prior to the Anticipated
Repayment Date.



     “Threshold Amount” shall have the meaning set forth in Section 5.1.21 hereof.



     “Title Insurance Policy” shall mean an ALTA mortgagee title insurance policy in the form
acceptable to Lender (or, if the Property is in a State which does not permit the issuance of such
ALTA policy, such form as shall be permitted in such State and acceptable to Lender) issued with
respect to the Property and insuring the lien of the Mortgage.



23









 





     “Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.



     “Transferee” shall have the meaning set forth in Section 5.2.10(e)(iii) hereof.



     “Transferee’s Principals” shall mean collectively, (A) Transferee’s managing members, general
partners or principal shareholders and (B) such other members, partners or shareholders which
directly or indirectly shall own a fifty-one percent (51%) or greater economic and voting interest
in Transferee.



     “UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the
State in which the Property is located.



     “U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to timely pay
principal and/or interest in a full and timely manner that are (a) direct obligations of the United
States of America for the payment of which its full faith and credit is pledged, or (b) to the
extent acceptable to the Rating Agencies, other “government securities” within the meaning of
Section 2(a)(16) of the Investment Company Act of 1940, as amended.



     “Yield Maintenance Default Premium” shall mean an amount equal to the greater of (a) two
percent (2%) of the outstanding principal balance of the Loan to be prepaid or satisfied and (b)
the Defeasance Payment Amount that would be required if a Defeasance Event were to occur at such
time (whether or not then permitted) in an amount equal to the outstanding principal amount of the
Loan to be prepaid or satisfied.



     “Yield Maintenance Premium” shall mean an amount equal to the greater of (a) one percent (1%)
of the outstanding principal of the Loan to be prepaid or satisfied and (b) the excess, if any, of
(i) the sum of the present values of all then-scheduled payments of principal and interest under
the Note assuming that all outstanding principal and interest on the Loan is paid on the
Anticipated Repayment Date (with each such payment and assumed payment discounted to its present
value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the
Prepayment Rate when compounded semi-annually and deducting from the sum of such present values any
short-term interest paid from the date of prepayment to the next succeeding Payment Date in the
event such payment is not made on a Payment Date), over (ii) the principal amount being prepaid.



     Section 1.2 Principles of Construction. All references to sections and schedules are to
sections and schedules in or to this Agreement unless otherwise specified. All uses of the word
“including” shall mean “including, without limitation” unless the context shall indicate otherwise.
Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Unless otherwise specified, all meanings attributed to
defined terms herein shall be equally applicable to both the singular and plural forms of the terms
so defined.



     II. GENERAL TERMS



     Section 2.1 Loan Commitment; Disbursement to Borrower.



24









 





          2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and
Borrower hereby agrees to accept the Loan on the Closing Date.




          2.1.2 Single Disbursement to Borrower. Borrower may request and receive only one (1)
borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect
of the Loan may not be reborrowed.




          2.1.3 The Note, Mortgage and Loan Documents. The Loan shall be evidenced by the Note and
secured by the Mortgage, the Assignment of Leases and the other Loan Documents.




          2.1.4 Use of Proceeds. Borrower shall use the proceeds of the Loan to (a)acquire the
Property or repay and discharge any existing loans relating to the Property, (b) pay all past-due
Basic Carrying Costs, if any, with respect to the Property, (c) make deposits into the Reserve
Funds on the Closing Date in the amounts provided herein, (d) pay costs and expenses incurred in
connection with the closing of the Loan and the acquisition of the Property, as approved by Lender,
(e) fund any working capital requirements of the Property and (f) distribute the balance, if any,
to Borrower.




     Section 2.2 Interest Rate.



          2.2.1 Interest Rate. Interest on the outstanding principal balance of the Loan shall
accrue from (and including) the Closing Date to but excluding the Anticipated Repayment Date at the
Initial Interest Rate. Interest on the outstanding principal balance of the Loan shall accrue from
and including the Anticipated Repayment Date to but excluding the Maturity Date at the Revised
Interest Rate.




          2.2.2 Interest Calculation. Interest on the outstanding principal balance of the Loan
shall be calculated by multiplying (a) the actual number of days elapsed in the period for which
the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by
(c) the outstanding principal balance.




          2.2.3 Default Rate. In the event that, and for so long as, any Event of Default shall have
occurred and be continuing, the outstanding principal balance of the Loan and, to the extent
permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due
pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date
such payment was due without regard to any grace or cure periods contained herein.




          2.2.4 Usury Savings. This Agreement, the Note and the other Loan Documents are subject to the express condition that
at no time shall Borrower be obligated or required to pay interest on the principal balance of the
Loan at a rate which could subject Lender to either civil or criminal liability as a result of
being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan
Documents, Borrower is at any time required or obligated to pay interest on the principal balance
due hereunder at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the
Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal
Rate and all previous payments in excess of the




25









 







Maximum Legal Rate shall be deemed to have been
payments in reduction of principal (without any Yield Maintenance Premium or prepayment penalty or
premium) and not on account of the interest due hereunder. All sums paid or agreed to be paid to
Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full
stated term of the Loan until payment in full so that the rate or amount of interest on account of
the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and
applicable to the Loan for so long as the Loan is outstanding.




     Section 2.3 Loan Payment.



          2.3.1 Monthly Debt Service Payments Prior to the Anticipated Repayment Date. (a) Borrower
shall pay to Lender on the Closing Date, an amount equal to interest only on the outstanding
principal balance of the Loan from the Closing Date up to and including January 31, 2007, and (b)
on March 1, 2007 and on each Payment Date thereafter up to and including the Anticipated Repayment
Date, Borrower shall make a payment to Lender of interest only in an amount equal to the Monthly
Debt Service Payment Amount, which shall be applied to interest on the outstanding principal amount
of the Loan for the prior calendar month at the Initial Interest Rate.




          2.3.2 Payments After Anticipated Repayment Date. From and after the Anticipated Repayment
Date, interest shall accrue on the unpaid principal balance from time to time at the Revised
Interest Rate. On each Payment Date occurring after the Anticipated Repayment Date Borrower shall
(a) make a payment to Lender of interest only calculated at the Initial Interest Rate, such payment
to be applied to interest in an amount equal to interest that would have accrued on the outstanding
principal balance of the Loan (without adjustment for Accrued Interest) at the Initial Interest
Rate, and (b) pay to Lender the other amounts required to be paid in accordance with the terms
hereof. Interest accrued at the Revised Interest Rate and not paid pursuant to the preceding
sentence shall be added to the outstanding principal balance on the first day following such
Payment Date and shall earn interest at the Revised Interest Rate to the extent permitted by law
(such accrued interest referred to as, “Accrued Interest”).




          2.3.3 Payments Generally. The first (1st) interest accrual period hereunder shall commence on and include the
Closing Date and shall end on and include January 31, 2007. Each interest accrual period
thereafter shall commence on the first (1st) day of each calendar month during the term of this
Agreement and shall end on and include the final calendar date of such calendar month. For
purposes of making payments hereunder, but not for purposes of calculating interest accrual
periods, if the day on which such payment is due is not a Business Day, then amounts due on such
date shall be due on the immediately preceding Business Day and with respect to payments of
principal due on the Maturity Date, interest shall be payable at the Applicable Interest Rate or
the Default Rate, as the case may be, through and including the day immediately preceding such
Maturity Date. All amounts due under this Agreement and the other Loan Documents shall be payable
without setoff, counterclaim, defense or any other deduction whatsoever.




          2.3.4 Payment on Maturity Date. Borrower shall pay to Lender on the Maturity Date the
outstanding principal balance of the Loan, all accrued and unpaid interest and




26









 







all other amounts
due hereunder and under the Note, the Mortgage and the other Loan Documents.




          2.3.5 Late Payment Charge. If any principal, interest or any other sums due under the Loan
Documents (including the amounts due on the Maturity Date) are not paid by Borrower on or prior to
the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser
of five percent (5%) of such unpaid sum or the Maximum Legal Rate in order to defray the expense
incurred by Lender in handling and processing such delinquent payment and to compensate Lender for
the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgage
and the other Loan Documents to the extent permitted by applicable law.




          2.3.6 Method and Place of Payment. Except as otherwise specifically provided herein, all
payments and prepayments under this Agreement and the Note shall be made to Lender not later than
2:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United
States of America in immediately available funds at Lender’s office or as otherwise directed by
Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed
to have been paid on the next succeeding Business Day.




     Section 2.4 Prepayments.



          2.4.1 Voluntary Prepayments. Except as otherwise provided in this Section 2.4 and
in Section 2.8, Borrower shall not have the right to prepay the Loan in whole or in part
prior to the Anticipated Repayment Date. On the Payment Date three (3) months prior to the
Anticipated Repayment Date, or on any Payment Date thereafter, Borrower may, at its option and upon
thirty (30) days prior written notice to Lender, prepay the Debt in whole or in part without
payment of the Yield Maintenance Premium or any other prepayment premium or penalty, provided,
however, if for any reason Borrower prepays the Loan on a date other than a Payment Date, Borrower
shall pay Lender, in addition to
the Debt, all interest which would have accrued on the amount of the Loan through and including the
Payment Date next occurring following the date of such prepayment.




          2.4.2 Mandatory Prepayments




          (a) On the next occurring Payment Date following the date on which Lender actually receives
any Net Proceeds, if Lender is not obligated to make such Net Proceeds available to Borrower for
the Restoration of the Property or otherwise remit such Net Proceeds to Borrower pursuant to
Section 6.4 hereof, Borrower shall prepay or authorize Lender to apply Net Proceeds as a prepayment
of all or a portion of the outstanding principal balance of the Loan together with accrued interest
and any other sums due hereunder in an amount equal to one hundred percent (100%) of such Net
Proceeds; provided, however, if an Event of Default has occurred and is continuing, Lender may
apply such Net Proceeds to the Debt (until paid in full) in any order or priority in its sole
discretion. Other than during the continuance of an Event of Default, no Yield Maintenance Premium
shall be due in connection with any prepayment made pursuant to this Section 2.4.2(a).





27









 








          (b) In the event there is a Condemnation and Academy presents an offer to purchase the
Property pursuant to Section 12(c) of the Academy Lease and Borrower accepts Academy’s offer to
purchase, Borrower shall have the right to prepay the outstanding principal balance of the Note (a
“Condemnation Prepayment”) in accordance with this Section 2.4.2(b) hereof upon satisfaction of the
following conditions: Borrower shall provide Lender with thirty (30) days written notice of
Borrower’s intention to pay the Note in full. Notwithstanding anything in Section 6.3 to the
contrary, Borrower shall have no obligation to commence Restoration of the Property upon delivery
of the written notice set forth in the preceding sentence (unless Borrower subsequently shall fail
to pay all amounts due under this Section 2.4.2(b)). On the date on which Borrower tenders a
Condemnation Prepayment, such tender shall include (a) all accrued and unpaid interest and the
principal indebtedness being prepaid, including interest on the outstanding principal amount of the
Note through the last day of the month within which such tender occurs, and (b) any other sums due
hereunder relating to the applicable Note, including an amount equal to the Yield Maintenance
Premium attributable to the Condemnation Prepayment, provided, however, so long as no Event of
Default shall exist on the date of the Condemnation Prepayment, (i) no Yield Maintenance Premium
shall be due with respect to that portion of the Condemnation Prepayment equal to the amount of the
Award, and (ii) if the Award shall be equal to or greater than FORTY ONE MILLION and 00/100 Dollars
($41,000,000.00), no Yield Maintenance Premium shall be due in connection with any portion of the
Condemnation Prepayment.




          2.4.3 Prepayments After Default. If during the continuance of an Event of Default, payment
of all or any part of the Debt is tendered by Borrower or otherwise recovered by Lender, such
tender or recovery shall be (a) made on the next occurring Payment Date together with the Monthly
Debt Service Payment and (b) deemed a voluntary prepayment by Borrower in violation of the
prohibition against prepayment set forth in Section 2.4.1 hereof and Borrower shall pay, in
addition to the Debt, an amount equal to the Yield Maintenance Default Premium.




          2.4.4 Prepayment Prior to Defeasance Expiration Date. If the Permitted Release Date has
occurred but the Defeasance Expiration Date has not occurred, the Debt may be prepaid in whole (but
not in part) prior to the date permitted under Section 2.4.1 hereof upon not less than
thirty (30) days prior written notice to Lender specifying the Payment Date on which prepayment is
to be made (a “Prepayment Date”) provided no Event of Default exists and upon payment of an amount
equal to the Yield Maintenance Premium. Lender shall notify Borrower of the amount and the basis
of determination of the required prepayment consideration. If any notice of prepayment is given,
the Debt shall be due and payable on the Prepayment Date. Lender shall not be obligated to accept
any prepayment of the Debt unless it is accompanied by the prepayment consideration due in
connection therewith. If for any reason Borrower prepays the Loan on a date other than a Payment
Date, Borrower shall pay Lender, in addition to the Debt, all interest which would have accrued on
the amount of the Loan through and including the Payment Date next occurring following the date of
such prepayment.




     Section 2.5 Defeasance.



          2.5.1 Voluntary Defeasance.




28









 








          (a) Provided no Event of Default shall then exist, Borrower shall have the right at any time
after the Defeasance Expiration Date and prior to the date voluntary prepayments are permitted
under Section 2.4.1 hereof to voluntarily defease all, but not part, of the Loan by and upon
satisfaction of the following conditions (such event being a “Defeasance Event”):





     (i) Borrower shall provide not less than thirty (30) days prior written notice to
Lender specifying the Payment Date (the “Defeasance Date”) on which the Defeasance Event is
to occur;




     (ii) Borrower shall pay to Lender all accrued and unpaid interest on the principal
balance of the Loan to and including the Defeasance Date. If for any reason the Defeasance
Date is not a Payment Date, the Borrower shall also pay interest that would have accrued on
the Note through and including the Payment Date immediately preceding the next Payment Date,
provided, however, if the Defeasance Deposit shall include short-term
interest computed from the date of such prepayment through to the next succeeding Payment
Date, Borrower shall not be required to pay such short term interest pursuant to this
sentence;




     (iii) Borrower shall pay to Lender all other sums, not including scheduled interest or
principal payments, then due under the Note, this Agreement, the Mortgage and the other Loan
Documents;




     (iv) Borrower shall pay to Lender the required Defeasance Deposit for the Defeasance
Event;




     (v) Intentionally omitted;




     (vi) Borrower shall execute and deliver a pledge and security agreement, in form and
substance that would be reasonably satisfactory to a prudent lender creating a first
priority lien on the Defeasance Deposit and the U.S. Obligations purchased with the
Defeasance Deposit in accordance with the provisions of this Section 2.5 (the “Security
Agreement”);




     (vii) Borrower shall deliver an opinion of counsel for Borrower that is standard in
commercial lending transactions and subject only to customary qualifications, assumptions
and exceptions opining, among other things, that Borrower has legally and validly
transferred and assigned the U.S. Obligations and all obligations, rights and duties under
and to the Note to the Successor Borrower, that Lender has a perfected first priority
security interest in the Defeasance Deposit and the U.S. Obligations delivered by Borrower
and that any REMIC Trust formed pursuant to a Securitization will not fail to maintain its
status as a “real estate mortgage investment conduit” within the meaning of Section 860D of
the Code as a result of such Defeasance Event;




     (viii) Borrower shall deliver confirmation in writing from each of the applicable
Rating Agencies to the effect that such release will not result in a downgrade, withdrawal
or qualification of the respective ratings in effect immediately prior to such



29









 







Defeasance
Event for the Securities issued in connection with the Securitization which are then
outstanding. If required by the applicable Rating Agencies, Borrower shall also deliver or
cause to be delivered an Additional Insolvency Opinion with respect to the Successor
Borrower in form and substance satisfactory to Lender and the applicable Rating Agencies;




     (ix) Borrower shall deliver an Officer’s Certificate certifying that the requirements
set forth in this Section 2.5.1(a) have been satisfied;




     (x) Borrower shall deliver a certificate of Borrower’s independent certified public
accountant certifying that the U.S. Obligations purchased with the Defeasance Deposit will
generate monthly amounts equal to or greater than the Scheduled Defeasance Payments;




     (xi) Borrower shall deliver such other certificates, documents or instruments as Lender
may reasonably request; and




     (xii) Borrower shall pay all reasonable costs and expenses of Lender incurred in
connection with the Defeasance Event, including (A) any reasonable costs and expenses
associated with a release of the Lien of the Mortgage as provided in Section 2.6 hereof, (B)
reasonable attorneys’ fees and expenses incurred in connection with the Defeasance Event,
(C) the reasonable costs and expenses of the Rating Agencies, (D) any revenue, documentary
stamp or intangible taxes or any other tax or charge due in connection with the transfer of
the Note, or otherwise required to accomplish the defeasance and (E) the reasonable costs
and expenses of Servicer and any trustee, including reasonable attorneys’ fees.



          (b) In connection with the Defeasance Event, Borrower shall use the Defeasance Deposit to
purchase U.S. Obligations which provide payments on or prior to, but as close as possible to, all
successive scheduled Payment Dates after the Defeasance Date upon which interest and principal
payments are required under this Agreement and the Note and in amounts equal to the scheduled
payments due on such dates under this Agreement and the Note, (including, without limitation,
scheduled payments of principal, interest, servicing fees (if any), and any other amounts due under
the Loan Documents on such Payment Dates) and assuming the Note is prepaid in full on the
Anticipated Repayment Date (the “Scheduled Defeasance Payments”). Borrower, pursuant to the
Security Agreement or other appropriate document, shall authorize and direct that the payments
received from the U.S. Obligations may be made directly to Lender (or its designee) and applied to
satisfy the Debt Service obligations of Borrower under this Agreement and the Note. Any portion of
the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Obligations required
by this Section 2.5 and satisfy Borrower’s other obligations under this Section 2.5 and Section 2.6
shall be remitted to Borrower.




          2.5.2 Collateral. Each of the U.S. Obligations that are part of the defeasance collateral
shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written
instrument of transfer in form and substance that would be satisfactory to a prudent lender
(including, without limitation, such instruments as may be required by the depository institution
holding such securities or by the issuer thereof, as the case may be, to effectuate




30









 







book-entry
transfers and pledges through the book-entry facilities of such institution) in order to perfect
upon the delivery of the defeasance collateral a first priority security interest therein in favor
of Lender in conformity with all applicable state and federal laws governing the granting of such
security interests.




          2.5.3 Successor Borrower. In connection with any Defeasance Event, Borrower may at its
option, or if so required by the applicable Rating Agencies shall, establish or designate a
successor entity (the “Successor Borrower”) acceptable to Lender, which shall be a Special Purpose
Entity and Borrower shall transfer and assign all obligations, rights and duties under and to the
Note, together with the pledged U.S. Obligations to such Successor Borrower. Such Successor
Borrower shall assume the obligations under the Note and the Security Agreement and Borrower shall
be relieved of its obligations under such documents. Borrower shall pay One Thousand and 00/100
Dollars ($1,000) to any such Successor Borrower as consideration for assuming the obligations under
the Note and the Security Agreement. Notwithstanding anything in this Agreement to the contrary,
no other assumption fee shall be payable upon a transfer of the Note in accordance with this
Section 2.5.3, but Borrower shall pay all reasonable costs and expenses incurred by Lender,
including Lender’s reasonable attorneys’ fees and expenses and any reasonable fees and expenses of
any Rating Agencies, incurred in connection therewith.




     Section 2.6 Release of Property. Except as set forth in this Section 2.6, no repayment,
prepayment or defeasance of all or any portion of the Loan shall cause, give rise to a right to
require, or otherwise result in, the release of the Lien of the Mortgage on the Property.



          2.6.1 Release of Property. 




          (a) If Borrower has elected to defease the entire Loan and the requirements of Section 2.5 and
this Section 2.6 have been satisfied, all of the Property shall be released from the Lien of the
Mortgage and the U.S. Obligations, pledged pursuant to the Security Agreement, shall be the sole
source of collateral securing the Note.




          (b) In connection with a defeasance of the Loan, Borrower shall submit to Lender, not less
than thirty (30) days prior to the Defeasance Date, a release of Lien (and related Loan Documents)
for the Property for execution by Lender. Such release shall be in a form appropriate in the
jurisdiction in which the Property is located and that would be satisfactory to a prudent lender
and contains standard provisions, if any, protecting the rights of the releasing lender. In
addition, Borrower shall provide all other documentation Lender reasonably requires to be delivered
by Borrower in connection with such release, together with an Officer’s Certificate certifying that
such documentation (i) is in compliance with all Legal Requirements, and (ii) will effect such
releases in accordance with the terms of this Agreement.




          2.6.2 Release on Payment in Full. Lender shall, upon the written request and at the
expense of Borrower, upon payment in full of all principal and interest due on the Loan and all
other amounts due and payable under the Loan Documents in accordance with the terms and provisions
of the Note and this Agreement, release the Lien of the Mortgage on the Property.





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          2.6.3 Out Parcel Release. Lender shall, upon the written request and at the expense of
Borrower, upon satisfaction of the Out Parcel Release Conditions and Section 2.8 of this Loan
Agreement, release the Lien of the Mortgage and the other Loan Documents against the applicable Out
Parcel.




     Section 2.7 Cash Management.



          2.7.1 Clearing Bank. At Closing, Borrower shall establish an account (the “Clearing
Account”) at a bank acceptable to Lender in its reasonable discretion (the “Clearing Bank”). In
addition, Borrower shall deliver to each Tenant at the Property a Tenant Direction Letter
instructing each such Tenant to deliver all Rents due under their respective Leases directly to the
Clearing Account. Borrower covenants and agrees to execute and deliver to Lender a Tenant
Direction Letter for each new tenant at the Property within thirty (30) days after the execution of
each new Lease for premises at the Property. Lender, Borrower and Clearing Bank shall execute an
agreement in form and substance acceptable to Lender in its reasonable discretion (the “Clearing
Bank Agreement”) whereby Clearing Bank agrees, among other things, that upon its receipt from
Lender of a notice that a Cash Management Trigger has occurred, all funds on deposit in the
Clearing Account shall be swept on a daily basis to the Cash Management Account. Prior to the
occurrence of a Cash Management Trigger, the Clearing Account shall be under Borrower’s sole
dominion and control, provided, however, Lender shall have a first priority security interest in
the Clearing Account and all deposits at any time contained therein and the proceeds thereof and
will take all actions necessary to maintain in favor of Lender a perfected first priority security
interest in the Clearing Account, including,
without limitation, executing and filing UCC-1 Financing Statements and continuations thereof.
Borrower shall be responsible for all fees, including fees charged by Clearing Bank, in connection
with the Clearing Account.




          2.7.2 Cash Management Account.




     (a) Upon Lender’s delivery to the Clearing Bank of written notice that a Cash Management
Trigger has occurred, all funds on deposit in the Clearing Account shall be swept on a daily basis
to Lender or Servicer (on behalf of Lender), and shall be held by Lender or Servicer (on behalf of
Lender) in an escrow account (the “Cash Management Account”) owned and controlled by Lender or
Servicer (on behalf of Lender) (the “Agent”). Lender shall have a first priority security interest
in the Cash Management Account and all deposits at any time contained therein and the proceeds
thereof and will take all actions necessary to maintain in favor of Lender a perfected first
priority security interest in the Cash Management Account, including, without limitation, executing
and filing UCC-1 Financing Statements and continuations thereof. Such Cash Management Account
shall bear interest for the benefit of Borrower, and shall, at Lender’s option, be an Eligible
Account.



     (b) Borrower shall be responsible for all fees, including fees charged by Agent, in connection
with the Cash Management Account.



     (c) Following a Cash Management Trigger, and provided no Event of Default shall then exist, on
each Payment Date (or, if such Payment Date is not a Business Day, on the



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immediately preceding
Business Day) all funds on deposit in the Cash Management Account shall be applied by Lender to the
payment of the following items in the order indicated:




     (i) First, payments to the Tax and Insurance Escrow Fund in accordance with the
terms and conditions of Section 7.2 hereof;




     (ii) Second, payment of the Monthly Debt Service Payment Amount, applied to the payment
of interest computed at the Initial Interest Rate;




     (iii) Third, required payments to the Replacement Reserve Fund in accordance with the
terms and conditions hereof;




     (iv) Fourth, payment to the Lender of any other amounts then due and payable under the
Loan Documents (other than Accrued Interest);




     (v) Fifth, payments for monthly Operating Expenses incurred in accordance with the
related Approved Annual Budget pursuant to a written request for payment submitted by
Borrower to Lender specifying the individual Operating Expenses in a form acceptable to
Lender;




     (vi) Sixth, payments for Extraordinary Expenses approved by Lender, if any, pursuant to
a written request for payment submitted by Borrower to Lender specifying the individual
Extraordinary Expenses in a form acceptable to Lender;




     (vii) Seventh, on or after the Anticipated Repayment Date, payments to Lender in
reduction of the outstanding principal balance of the Loan;




     (viii) Eighth, on or after the Anticipated Repayment Date, payments to Lender for
Accrued Interest; and




     (ix) Lastly, payments of all remaining funds in the Cash Management Account after
disbursements of funds pursuant to clauses (i) through (viii) above (“Excess Cash”) to the
Excess Cash Escrow Fund in accordance with the provisions of Section 7.4 of this Agreement.



     (d) The insufficiency of funds on deposit in the Cash Management Account shall not relieve
Borrower from the obligation to make any payments, as and when due pursuant to this Agreement and
the other Loan Documents, and such obligations shall be separate and independent, and not
conditioned on any event or circumstance whatsoever.



     (e) All funds on deposit in the Cash Management Account following the occurrence of an Event
of Default may be applied by Lender in such order and priority as Lender shall determine.



          2.7.3 Payments Received Under the Cash Management Arrangement. Notwithstanding anything to
the contrary contained in this Agreement or the other Loan Documents, and provided no Event of
Default has occurred and is continuing, Borrower’s obligations with respect to the payment of the
Monthly Debt Service Payment Amount and




33









 







amounts required to be deposited into the Reserve Funds, if
any, shall be deemed satisfied to the extent sufficient amounts are deposited in the Cash
Management Account to satisfy such obligations on the dates each such payment is required,
regardless of whether any of such amounts are so applied by Lender.




     Section 2.8 Release of Out Parcel



     (a) Lender acknowledges that Borrower has requested the right to obtain the future releases of
either or both of two (2) currently unimproved portions of the Property identified as Tract 3
(“Tract 3”) and Tract 4 (“Tract 4”) on that certain ALTA/ASCM Survey of the Property prepared by
South West Land Surveying Co., dated December 11, 2006, (Tract 3 and Tract, individually or
collectively as the context may require, the “Out Parcel”). Lender hereby agrees that, subject to
the terms and conditions set forth in this Section 2.8, Borrower may obtain a release of the Out
Parcel from the Lien of the Mortgage (and the related Loan Documents), provided that (a) no Event
of Default shall then exist and remain uncured, (b) Borrower provides Lender with a written request
for release of (i) Tract 3 no later than September 29, 2011 or (ii) Tract 4 no later than April 10,
2008, (c) the Debt Service Coverage Ratio immediately following such release is not less than the
greater of 1.62 to 1.0 or the Debt Service Coverage Ratio immediately prior to such release (the
“Release DSCR”), (d) the loan to value percentage immediately following such release is not greater
than the lesser of sixty six percent (66%) or the loan to value percentage immediately prior to
such release (the “Release LTV”), and (e) Borrower satisfies within ninety (90) days of the date
Lender receives such written request each of the conditions listed on Schedule VI hereof (the “Out
Parcel Release Conditions”).



     (b) In the event the Debt Service Coverage Ratio immediately following the Out Parcel Release
will be less than the Release DSCR as determined by Lender, Borrower covenants and agrees to pay as
additional consideration for the Out Parcel Release an amount equal to the amount by which the
outstanding loan would need to be reduced to achieve a Debt Service Coverage Ratio greater than or
equal to the Release DSCR.



     (c) In the event the loan to value percentage immediately following the Out Parcel Release
will be greater than the Release LTV as determined by Lender, Borrower covenants and agrees to pay
as additional consideration for the Out Parcel Release an amount equal to the amount by which the
outstanding loan would need to be reduced to achieve a loan to value percentage equal to or less
than the Release LTV.



     III. CONDITIONS PRECEDENT



     Section 3.1 Conditions Precedent to Closing. The obligation of Lender to make the Loan
hereunder is subject to the fulfillment by Borrower or waiver by Lender of the following conditions
precedent no later than the Closing Date:



          3.1.1 Representations and Warranties; Compliance with Conditions. The representations and
warranties of Borrower contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of the Closing Date with the same effect as if made on
and as of such date, and no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all




34









 







terms and conditions set forth in
this Agreement and in each other Loan Document on its part to be observed or performed.




          3.1.2 Loan Agreement and Note. Lender shall have received a copy of this Agreement and the
Note, in each case, duly executed and delivered on behalf of Borrower.




          3.1.3 Delivery of Loan Documents; Title Insurance; Reports; Leases .




          (a) Mortgage, Assignment of Leases. Lender shall have received from Borrower fully
executed and acknowledged counterparts of the Mortgage and the Assignment of Leases and evidence
that counterparts of the Mortgage and Assignment of Leases have been delivered to the title company
for recording, in the reasonable judgment of Lender, so as to effectively create upon such
recording valid and enforceable Liens upon the Property, of the requisite priority, in favor of
Lender (or such other trustee as may be required or desired under local law), subject only to the
Permitted Encumbrances and such other Liens as are permitted pursuant to the Loan Documents.
Lender shall have also received from Borrower fully executed counterparts of the other Loan
Documents.




          (b) Title Insurance. Lender shall have received the Title Insurance Policy issued by
a title company acceptable to Lender and dated as of the Closing Date, with, to the extent
reasonably required by Lender, reinsurance and direct access agreements acceptable to
Lender. Such Title Insurance Policy shall (i) provide coverage in an amount satisfactory to
Lender, (ii) insure Lender that the Mortgage creates a valid lien on the Property of the requisite
priority, free and clear of all exceptions from coverage other than Permitted Encumbrances and
standard exceptions and exclusions from coverage (as modified by the terms of any endorsements),
(iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and
(iv) name Lender as the insured. The Title Insurance Policy shall be assignable. Lender also
shall have received evidence that all premiums in respect of such Title Insurance Policy have been
paid.




          (c) Survey. Lender shall have received a current survey for the Property, certified
to the title company and Lender and their successors and assigns, in form and content satisfactory
to Lender and prepared by a professional and properly licensed land surveyor satisfactory to Lender
in accordance with the Accuracy Standards for ALTA/ACSM Land Title Surveys as adopted by American
Land Title Association, American Congress on Surveying & Mapping and National Society of
Professional Surveyors in 2005. The survey shall reflect the same legal description contained in
the Title Insurance Policy referred to in clause (b) above and shall include, among other things, a
metes and bounds description of the real property comprising part of the Property reasonably
satisfactory to Lender. The surveyor’s seal shall be affixed to each survey and the surveyor shall
provide a certification for each survey in form and substance acceptable to Lender.




          (d) Insurance. Lender shall have received valid certificates of insurance for the
policies of insurance required hereunder, satisfactory to Lender in its sole discretion, and
evidence of the payment of all premiums payable for the existing policy period.




35









 








          (e) Environmental Reports. Lender shall have received a Phase I environmental report
(and, if recommended by the Phase I environmental report, a Phase II environmental report) in
respect of the Property, in each case satisfactory in form and substance to Lender.




          (f) Zoning. Lender shall have received, at Lender’s option, (i) letters or other
evidence with respect to the Property from the appropriate municipal authorities (or other Persons)
concerning applicable zoning and building laws, and (ii) either (A) an ALTA 3.1 zoning endorsement
for the applicable Title Insurance Policy or (B) a zoning opinion letter, in each case in substance
reasonably satisfactory to Lender.




          (g) Encumbrances. Borrower shall have taken or caused to be taken such actions in
such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date
with respect to the Mortgage, subject only to applicable Permitted Encumbrances and such other
Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory
evidence thereof.




          3.1.4 Related Documents. Each additional document not specifically referenced herein, but
relating to the transactions contemplated herein, shall be in form and substance reasonably
satisfactory to Lender, and shall
have been duly authorized, executed and delivered by all parties thereto and Lender shall have
received and approved copies thereof.




          3.1.5 Delivery of Organizational Documents. On or before the Closing Date, Borrower shall
deliver or cause to be delivered to Lender copies certified by Borrower of all organizational
documentation related to Borrower and/or the formation, structure, existence, good standing and/or
qualification to do business, as Lender may request in its sole discretion, including, without
limitation, amendments (as requested by Lender), good standing certificates, qualifications to do
business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan
and incumbency certificates as may be requested by Lender.




          3.1.6 Opinions of Borrower’s Counsel. Lender shall have received opinions from Borrower’s
counsel (a) with respect to due execution, authority, enforceability of the Loan Documents and such
other matters as Lender may require, and (b) an Insolvency Opinion, all such opinions in form,
scope and substance satisfactory to Lender and Lender’s counsel in their reasonable discretion.




          3.1.7 Budgets. Borrower shall have delivered, and Lender shall have approved, the Annual
Budget for the current Fiscal Year.




          3.1.8 Basic Carrying Costs. Borrower shall have paid or cause to be paid all Basic
Carrying Costs relating to the Property which are in arrears, including without limitation, (a)
accrued but unpaid Insurance Premiums due pursuant to the Policies, (b) currently due Taxes
(including any in arrears) relating to the Property, and (c) currently due Other Charges relating
to the Property, which amounts shall be funded with proceeds of the Loan.




          3.1.9 Completion of Proceedings. All organizational and other proceedings taken or to be
taken in connection with the transactions contemplated by this Agreement and other Loan Documents
and all documents incidental thereto shall be satisfactory in form and




36









 







substance to Lender, and
Lender shall have received all such counterpart originals or certified copies of such documents as
Lender may reasonably request.




          3.1.10 Payments. All payments, deposits or escrows required to be made or established by
Borrower under this Agreement, the Note and the other Loan Documents on or before the Closing Date
shall have been paid or will be paid out of the proceeds of the Loan.




          3.1.11 Tenant Estoppels. Lender shall have received an executed tenant estoppel letter, which shall be in form and
substance satisfactory to Lender, from each Tenant.




          3.1.12 Transaction Costs. Borrower shall have paid or reimbursed Lender for all title
insurance premiums, recording and filing fees, costs of environmental reports, Physical Conditions
Report, appraisals and other reports, the reasonable fees and costs of Lender’s counsel and all
other reasonable third party out-of-pocket expenses incurred in connection with the origination and
closing of the Loan.




          3.1.13 Material Adverse Change. There shall have been no material adverse change in the
financial condition or business condition of Borrower, Guarantor or the Property since the date of
the most recent financial statements delivered to Lender. The income and expenses of the Property,
the occupancy thereof, and all other features of the transaction shall be as represented to Lender
without material adverse change. Neither Borrower nor Guarantor shall be the subject of any
bankruptcy, reorganization, or insolvency proceeding.




          3.1.14 Leases and Rent Roll. Lender shall have received copies of all Leases, which Leases
shall be certified by Borrower as being true, correct and complete and certified copies of all
ground leases affecting the Property, if any. Lender shall have received a current certified rent
roll of the Property, reasonably satisfactory in form and substance to Lender.




          3.1.15 Subordination, Nondisturbance and Attornment. Lender shall have received an
appropriate instrument acceptable to Lender in its reasonable discretion subordinating the Academy
Lease to the Mortgage and including an agreement from Academy to attorn to Lender in the event of a
foreclosure or delivery of a deed in lieu thereof. Lender shall agree in any such agreement to
provide the applicable Tenant non-disturbance protection provided the applicable Lease is not in
default beyond applicable notice and grace periods.




          3.1.16 Tax Lot. Lender shall have received evidence that the Property constitutes one (1)
or more separate tax lots, which evidence shall be reasonably satisfactory in form and substance to
Lender.




          3.1.17 Physical Conditions Reports. Lender shall have received a Physical Conditions
Report with respect to the Property, which report shall be issued by an engineer selected by Lender
and shall be reasonably satisfactory in form and substance to Lender.




          3.1.18 Management Agreement. Lender shall have received a copy of the Management Agreement with respect to the Property which
shall be satisfactory in form and substance to Lender.





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          3.1.19 Appraisal. Lender shall have received an appraisal of the Property, from an
appraiser selected by Lender, which appraisal shall be satisfactory in form and substance to
Lender.




          3.1.20 Financial Statements. To the extent available to Borrower, Lender shall have
received a balance sheet with respect to the Property for the two (2) most recent Fiscal Years and
statements of income and statements of cash flows with respect to the Property for the three (3)
most recent Fiscal Years, each in form and substance satisfactory to Lender.




          3.1.21 Further Documents. Lender or its counsel shall have received such other documents
and further approvals, opinions, documents and information as Lender or its counsel may have
reasonably requested including the Loan Documents in form and substance satisfactory to Lender and
its counsel.




     IV. REPRESENTATIONS AND WARRANTIES



     Section 4.1 Borrower Representations. Borrower represents and warrants as of the date
hereof and as of the Closing Date that:



          4.1.1 Organization. Borrower has been duly organized and is validly existing and in good
standing with requisite power and authority to own its properties and to transact the businesses in
which it is now engaged. Borrower is duly qualified to do business and is in good standing in each
jurisdiction where it is required to be so qualified in connection with its properties, businesses
and operations. Borrower possesses all rights, licenses, permits and authorizations, governmental
or otherwise, necessary to entitle it to own its properties and to transact the businesses in which
it is now engaged, and the sole business of Borrower is the ownership, management and operation of
the Property.




          4.1.2 Proceedings. Borrower has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the other Loan Documents. This Agreement and such
other Loan Documents have been duly executed and delivered by or on behalf of Borrower and
constitute legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, subject only to applicable bankruptcy, insolvency and
similar laws affecting rights of creditors generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at
law).




          4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the
other Loan Documents by Borrower will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or
assets of Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement,
partnership agreement, management agreement or other agreement or instrument to which Borrower is a
party or by which any of Borrower’s property or assets is subject, nor will such action result in
any violation of the provisions of any statute or any order, rule or regulation of any Governmental
Authority having jurisdiction over Borrower or any of Borrower’s properties or assets, and any
consent, approval, authorization, order, registration or




38









 







qualification of or with any court or any
such Governmental Authority required for the execution, delivery and performance by Borrower of
this Agreement or any other Loan Documents has been obtained and is in full force and effect.




          4.1.4 Litigation. There are no actions, suits or proceedings at law or in equity by or
before any Governmental Authority or other agency now pending or threatened against or affecting
Borrower, Guarantor or, to Borrower’s actual knowledge, the Property, which actions, suits or
proceedings, if determined against Borrower, Guarantor or the Property, might materially adversely
affect the condition (financial or otherwise) or business of Borrower, Guarantor or the condition
or ownership of the Property.




          4.1.5 Agreements. Borrower is not a party to any agreement or instrument or subject to any
restriction which might materially and adversely affect Borrower or the Property, or Borrower’s
business, properties or assets, operations or condition, financial or otherwise. Borrower is not
in default in any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to which it is a
party or by which Borrower or the Property is bound. Borrower has no material financial obligation
under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to
which Borrower is a party or by which Borrower or the Property is otherwise bound, other than (a)
obligations incurred in the ordinary course of the operation of the Property as permitted pursuant
to clause (xxiii) of the definition of “Special Purpose Entity” set forth in Section 1.1 hereof and
(b) obligations under the Loan Documents.




          4.1.6 Title. Borrower has good and marketable fee simple title to the real property
comprising part of the Property and good title to the balance of the Property, free and clear of
all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant
to the Loan Documents and the Liens created by the Loan Documents. To Borrower’s actual knowledge,
the Permitted Encumbrances in the aggregate do not materially and adversely affect the value,
operation or use of the Property (as currently used) or Borrower’s ability to repay the Loan. To
Borrower’s actual knowledge, the Mortgage, when properly recorded in the appropriate records,
together with any Uniform Commercial Code financing statements required to be filed in connection
therewith, will create (a) a valid, perfected first priority lien on the Property, subject only to
Permitted Encumbrances and the Liens created by the Loan Documents and (b) perfected security
interests in and to, and perfected collateral assignments of, all personalty owned by Borrower
(including the Leases), all in accordance with the terms thereof, in each case subject only to any
applicable Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created by the Loan Documents. To Borrower’s actual knowledge and except as set
forth in the Title Insurance Policy or previously disclosed to Lender and which the title company
has accepted a bond and/or indemnity to remove from the Title Insurance Policy, there are no claims
for payment for work, labor or materials affecting the Property which are or may become a Lien
prior to, or of equal priority with, the Liens created by the Loan Documents.




          4.1.7 Solvency. Borrower has (a) not entered into this transaction or executed the Note,
this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any
creditor and (b) received reasonably equivalent value in exchange for its obligations under such
Loan Documents. Giving effect to the Loan, the fair saleable value of Borrower’s




39









 







assets exceeds
and will, immediately following the making of the Loan, exceed Borrower’s total liabilities,
including, without limitation, subordinated, unliquidated, disputed and contingent liabilities.
The fair saleable value of Borrower’s assets is and will, immediately following the making of the
Loan, be greater than Borrower’s probable liabilities, including the maximum amount of its
contingent liabilities on its debts as such debts become absolute and matured. Borrower’s assets
do not and, immediately following the making of the Loan will not, constitute unreasonably small
capital to carry out its business as conducted or as proposed to be conducted. Borrower does not
intend to, and does not believe that it will, incur debt and liabilities (including contingent
liabilities and other commitments) beyond its ability to pay such debt and liabilities as they
mature (taking into account the timing and amounts of cash to be received by Borrower and the
amounts to be payable on or in respect of obligations of Borrower). No petition in bankruptcy has
been filed against Borrower or Guarantor in the last seven (7) years, and neither Borrower nor
Guarantor in the last seven (7) years has ever made an assignment for the benefit of creditors or
taken advantage of any insolvency act for the benefit of debtors. Neither Borrower nor Guarantor
are contemplating either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of Borrower’s assets or property, and
Borrower has no actual knowledge of any Person contemplating the filing of any such petition
against it or Guarantor.




          4.1.8 Full and Accurate Disclosure. No statement of fact made by Borrower in this
Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or
omits to state any material fact necessary to make statements contained herein or therein not
misleading. There is no material fact presently known to Borrower which has not been disclosed to
Lender which adversely affects, nor as far as Borrower can foresee, might adversely affect, the
Property or the business, operations or condition (financial or otherwise) of Borrower.




          4.1.9 No Plan Assets. Borrower does not sponsor, is not obligated to contribute to, and is
not itself an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of
ERISA or Section 4975 of the Code, and none of the assets of Borrower constitutes or will
constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section
2510.3-101. In addition, (a) Borrower is not a “governmental plan” within the meaning of Section
3(32) of ERISA and (b) transactions by or with Borrower are not subject to any state or other
statute, regulation or other restriction regulating investments of, or fiduciary obligations with
respect to, governmental plans within the meaning of Section 3(32) of ERISA which is similar to the
provisions of Section 406 of ERISA or Section 4975 of the Code and which prohibit or otherwise
restrict the transactions contemplated by this Agreement, including but not limited to the exercise
by Lender of any of its rights under the Loan Documents.




          4.1.10 Compliance. To Borrower’s actual knowledge, Borrower and the Property and the use
thereof comply in all material respects with all applicable Legal Requirements, including, without
limitation, building and zoning ordinances and codes. Borrower is not in default or violation of
any order, writ, injunction, decree or demand of any Governmental
Authority. To Borrower’s actual
knowledge, there has not been committed by Borrower or any other Person in occupancy of or involved
with the operation or use of the Property any act or omission affording the federal government or
any other Governmental




40









 







Authority the right of forfeiture as against the Property or any part
thereof or any monies paid in performance of Borrower’s obligations under any of the Loan
Documents.




          4.1.11 Financial Information. All financial data, including, without limitation, the
statements of cash flow and income and operating expense, that have been delivered to Lender in
connection with the Loan (i) are true, complete and correct in all material respects, (ii)
accurately represent the financial condition of Borrower and the Property, as applicable, as of the
date of such reports, and (iii) to the extent prepared or audited by an independent certified
public accounting firm, have been prepared in accordance with GAAP (or another basis of accounting
acceptable to Lender and consistently applied), throughout the periods covered, except as disclosed
therein. Except for Permitted Encumbrances, Borrower does not have any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments that are known to Borrower and reasonably likely to have a
materially adverse effect on the Property or the operation thereof as offices and a warehouse,
except as referred to or reflected in said financial statements. Since the date of such financial
statements, there has been no materially adverse change in the financial condition, operations or
business of Borrower from that set forth in said financial statements.




          4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or, to
Borrower’s actual knowledge, is threatened or contemplated with respect to all or any portion of
the Property or for the relocation of roadways providing access to the Property.




          4.1.13 Federal Reserve Regulations. No part of the proceeds of the Loan will be used for
the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System or for any other purpose which would be
inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any
purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the
other Loan Documents.




          4.1.14 Utilities and Public Access. The Property has rights of access to public ways and
is served by water, sewer, sanitary sewer and storm drain facilities adequate to service the
Property for its intended uses. All public utilities necessary or convenient to the full use and
enjoyment of the Property are located either in the public right-of-way abutting the Property
(which are connected so as to serve the Property without passing over other property) or in
recorded easements serving the Property and such easements are set forth in the Title Insurance
Policy. All roads necessary for the use of the Property for its current purposes have been
completed and dedicated to public use and accepted by all Governmental Authorities.




          4.1.15 Not a Foreign Person. Borrower is not a “foreign person” within the meaning of
§1445(f)(3) of the Code.




          4.1.16 Separate Lots. To Borrower’s actual knowledge, the Property is comprised of one (1)
or more parcels which constitute a separate tax lot or lots and does not constitute a portion of
any other tax lot not a part of the Property.




          4.1.17 Assessments. To Borrower’s actual knowledge and except as set forth in the Title
Insurance Policy, there are no pending or proposed special or other assessments for




41









 







public
improvements or otherwise affecting the Property nor are there any contemplated improvements to the
Property that may result in such special or other assessments.




          4.1.18 Enforceability. To Borrower’s actual knowledge, the Loan Documents are not subject
to any right of rescission, set-off, counterclaim or defense by Borrower or Guarantor, including
the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the
exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of
equity and bankruptcy, insolvency and other laws generally affecting creditors’ rights and the
enforcement of debtors’ obligations), and neither Borrower nor Guarantor have asserted any right of
rescission, set-off, counterclaim or defense with respect thereto.




          4.1.19 No Prior Assignment. There are no prior assignments as security of the landlord’s interest in the Leases or any
portion of the Rents due and payable or to become due and payable which are presently outstanding.




          4.1.20 Insurance. Borrower has obtained and has delivered to Lender certified copies of
the Policies, or insurance certificates in form reasonably acceptable to Lender, reflecting the
insurance coverages, amounts and other requirements set forth in this Agreement. To Borrower’s
actual knowledge, no claims have been made or are currently pending, outstanding or otherwise
remain unsatisfied under any of the Policies and neither Borrower nor any other Person, has done,
by act or omission, anything which would impair the coverage of any such Policy.




          4.1.21 Use of Property. The Property is used exclusively for office and warehouse purposes
and other appurtenant and related uses.




          4.1.22 Certificate of Occupancy; Licenses. All certifications, permits, licenses and
approvals, including without limitation, certificates of completion and occupancy permits required
for the legal use, occupancy and operation of the Property as offices and a warehouse
(collectively, the “Licenses”), have been obtained and are in full force and effect. Borrower
shall keep and maintain (or cause to be kept and maintained) all Licenses necessary for the
operation of the Property as offices and a warehouse. The use being made of the Property is in
conformity with the certificate of occupancy issued for the Property, if any.




          4.1.23 Flood Zone. Except as may be set forth in any flood certificate delivered to Lender
in connection with the Loan, none of the Improvements on the Property are located in an area as
identified by the Federal Emergency Management Agency as an area having special flood hazards or,
if so located, the flood insurance required pursuant to Section 6.1(a)(i) is in full force and
effect with respect to the Property.




          4.1.24 Physical Condition. To Borrower’s actual knowledge and except as set forth in the
Physical Conditions Report, the Property, including, without limitation, all buildings,
improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC
systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and
doors, landscaping, irrigation systems and all structural components, are in good condition, order
and repair in all material respects; To Borrower’s actual knowledge, there exists no




42









 







structural or
other material defects or damages in the Property, whether latent or otherwise, and Borrower has
not received notice from any insurance company or bonding company of any defects or inadequacies in
the Property, or any part thereof, which would adversely affect the insurability of the same or
cause
the imposition of extraordinary premiums or charges thereon or of any termination or threatened
termination of any policy of insurance or bond.




          4.1.25 Boundaries. To Borrower’s actual knowledge and except as set forth on the Survey,
all of the improvements which were included in determining the appraised value of the Property lie
wholly within the boundaries and building restriction lines of the Property, and no improvements on
adjoining properties encroach upon the Property, and no easements or other encumbrances upon the
Property encroach upon any of the Improvements, so as to affect the value or marketability of the
Property except those which are insured against by the Title Insurance Policy.




          4.1.26 Leases. The Property is not subject to any leases other than the Leases described
in the rent roll attached hereto as Schedule I and made a part hereof. Borrower is the owner and
lessor of landlord’s interest in the Leases. No Person has any possessory interest in the Property
or right to occupy the same except under and pursuant to the provisions of the Leases. The current
Leases are in full force and effect and, to Borrower’s actual knowledge and except as may be
disclosed in any tenant estoppel certificates delivered to Lender, there are no material defaults
thereunder by either party and there are no conditions that, with the passage of time or the giving
of notice, or both, would constitute material defaults thereunder. No Rent (including security
deposits) has been paid more than one (1) month in advance of its due date. To Borrower’s actual
knowledge and except as may be disclosed in any tenant estoppel certificates delivered to Lender,
all work to be performed by Borrower under each Lease has been performed as required and has been
accepted by the applicable Tenant , and any payments, free rent, partial rent, rebate of rent or
other payments, credits, allowances or abatements required to be given by Borrower to any Tenant
has already been received by such Tenant. There has been no prior sale, transfer or assignment
(other than to Borrower), hypothecation or pledge of any Lease or of the Rents received therein
(other than sales, transfers, assignments, hypothecations or pledges which may have been made by
the Tenants under the Leases). To Borrower’s actual knowledge and except as indicated on Schedule
I, no Tenant listed on Schedule I has assigned its Lease or sublet all or any portion of the
premises demised thereby, no such Tenant holds its leased premises under assignment or sublease,
nor does anyone except such Tenant and its employees occupy such leased premises. No Tenant under
any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of
the leased premises or the building of which the leased premises are a part, other than rights of
first refusal or rights of first offer described in any Leases delivered to Lender prior to the
date hereof. No Tenant under any Lease has any right or option for additional space in the
Improvements. To Borrower’s actual knowledge and except as disclosed in any environmental reports
delivered to Lender in connection with the Loan, no hazardous wastes or toxic substances, as
defined by applicable federal, state or local statutes, rules and regulations, have been disposed,
stored or treated by any Tenant under any Lease on or about the leased premises nor does Borrower
have any actual knowledge of any Tenant ’s intention to use its leased premises for any activity
which, directly or indirectly, involves the use, generation, treatment, storage, disposal or
transportation of any petroleum product or any toxic or hazardous chemical, material, substance or
waste, other than substances of kinds and in
amounts ordinarily and customarily used or stored for the




43









 







purposes of cleaning or other maintenance
or operations and otherwise in compliance with applicable environmental laws.




          4.1.27 Survey. To Borrower’s actual knowledge, the Survey does not fail to reflect any
material matter affecting the Property or the title thereto.




          4.1.28 Inventory. Borrower is the owner of all of the Equipment, Fixtures and Personal
Property (as such terms are defined in the Mortgage) located on or at the Property, other than
Equipment, Fixtures and Personal Property owned by the Tenants under the Leases and shall not lease
any Equipment, Fixtures or Personal Property other than pursuant to the Leases or as permitted
hereunder. All of the Equipment, Fixtures and Personal Property are sufficient to operate the
Property in the manner required hereunder and in the manner in which it is currently operated.




          4.1.29 Filing and Recording Taxes. To Borrower’s actual knowledge, all transfer taxes,
deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid
by any Person under applicable Legal Requirements currently in effect in connection with the
transfer of the Property to Borrower have been paid. All mortgage, mortgage recording, stamp,
intangible or other similar tax required to be paid by any Person under applicable Legal
Requirements currently in effect in connection with the execution, delivery, recordation, filing,
registration, perfection or enforcement of any of the Loan Documents, including, without
limitation, the Mortgage, have been paid, and, under current Legal Requirements, the Mortgage is
enforceable in accordance with its terms by Lender (or any subsequent holder thereof), subject to
principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors’
rights and the enforcement of debtors’ obligations.




          4.1.30 Special Purpose Entity/Separateness.




          (a) Until the Debt has been paid in full, Borrower hereby represents, warrants and covenants
that Borrower is, shall be and shall continue to be a Special Purpose Entity.




          (b) The representations, warranties and covenants set forth in Section 4.1.30(a) shall survive
for so long as any amount remains payable to Lender under this Agreement or any other Loan
Document.




          (c) Any and all of the assumptions made in any Insolvency Opinion, including, but not limited
to, any exhibits attached hereto, will have been and shall be true and correct in all respects, and
Borrower will have complied and will comply with all of the assumptions made with respect to it in
any Insolvency Opinion. Each entity other than Borrower with respect to which an assumption is
made in any Insolvency Opinion will have complied and will comply with all of the assumptions made
with respect to it in any such Insolvency Opinion.




          4.1.31 Management Agreement. The Management Agreement is in full force and effect and there is no default thereunder by any
party thereto and no event has occurred that, with the passage of time and/or the giving of notice
would constitute a default thereunder.




          4.1.32 Illegal Activity. No portion of the Property has been or will be purchased by
Borrower with proceeds of any illegal activity.





44









 








          4.1.33 No Change in Facts or Circumstances; Disclosure. All information submitted by and
on behalf of Borrower to Lender and in all financial statements, rent rolls (including the rent
roll attached hereto as Schedule I), reports, certificates and other documents submitted in
connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by
Borrower in this Agreement or in any other Loan Document, are, to Borrower’s actual knowledge,
accurate, complete and correct in all material respects. There has been no material adverse change
in any condition, fact, circumstance or event that would make any such information inaccurate,
incomplete or otherwise misleading in any material respect or that otherwise materially and
adversely affects or might materially and adversely affect the use, operation or value of the
Property or the business operations or the financial condition of Borrower. Borrower has disclosed
to Lender all material facts and has not failed to disclose any material fact that could cause any
Provided Information or representation or warranty made herein to be materially misleading.




          4.1.34 Investment Company Act. Borrower is not (a) an “investment company” or a company
“controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940,
as amended; (b) a “holding company” or a “subsidiary company” of a “holding company” or an
“affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the
Public Utility Holding Company Act of 1935, as amended; or (c) subject to any other federal or
state law or regulation which purports to restrict or regulate its ability to borrow money.




          4.1.35 Embargoed Person. As of the Closing Date, to Borrower’s knowledge, (a) none of the
funds or other assets of Borrower constitute property of, or are beneficially owned, directly or
indirectly, by any Embargoed Person; (b) no Embargoed Person has any interest of any nature
whatsoever in Borrower with the result that the investment in Borrower (whether directly or
indirectly), is prohibited by law or the Loan is in violation of law; and (c) none of the funds of
Borrower have been derived from any unlawful activity with the result that the investment in
Borrower (whether directly or indirectly), is prohibited by law or the Loan is in violation of law,
provided, however, with respect to direct or indirect interests in Cole Credit Property Trust, Inc.
or Cole Credit Property Trust II, Inc., Lender acknowledges that Borrower has relied exclusively on
its U.S. broker-dealer network to implement the normal and customary investor screening practices
mandated by applicable law and NASD regulations in making the foregoing representation.




          4.1.36 Principal Place of Business; State of Organization. Borrower’s principal place of business as of the date hereof is the address set forth in the
introductory paragraph of this Agreement. The Borrower is organized under the laws of the State of
Delaware.




          4.1.37 Loan to Value. Based on the appraisal delivered pursuant to Section 3.1.19, the
maximum principal amount of the Loan does not exceed 125% of the fair market value of the Property.




          4.1.38 Cash Management Account. Borrower hereby represents and warrants to Lender that:





45









 








     (a) Upon the establishment of the Cash Management Account, this Agreement, together with the
other Loan Documents, will create a valid and continuing security interest (as defined in the
Uniform Commercial Code of the state in which such account is located) in the Cash Management
Account in favor of Lender, which security interest is prior to all other Liens, other than
Permitted Encumbrances, and is enforceable as such against creditors of and purchasers from
Borrower;



     (b) Upon its establishment, the Cash Management Account will constitute a “deposit account”
and/or “securities account” within the meaning of the Uniform Commercial Code of the state in which
such account is located; and



     (c) Upon its establishment, the Cash Management Account will not be in the name of any Person
other than Borrower, as pledgor, or Lender, as pledgee. Borrower has not consented to Agent
complying with instructions with respect to the Cash Management Account from any Person other than
Lender.



     Section 4.2 Survival of Representations. Borrower agrees that all of the representations
and warranties of Borrower set forth in Section 4.1 hereof and elsewhere in this Agreement and in
the other Loan Documents shall survive for so long as any amount remains owing to Lender under this
Agreement or any of the other Loan Documents by Borrower. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents by Borrower shall be
deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter
made by Lender or on its behalf.



     V. BORROWER COVENANTS



     Section 5.1 Affirmative Covenants. From the date hereof and until payment and performance
in full of all obligations of Borrower under the Loan Documents or the earlier release of the Lien
of the Mortgage encumbering the Property (and all related obligations) in accordance with the terms
of this Agreement and the other Loan Documents, Borrower hereby covenants and agrees with Lender
that:



          5.1.1 Existence; Compliance with Legal Requirements. Borrower shall do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its existence, rights,
licenses, permits and franchises and comply with all Legal Requirements applicable to it and the
Property. There shall never be committed by Borrower, and Borrower shall never permit any other
Person in occupancy of or involved with the operation or use of the Property to commit any act or
omission affording the federal government or any state or local government the right of forfeiture
against the Property or any part thereof or any monies paid in performance of Borrower’s
obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit,
permit or suffer to exist any act or omission affording such right of forfeiture. Borrower shall
at all times maintain, preserve and protect all franchises and trade names and preserve all the
remainder of its property used or useful in the conduct of its business and shall keep the Property
in good working order and repair, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully
provided in the Mortgage. Borrower shall cause the Property to be insured at all times by
financially sound and reputable insurers, to such extent and




46









 







against such risks, and cause to be
maintained liability and such other insurance, as is more fully provided in this Agreement. After
prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal
proceeding promptly initiated and conducted in good faith and with due diligence, the validity of
any Legal Requirement, the applicability of any Legal Requirement to Borrower or the Property or
any alleged violation of any Legal Requirement, provided that (i) no Event of Default has occurred
and remains uncured; (ii) Borrower is permitted to do so under the provisions of any mortgage or
deed of trust superior in lien to the Mortgage; (iii) such proceeding shall be permitted under and
be conducted in accordance with the provisions of any instrument to which Borrower is subject and
shall not constitute a default thereunder and such proceeding shall be conducted in accordance with
all applicable statutes, laws and ordinances; (iv) neither the Property nor any part thereof or
interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost; (v)
Borrower shall promptly upon final determination thereof comply with any such Legal Requirement
determined to be valid or applicable or cure any violation of any Legal Requirement; (vi) such
proceeding shall suspend the enforcement of the contested Legal Requirement against Borrower or the
Property; and (vii) Borrower shall furnish such security as may be required in the proceeding, or
as may be requested by Lender, to insure compliance with such Legal Requirement, together with all
interest and penalties payable in connection therewith. Lender may apply any such security, as
necessary to cause compliance with such Legal Requirement at any time when, in the reasonable
judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally
established or the Property (or any part thereof or interest therein) shall be in danger of being
sold, forfeited, terminated, cancelled or lost.




          5.1.2 Taxes and Other Charges. Borrower shall pay or cause to be paid all Taxes and Other
Charges now or hereafter levied or assessed or imposed against the Property or any part thereof as
the same become due and payable; provided, however, Borrower’s obligation to directly pay (or cause
to be paid) Taxes shall be suspended for so long as Borrower complies with the terms and provisions
of Section 7.2 hereof. Borrower will deliver to Lender receipts for payment or other evidence
satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then
delinquent no later than ten (10) days prior to the date on which the Taxes and/or Other Charges
would otherwise be delinquent if not paid, provided, however, if the Tenant under a Lease pays such
Taxes or Other Charges directly to the applicable authority and Borrower timely requests and
diligently pursues evidence of payment, and further provided that no enforcement action has been
commenced by the applicable authority resulting from such Tenant’s failure to pay Taxes or Other
Charges, Borrower shall have an additional thirty (30) day period to provide such evidence to
Lender. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien or
charge whatsoever which may be or become a Lien or charge against the Property (other than
Permitted Encumbrances), and shall promptly pay for or cause to be paid all utility services
provided to the Property. After prior written notice to Lender, Borrower, at its own expense, may
contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with
due diligence, the amount or validity or application in whole or in part of any Taxes or Other
Charges, provided that (i) no Event of Default has occurred and remains uncured;
(ii) Borrower is permitted to do so under the provisions of any mortgage or deed of
trust superior in lien to the Mortgage; (iii) such proceeding shall be permitted under
and be conducted in accordance with the provisions of any other instrument to which Borrower is
subject and shall not constitute a default thereunder and such proceeding shall be conducted in
accordance with all applicable statutes, laws and ordinances; (iv) neither the




47









 







Property
nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated,
cancelled or lost; (v) Borrower shall promptly upon final determination thereof pay the
amount of any such Taxes or Other Charges, together with all costs, interest and penalties which
may be payable in connection therewith; (vi) such proceeding shall suspend the
collection of such contested Taxes or Other Charges from the Property; and (vii)
Borrower shall furnish such security as may be required in the proceeding, or as may be
requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all
interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by
Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the
entitlement of such claimant is established or the Property (or part thereof or interest therein)
shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any
danger of the Lien of the Mortgage being primed by any related Lien (other than Permitted
Encumbrances).




     Notwithstanding the foregoing provisions of this Section 5.1.2, to the extent the Academy
Lease remains in effect and Academy remains liable for the obligations under the Academy Lease, the
right to contest the validity, applicability or amount of any asserted tax or assessment shall be
governed by the Academy Lease.



          5.1.3 Litigation. Borrower shall give prompt written notice to Lender of any litigation or
governmental proceedings pending or threatened against Borrower and/or Guarantor which might
materially adversely affect Borrower’s or Guarantor’s condition (financial or otherwise) or
business or the Property.




          5.1.4 Access to Property. Subject to the rights of Tenants under the Leases, Borrower shall permit agents, representatives
and employees of Lender to inspect the Property or any part thereof at reasonable hours upon
reasonable advance notice.




          5.1.5 Notice of Default. Borrower shall promptly advise Lender of any material adverse
change in Borrower’s condition, financial or otherwise, or of the occurrence of any Event of
Default of which Borrower has actual knowledge.




          5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate fully with Lender with
respect to any proceedings before any court, board or other Governmental Authority which may in any
way affect the rights of Lender hereunder or any rights obtained by Lender under any of the other
Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any
such proceedings.




          5.1.7 Perform Loan Documents. Borrower shall observe, perform and satisfy all the terms,
provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the
extent required under the Loan Documents executed and delivered by, or applicable to, Borrower.




          5.1.8 Award and Insurance Benefits. Borrower shall cooperate with Lender in obtaining for
Lender the benefits of any Awards or Insurance Proceeds lawfully or equitably payable in connection
with the Property, and Lender shall be reimbursed for any reasonable expenses incurred in
connection therewith (including reasonable attorneys’ fees and disbursements, and the payment by
Borrower of the reasonable expense of an appraisal on behalf




48









 







of Lender in case of Casualty or
Condemnation affecting the Property or any part thereof) out of such Insurance Proceeds.




          5.1.9 Further Assurances. Borrower shall, at Borrower’s sole cost and expense:




          (a) furnish to Lender all instruments, documents, boundary surveys, footing or foundation
surveys, certificates, plans and specifications, appraisals, title and other insurance reports and
agreements, and each and every other document, certificate, agreement and instrument required to be
furnished by Borrower pursuant to the terms of the Loan Documents or which are reasonably requested
by Lender in connection therewith;




          (b) execute and deliver to Lender such documents, instruments, certificates, assignments and
other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect
the collateral at any time securing or intended to secure the obligations of Borrower under the
Loan Documents, as Lender may reasonably require; and




          (c) do and execute all and such further lawful and reasonable acts, conveyances and assurances
for the better and more effective carrying out of the intents and purposes of this Agreement and
the other Loan Documents, as Lender shall reasonably require from time to time.




          5.1.10 Principal Place of Business, State of Organization. Borrower will not cause or
permit any change to be made in its name, identity (including its trade name or names), place of
organization or formation (as set forth in Section 4.1.36 hereof) or, except for Transfers
permitted under the Loan Documents, Borrower’s corporate or partnership structure unless Borrower
shall have first notified Lender in writing of such change at least thirty (30) days prior to the
effective date of such change, and shall have first taken all action required by Lender for the
purpose of perfecting or protecting the lien and security interests of Lender pursuant to this
Agreement and the other Loan Documents and, in the case of a change in Borrower’s structure which
is not permitted under the Loan Documents, without first obtaining the prior consent of Lender.
Upon Lender’s request, Borrower shall execute and deliver additional financing statements, security
agreements and other instruments which may be necessary to effectively evidence or perfect Lender’s
security interest in the Property as a result of such change of principal place of business or
place of organization. Borrower’s principal place of business and chief executive office, and the
place where Borrower keeps its books and records, including recorded data of any kind or nature,
regardless of the medium or recording, including software, writings, plans, specifications and
schematics, has been for the preceding four months (or, if less, the entire period of the existence
of Borrower) and will continue to be the address of Borrower set forth at the introductory
paragraph of this Agreement (unless Borrower notifies Lender in writing at least thirty (30) days
prior to the date of such change). Borrower’s organizational identification number, if any,
assigned by the state of incorporation or organization is correctly set forth in the introductory
paragraph of this Agreement. Borrower shall promptly notify Lender of any change in its
organizational identification number. If Borrower does not now have an organizational
identification number and later obtains one, Borrower promptly shall notify Lender of such
organizational identification number.





49









 








          5.1.11 Financial Reporting. Borrower shall keep accurate books and records of account
of the Property and its own financial affairs sufficient to permit the preparation of financial
statements therefrom on the income tax basis of accounting. Lender and its duly authorized
representatives shall have the right to examine, copy and audit Borrower’s records and books of
account at all reasonable times. So long as this Agreement continues in effect, Borrower shall
provide to Lender, in addition to any other financial statements required hereunder or under any of
the other Loan Documents, the following financial statements and information, all of which must be
certified to Lender as being true and correct by Borrower or the person or entity to which they
pertain, as applicable, and be prepared in accordance with the income tax basis of accounting and
be in form and substance reasonably acceptable to Lender:




     (a) copies of any tax returns filed by Borrower, within thirty (30) days after the date of
filing;



     (b) [reserved]; and



     (c) quarterly operating statements for the Property, within forty-five (45) days after the end
of each March, June, September and December commencing with March, 2007;



     (d) annual balance sheets for the Property and annual financial statements for Borrower, each
principal or general partner in Borrower, and each Guarantor, within ninety (90) days after the end
of each calendar year; and



     (e) such other information with respect to the Property, Borrower, the principals or general
partners in Borrower, and each Guarantor, which may be reasonably requested from time to time by
Lender, within a reasonable time after the applicable request.


If any of the aforementioned materials are not furnished to Lender within the applicable time
periods or Lender is dissatisfied with the contents of any of the foregoing and has notified
Borrower of its dissatisfaction, in addition to any other rights and remedies of Lender contained
herein, (i) Borrower shall pay to Lender upon demand, at Lender’s option and in its sole
discretion, an amount equal to $1,000 for each of the aforementioned materials that is not
delivered in accordance with the income tax basis of accounting, provided Lender has given Borrower
at least 30 days prior written notice of such failure, and (ii) Lender shall have the right, but
not the obligation, to obtain the same by means of an audit by an independent certified public
accountant selected by Lender, in which event Borrower agrees to pay, or to reimburse Lender for,
any reasonable expense of such audit and further agrees to provide all reasonably necessary
information to said accountant and to otherwise cooperate in the making of such audit.



Within sixty (60) days after the occurrence of a Cash Management Trigger, and not later than sixty
(60) days prior to the commencement of each Fiscal Year thereafter, Borrower shall submit to Lender
an Annual Budget in form reasonably satisfactory to Lender. The Annual Budget shall be subject to
Lender’s written approval (each such approved Annual Budget, an “Approved Annual Budget”). In the
event that Lender objects to a proposed Annual Budget submitted by Borrower, Lender shall advise
Borrower of such objections within fifteen (15) days after receipt thereof (and deliver to Borrower
a reasonably detailed description of such objections) and Borrower shall promptly revise such
Annual Budget and resubmit the same to Lender. Lender




50









 







shall advise Borrower of any objections to
such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a
reasonably detailed description of such objections) and Borrower shall promptly revise the same in
accordance with the process described in this subsection until Lender approves the Annual Budget.
Until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual
Budget shall apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual
increases in Taxes, Insurance Premiums and Other Charges. In the event that, Borrower must incur
an extraordinary operating expense or capital expense not set forth in the Approved Annual Budget
(each an “Extraordinary Expense”), then Borrower shall promptly deliver to Lender a reasonably
detailed explanation of such proposed Extraordinary Expense for Lender’s approval.




          5.1.12 Business and Operations. Borrower will continue to engage in the businesses
presently conducted by it as and to the extent the same are necessary for the ownership,
maintenance, management and operation of the Property. Borrower will qualify to do business and
will remain in good standing under the laws
of the jurisdiction of its formation as and to the extent the same are required for the ownership,
maintenance, management and operation of the Property. Borrower shall at all times during the term
of the Loan, continue to own all of Equipment, Fixtures and Personal Property which are necessary
to operate the Property in the manner required hereunder and in the manner in which it is currently
operated, other than Equipment, Fixtures and Personal Property owned by the Tenants under the
Leases.




          5.1.13 Title to the Property. Borrower will warrant and defend (a) the title to the
Property and every part thereof, subject only to Liens permitted hereunder (including Permitted
Encumbrances) and (b) the validity and priority of the Lien of the Mortgage and the Assignment of
Leases on the Property, subject only to Liens permitted hereunder (including Permitted
Encumbrances), in each case against the claims of all Persons whomsoever. Borrower shall reimburse
Lender for any losses, costs, damages or expenses (including reasonable attorneys’ fees and court
costs) incurred by Lender if an interest in the Property, other than as permitted hereunder, is
claimed by another Person.




          5.1.14 Costs of Enforcement. In the event (a) that the Mortgage encumbering the Property
is foreclosed in whole or in part or that the Mortgage is put into the hands of an attorney for
collection, suit, action or foreclosure, (b) of the foreclosure of any mortgage encumbering the
Property prior to or subsequent to the Mortgage in which proceeding Lender is made a party, or (c)
of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or
Guarantor or an assignment by Borrower or Guarantor for the benefit of its creditors, Borrower, its
successors or assigns, shall be chargeable with and agrees to pay all costs of collection and
defense, including reasonable attorneys’ fees and costs, incurred by Lender or Borrower in
connection therewith and in connection with any appellate proceeding or post judgment action
involved therein, together with all required service or use taxes.




          5.1.15 Estoppel Statement.




          (a) After request by Lender, Borrower shall within ten (10) days furnish Lender with a
statement, duly acknowledged and certified, setting forth (i) the original principal
amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the
Applicable Interest Rate of the Note, (iv) the date installments of interest and/or
principal were last paid, (v) any




51









 







offsets or defenses to the payment of the Debt, if
any, and (vi) that the Note, this Agreement, the Mortgage and the other Loan Documents
are valid, legal and binding obligations and have not been modified or if modified, giving
particulars of such modification.




          (b) Borrower shall use commercially reasonable efforts to deliver to Lender upon request,
tenant estoppel certificates from each commercial Tenant leasing space at the Property in form and
substance reasonably satisfactory to Lender provided that Borrower shall not be required to deliver
such certificates more frequently than two (2) times in any calendar year.




          5.1.16 Loan Proceeds. Borrower shall use the proceeds of the Loan received by it on the Closing Date only for the
purposes set forth in Section 2.1.4 hereof.




          5.1.17 Performance by Borrower. Borrower shall in a timely manner observe, perform and
fulfill each and every covenant, term and provision of each Loan Document executed and delivered
by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any
amendment, waiver, supplement, termination or other modification of any Loan Document executed and
delivered by, or applicable to, Borrower without the prior written consent of Lender.




          5.1.18 Confirmation of Representations. Borrower shall deliver, in connection with any
Securitization, (a) one (1) or more Officer’s Certificates certifying as to the
accuracy of all representations made by Borrower in the Loan Documents as of the date of the
closing of such Securitization in all relevant jurisdictions, and (b) certificates of
the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing
and qualification of Borrower and Guarantor as of the date of the Securitization.




          5.1.19 No Joint Assessment. Borrower shall not suffer, permit or initiate the joint
assessment of the Property (a) with any other real property constituting a tax lot separate from
the Property, and (b) which constitutes real property with any portion of the Property which may be
deemed to constitute personal property, or any other procedure whereby the lien of any taxes which
may be levied against such personal property shall be assessed or levied or charged to such real
property portion of the Property.




          5.1.20 Leasing Matters. Any Leases with respect to the Property written after the date
hereof shall be approved by Lender, which approval shall not be unreasonably withheld, conditioned
or delayed. Upon request, Borrower shall furnish Lender with executed copies of all Leases. All
renewals of Leases and all proposed Leases shall provide for rental rates comparable to existing
local market rates. All proposed Leases shall be on commercially reasonable terms and shall not
contain any terms which would materially affect Lender’s rights under the Loan Documents. All
Leases executed after the date hereof shall provide that they are subordinate to the Mortgage and
that the lessee agrees to attorn to Lender or any purchaser at a sale by foreclosure or power of
sale. Borrower (i) shall observe and perform the obligations imposed upon the lessor under the
Leases in a commercially reasonable manner; (ii) shall enforce and may amend or terminate the
terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to
be observed or performed in a commercially reasonable manner and in a manner not to impair the
value of the Property involved except that no termination by




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Borrower or acceptance of surrender by
a Tenant of any Leases shall be permitted unless by reason of a tenant default and then only in a
commercially reasonable manner to preserve and protect the Property; provided, however, that no
such termination or surrender of any Lease covering more than 5,000 square feet will be permitted
without the written consent of Lender; (iii) shall not collect any of the rents
more than one (1) month in advance (other than security deposits); (iv) shall not execute any other
assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Loan
Documents); (v) shall not alter, modify or change the terms of the Leases in a manner inconsistent
with the provisions of the Loan Documents; and (vi) shall execute and deliver at the request of
Lender all such further assurances, confirmations and assignments in connection with the Leases as
Lender shall from time to time reasonably require. Borrower shall provide Lender, at least ten
(10) Business Days prior notice for the approval or rejection of any proposed Lease. Each such
request shall include the notation “IMMEDIATE RESPONSE REQUIRED” prominently displayed in bold, all
caps and fourteen (14) point or larger font at the top of the first page of the Lease approval
request and the envelope containing such request. In the event that Lender fails to respond within
such time period, Borrower shall submit a second approval request to which Lender shall respond
within five (5) Business Days. If Lender fails to respond to such second notice within such
period, such failure shall be deemed to be the consent and approval of the Lease by Lender if (I)
Borrower has delivered to Lender all required documents and information necessary to adequately and
completely evaluate the Lease, (II) Borrower has resubmitted the Lease with the notation “IMMEDIATE
RESPONSE REQUIRED, FAILURE TO RESPOND TO THIS LEASE APPROVAL REQUEST WITHIN FIVE (5) BUSINESS DAYS
FROM RECEIPT SHALL BE DEEMED TO BE LENDER’S APPROVAL OF THE LEASE” prominently displayed in bold,
all caps and fourteen (14) point or larger font at the top of the first page of the Lease approval
request and the envelope containing such request, and (III) the proposed tenant (or its parent if
such parent guarantees the tenant’s obligations under such proposed Lease) shall have a credit
rating issued by Standard and Poor’s of BB or better (or an equivalent rating issued by another
nationally recognized rating agency reasonably acceptable to Lender).




          5.1.21 Alterations




          (a) Borrower shall obtain Lender’s prior written consent to any alterations to any
Improvements, which consent shall not be unreasonably withheld or delayed except with respect to
alterations that may have a material adverse effect on Borrower’s financial condition, the value of
the Property or the Net Operating Income. Notwithstanding the foregoing, Lender’s consent shall
not be required in connection with (a) tenant improvement work performed pursuant to
the terms of any Lease executed on or before the date hereof, (b) tenant improvement work performed
pursuant to the terms of any Lease executed after the date hereof, provided that such Lease shall
satisfy the requirements of Section 5.1.20, or (c) alterations performed in connection
with the Restoration of the Property after the occurrence of a Casualty or Condemnation in
accordance with the terms and provisions of this Agreement, and in the case of clause (c), provided
such alterations will not have a material adverse effect on Borrower’s financial condition, the
value of the Property or the Net Operating Income. If the total unpaid amounts due and payable
with respect to alterations to the Improvements at the Property (other than such amounts to be paid
or reimbursed by Tenants under the Leases) shall at any time exceed One Hundred Thousand and 00/100
Dollars ($100,000.00) (the “Threshold Amount”), Borrower shall promptly deliver to Lender as
security for the payment of such amounts and as




53









 







additional security for Borrower’s obligations
under the Loan Documents any of the following: (A) cash, (B) U.S.
Obligations, (C) other securities having a rating acceptable to Lender and that the
applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a
downgrade, withdrawal or qualification of the initial, or, if higher, then current ratings assigned
to any Securities or any class thereof in connection with any Securitization or (D)
a completion and performance bond or an irrevocable letter of credit (payable on sight draft
only) issued by a financial institution having a rating by S&P of not less than “A-1+” if the term
of such bond or letter of credit is no longer than three (3) months or, if such term is in excess
of three (3) months, issued by a financial institution having a rating that is acceptable to Lender
and that the applicable Rating Agencies have confirmed in writing will not, in and of itself,
result in a downgrade, withdrawal or qualification of the initial, or, if higher, then current
ratings assigned to any Securities or class thereof in connection with any Securitization. Such
security shall be in an amount equal to the excess of the total unpaid amounts with respect to
alterations to the Improvements on the Property (other than such amounts to be paid or reimbursed
by Tenants under the Leases) over the Threshold Amount and Lender may apply such security from time
to time at the option of Lender to pay for such alterations.




          (b) Lender acknowledges that Academy has the right under Section 11(b) of the Academy Lease to
perform one or more expansions or renovations of the Improvements (the “Modification”) during the
first ten (10) years of the Academy Lease and Borrower is required to reimburse Academy for such
Modification in an amount not to exceed $5,000,000 pursuant to Section 11(b) of the Academy Lease.
Borrower covenants and agrees to reimburse Academy for such Modification, in an amount not to
exceed $5,000,000, pursuant to the terms of Section 11(b) of the Academy Lease. If Academy
exercises its right to perform a Modification and fails to complete such Modification with
reasonable diligence in a reasonable time, Borrower covenants and agrees to (i) restore or cause to
be restored the Property to a condition reasonably acceptable to Lender, which restoration may
include razing structures not completed in the course of such Modification, and (ii) discharge or
cause to be discharged (by payment, bonding or otherwise) all liens filed against the Property in
connection with such Modification.




          5.1.22 Operation of Property.




          (a) Borrower shall cause the Property to be operated, in all material respects, in accordance
with the Leases and Management Agreement (or Replacement Management Agreement) as applicable. In
the event that the Management Agreement expires or the Property is removed from the application of
the Management Agreement (without limiting any obligation of Borrower to obtain Lender’s consent to
any removal of the Property from the application of the Management Agreement or modification of the
Management Agreement as it relates to the Property if required in accordance with the terms and
provisions of this Agreement), Borrower shall promptly enter into a Replacement Management
Agreement with Manager or another Qualified Manager, as applicable.




          (b) Borrower shall: (i) promptly perform and/or observe, in all material respects, all of the
covenants and agreements required to be performed and observed by it under the Management Agreement
and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii)
promptly notify Lender of any material default under the Management Agreement of which it is aware;
(iii) promptly deliver to Lender a copy of each




54









 







financial statement, business plan, capital
expenditures plan, notice, report and estimate received by it with respect to the Property under
the Management Agreement; and (iv) enforce the performance and observance of all of the covenants
and agreements required to be performed
and/or observed by Manager under the Management Agreement, in a commercially reasonable
manner.




          5.1.23 Completion of Work in Progress. Lender acknowledges that there is currently
on-going construction at the Property being performed by Academy. Borrower hereby covenants and
agrees that if Academy fails to timely complete such on-going construction, Borrower shall complete
or cause Academy to complete such construction. If Borrower fails to complete or cause Academy to
complete such construction within sixty (60) days of Lender’s written request, or fails to
diligently continue or cause Academy to diligently continue such construction to completion in
accordance with Applicable Laws, then Lender shall have the right to complete such construction on
Borrower’s behalf and at Borrower’s cost and expense, subject to the rights of Academy under the
Academy Lease.




          5.1.24 Embargoed Person. Borrower has performed and shall perform reasonable due diligence
to insure that at all times throughout the term of the Loan, including after giving effect to any
Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of
Borrower and Guarantor constitute property of, or are beneficially owned, directly or indirectly,
by any person, entity or government subject to trade restrictions under U.S. law, including, but
not limited to, The USA PATRIOT Act (including the anti-terrorism provisions thereof), the
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, et seq., The Trading with the Enemy
Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder
including those related to Specially Designated Nationals and Specially Designated Global
Terrorists, with the result that the investment in Borrower or Guarantor, as applicable (whether
directly or indirectly), is prohibited by law or the Loan made by the Lender is in violation of law
(“Embargoed Person”); (b) no Embargoed Person has any interest of any nature whatsoever in Borrower
or Guarantor, as applicable, with the result that the investment in Borrower or Guarantor, as
applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of
law; and (c) none of the funds of Borrower or Guarantor, as applicable, have been derived from, or
are the proceeds of, any unlawful activity, including money laundering, terrorism or terrorism
activities, with the result that the investment in Borrower or Guarantor, as applicable (whether
directly or indirectly), is prohibited by law or the Loan is in violation of law, or may cause the
Property to be subject to forfeiture or seizure. Notwithstanding the foregoing, with respect to
the direct and indirect interests in Cole Credit Property Trust, Inc. or Cole Credit Property Trust
II, Inc., Borrower shall be permitted to rely exclusively on the implementation by its U.S.
broker-dealer network of the normal and customary investor screening practices mandated by
applicable law and NASD regulations in satisfaction of the foregoing covenant.




     Section 5.2 Negative Covenants. From the date hereof until payment and performance in full
of all obligations of Borrower under the Loan Documents or the earlier release of the Lien of the
Mortgage encumbering the Property (and all related obligations) in accordance with the terms of
this Agreement and the
other Loan Documents, Borrower covenants and agrees with Lender that it will not do, directly or
indirectly, any of the following:



55









 





          5.2.1 Operation of Property.




          (a) Borrower shall not, without Lender’s prior written consent (which consent shall not be
unreasonably withheld): (i) surrender, terminate, cancel, amend or modify the Management Agreement
as it relates to the Property; provided, that Borrower may, without Lender’s consent, replace the
Manager so long as the replacement manager is a Qualified Manager pursuant to a Replacement
Management Agreement and remove the Property from the application of the Management Agreement in
connection with such replacement; (ii) reduce or consent to the reduction of the term of the
Management Agreement as it relates to the Property; (iii) increase or consent to the increase of
the amount of any charges under the Management Agreement as it relates to the Property; or (iv)
otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and
remedies under, the Management Agreement as it relates to the Property in any material respect.




          (b) Following the occurrence and during the continuance of an Event of Default, Borrower shall
not exercise any rights, make any decisions, grant any approvals or otherwise take any action under
the Management Agreement as it relates to the Property without the prior written consent of Lender,
which consent may be granted, conditioned or withheld in Lender’s sole discretion.




          5.2.2 Liens. Borrower shall not create, incur, assume or suffer to exist any Lien on any
portion of the Property or permit any such action to be taken, except:




          (a) Permitted Encumbrances;




          (b) Liens created by or permitted pursuant to the Loan Documents; and




          (c) Liens for Taxes or Other Charges not yet due.




          5.2.3 Dissolution. Borrower shall not, without obtaining the prior written consent of
Lender or Lender’s designee (a) to the fullest extent permitted by law, engage in any
dissolution, liquidation or consolidation or merger with or into any other business entity,
(b) engage in any business activity not related to the ownership and operation of the
Property, (c) transfer, lease or sell, in one transaction or any combination of
transactions, the assets or all or substantially all of the properties or assets of Borrower except
to the extent permitted by the Loan Documents, or (d) unless required by applicable law,
modify, amend, waive or terminate its organizational documents (other than to evidence
transfers permitted under this Agreement) or its qualification and good standing in any
jurisdiction.




          5.2.4 Change In Business. Borrower shall not enter into any line of business other than the ownership and operation of the
Property, or make any material change in the scope or nature of its business objectives, purposes
or operations, or undertake or participate in activities other than the continuance of its present
business. Nothing contained in this Section 5.2.4 is intended to expand the rights of Borrower
contained in Section 5.2.10(d) hereof.




          5.2.5 Debt Cancellation. Borrower shall not cancel or otherwise forgive or release any
claim or debt (other than termination of Leases in accordance herewith) owed to




56









 







Borrower by any
Person, except for adequate consideration and in the ordinary course of Borrower’s business.




          5.2.6 Zoning. Borrower shall not initiate or consent to any zoning reclassification of any
portion of the Property or seek any variance under any existing zoning ordinance or use or permit
the use of any portion of the Property in any manner that could result in such use becoming a non
conforming use under any zoning ordinance or any other applicable land use law, rule or regulation,
without the prior consent of Lender.




          5.2.7 Intentionally Omitted.




          5.2.8 Intentionally Omitted.




          5.2.9 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 Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under ERISA.




          (b) Borrower further covenants and agrees to deliver to Lender such certifications or other
evidence from time to time throughout the term of the Loan, as requested by Lender in its sole
discretion, that (A) Borrower is not and does not maintain an “employee benefit plan” as defined in
Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the
meaning of Section 3(32) of ERISA; (B) Borrower is not subject to any state statute regulating
investment of, or fiduciary obligations with respect to governmental plans and (C) one or more of
the following circumstances is true:





     (i) Equity interests in Borrower are publicly offered securities, within the meaning of
29 C.F.R. §2510.3-101(b)(2);




     (ii) 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.
§2510.3-101(f)(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).



          5.2.10 Transfers.




          (a) Borrower acknowledges that Lender has examined and relied on the experience of Borrower
and its stockholders, general partners, members, principals and (if Borrower is a trust) beneficial
owners in owning and operating properties such as the Property in agreeing to make the Loan, and
will continue to rely on Borrower’s ownership of the Property as a means of maintaining the value
of the Property as security for repayment of the Debt and the performance of the Other Obligations.
Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so
as to ensure that, should Borrower default in the




57









 







repayment of the Debt or the performance of the
Other Obligations, Lender can recover the Debt by a sale of the Property.




          (b) Without the prior written consent of Lender, and except to the extent otherwise set forth
in this Section 5.2.10, Borrower shall not, and shall not permit any Restricted Party do any of the
following (collectively, a “Transfer”): (i) 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 or not for
consideration or of record) the Property or any part thereof or any legal or beneficial interest
therein or (ii) permit a Sale or Pledge of an interest in any Restricted Party, other than (A)
pursuant to Leases of space in the Improvements to Tenants in accordance with the provisions of
Section 5.1.20 and (B) Permitted Transfers.




          (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement
wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in
installments; (ii) an agreement by Borrower leasing all or a substantial part of the Property for
other than actual occupancy by a space Tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower’s right, title and interest in and to any
Leases or any Rents; (iii) if a Restricted Party is a corporation or trust, the sale, conveyance,
transfer, disposition, alienation, hypothecation or encumbering of more than 10% of the issued and
outstanding capital stock of such Restricted Party (or the issuance of new shares of capital stock
in such Restricted Party so that immediately after such issuance (in one or a series of
transactions) the total capital stock then issued and outstanding is more than 110% of the total
immediately prior to such issuance); (iv) if a Restricted Party is a limited or general partnership
or joint venture, a change in the ownership interests in any general partner or any joint venturer,
either voluntarily, involuntarily or otherwise, or the sale, conveyance, transfer, disposition,
alienation, hypothecation or encumbering of all or any portion of the interest of any such general
partner or joint venturer (whether in the form of a beneficial, membership or partnership interest
or in the form of a power of direction, control or management, or otherwise); or (v) if a
Restricted Party is a limited liability company, a change in the ownership interests in any
managing member, either voluntarily, involuntarily or otherwise, or the sale, conveyance, transfer,
disposition, alienation, hypothecation or encumbering of all or any portion of the interest of any
such managing member (whether in the form of a beneficial, membership or partnership interest or in
the form of a power of direction, control or management, or otherwise).




          (d) Notwithstanding the foregoing, however, (i) limited partnership interests in any
Restricted Party shall be freely transferable without the consent of Lender, (ii) any involuntary
transfer caused by the death of any Restricted Party or any general partner,
shareholder, joint venturer, manager, member or beneficial owner of a trust shall not be an
Event of Default so long as Borrower is reconstituted, if required, following such death and so
long as those persons responsible for the management of the Property and Borrower remain unchanged
as a result of such death or any replacement management is approved by Lender, (iii) gifts for
estate planning purposes of any individual’s interests in any Restricted Party to the spouse or any
lineal descendant of such individual, or to a trust for the benefit of any one or more of such
individual, spouse or lineal descendant, shall not be an Event of Default so long as Borrower is
reconstituted, if required, following such gift and so long as those persons responsible for the
management of the Property and Borrower remain unchanged following such gift or any




58









 







replacement
management is approved by Lender, and (iv) membership interests or limited partnership interests in
any Restricted Party and interests in any member of any Restricted Party (collectively, “Permitted
Transfers”) may be transferred to any Affiliate of a Restricted Party without the consent of
Lender, provided that, at all times, Christopher H. Cole or Cole Credit Property Trust II, Inc.
must continue to Control Borrower and Guarantor.




          (e) Notwithstanding the foregoing provisions of this Section, at any time other than the
period commencing thirty (30) days prior to a Securitization and ending thirty (30) days after such
Securitization, Lender shall not withhold its consent to a Transfer of the Property provided that
Lender receives not less than sixty (60) days prior written notice of such Transfer and no Event of
Default has occurred and is continuing, and further provided that the following additional
requirements are satisfied:





     (i) Borrower shall pay or cause to be paid Lender an administrative fee of not more
than $4,000 and an assumption fee equal to one percent (1.0%) of the outstanding principal
balance of the Loan at the time of such Transfer, provided, however, that (A) no
administrative fee or assumption fee shall be payable in connection with (1) a Transfer by
the initial Borrower to an Identified Affiliate or (2) an initial Transfer by the initial
Borrower or an Identified Affiliate to an unrelated party prior to Securitization, and (B)
an administrative fee of not more than $4,000 and no assumption fee, shall be payable in
connection with an initial Transfer by the initial Borrower or an Identified Affiliate to an
unrelated party after Securitization;




     (ii) Borrower shall pay or cause to be paid any and all reasonable out-of-pocket costs
incurred in connection with such Transfer (including, without limitation, Lender’s
reasonable counsel fees and disbursements and all recording fees, title insurance premiums
and mortgage and intangible taxes and the reasonable fees and expenses of the Rating
Agencies pursuant to clause (x) below);




     (iii) The proposed transferee (the “Transferee”) or Transferee’s Principals must have
demonstrated expertise in owning and operating properties similar in location, size, class
and operation to the Property, which expertise shall be reasonably determined by Lender;




     (iv) Transferee and Transferee’s Principals shall, as of the date of such transfer,
have an aggregate net worth and liquidity reasonably acceptable to Lender;




     (v) Transferee, Transferee’s Principals and all other entities which may be owned or
Controlled directly or indirectly by Transferee’s Principals (“Related Entities”) must not
have been party to any bankruptcy proceedings, voluntary or involuntary, made an assignment
for the benefit of creditors or taken advantage of any insolvency act, or any act for the
benefit of debtors within seven (7) years prior to the date of the proposed Transfer;




     (vi) Transferee shall assume (subject to Section 9.3) all of the obligations of
Borrower under the Loan Documents in a manner satisfactory to Lender in all respects,



59









 







including, without limitation, by entering into an assumption agreement in form and
substance satisfactory to Lender;




     (vii) There shall be no material litigation or regulatory action pending or threatened
against Transferee, Transferee’s Principals or Related Entities which is not reasonably
acceptable to Lender;




     (viii) Transferee, Transferee’s Principals and Related Entities shall not have
defaulted under its or their obligations with respect to any other Indebtedness in a manner
which is not reasonably acceptable to Lender;




     (ix) Transferee and Transferee’s Principals must be able to satisfy all the
representations and covenants set forth in Sections 4.1.30 and 5.2.9 of this Agreement, no
Event of Default shall otherwise occur as a result of such Transfer, and Transferee and
Transferee’s Principals shall deliver (A) all organizational documentation reasonably
requested by Lender, which shall be reasonably satisfactory to Lender and (B) all
certificates, agreements and covenants reasonably required by Lender, provided that such
certificates, agreements and covenants shall not materially increase the obligations of
Borrower under the Loan Documents or materially decrease the rights of Borrower under the
Loan Documents;




     (x) If required by Lender, Transferee shall be approved by the Rating Agencies selected
by Lender, which approval, if required by Lender, shall take the form of a confirmation in
writing from such Rating Agencies to the effect that such Transfer will not result in a
qualification, reduction, downgrade or withdrawal of the ratings in effect immediately prior
to such assumption or transfer for the Securities or any class thereof issued in connection
with a Securitization which are then outstanding;




     (xi) Intentionally omitted;




     (xii) Prior to any release of Guarantor, one (1) or more substitute guarantors
reasonably acceptable to Lender shall have assumed all of the liabilities and obligations of
Guarantor under the Indemnity executed by Guarantor or execute a replacement Indemnity
reasonably satisfactory to Lender;




     (xiii) Borrower shall deliver, at its sole cost and expense, an endorsement to the
Title Insurance Policy which endorsement shall insure the lien of the Mortgage, as modified
by the assumption agreement, as a valid first lien on the Property, shall name the
Transferee as owner of the Property, and shall insure that, as of the date of the
recording of the assumption agreement, the Property shall not be subject to any
additional exceptions or liens other than those contained in the Title Insurance Policy
issued on the date hereof and the Permitted Encumbrances; and




     (xiv) The Property shall be managed by a Qualified Manager pursuant to a Replacement
Management Agreement.


Immediately upon a Transfer to such Transferee and the satisfaction of all of the above
requirements, the named Borrower and Guarantor herein shall be released from all liability under




60









 







this Agreement, the Note, the Mortgage and the other Loan Documents accruing after such Transfer.
The foregoing release shall be effective upon the date of such Transfer, but Lender agrees to
provide written evidence thereof reasonably requested by Borrower.




          (f) Lender shall not be required to demonstrate any actual impairment of its security or any
increased risk of default hereunder in order to declare the Debt immediately due and payable upon
Borrower’s Transfer without Lender’s consent. This provision shall apply to every Transfer
regardless of whether voluntary or not, or whether or not Lender has consented to any previous
Transfer.




     VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS



     Section 6.1 Insurance.



          (a) From the date hereof until payment and performance in full of all obligations of Borrower
under the Loan Documents or the earlier release of the Lien of the Mortgage encumbering the
Property (and all related obligations) in accordance with the terms of this Agreement and the other
Loan Documents, Borrower shall obtain and maintain, or cause to be maintained, insurance for
Borrower and the Property providing at least the following coverages:





     (i) comprehensive all risk insurance (“Special Form”) including, but not limited to,
loss caused by any type of windstorm or hail on the Improvements and the Personal Property,
(A) in an amount equal to one hundred percent (100%) of the “Full Replacement Cost,” which
for purposes of this Agreement shall mean actual replacement value (exclusive of costs of
excavations, foundations, underground utilities and footings) with a waiver of depreciation,
but the amount shall in no event be less than the outstanding principal balance of the Loan;
(B) containing an agreed amount endorsement with respect to the Improvements and Personal
Property waiving all co-insurance provisions or to be written on a no co-insurance form; (C)
providing for no deductible in excess of Ten Thousand and 00/100 Dollars ($10,000.00) for
all such insurance coverage excluding windstorm and earthquake and (D) if any of the
Improvements or the use of the Property shall at any time constitute legal non-conforming
structures or uses, coverage for loss due to operation of law in an amount equal to the full
Replacement Cost, coverage for demolition costs and coverage for increased costs of
construction. In addition, Borrower shall obtain: (x) if any portion of the Improvements
is currently or at any time in the future located in a federally designated “special flood
hazard area”, flood
hazard insurance in an amount equal to the lesser of (1) the outstanding principal
balance of the Note or (2) the maximum amount of such insurance available under the National
Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood
Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall
reasonably require and (y) earthquake insurance in amounts and in form and substance
reasonably satisfactory to Lender in the event the Property is located in an area with a
high degree of seismic activity;



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     (ii) business income insurance (A) with loss payable to Lender; (B) covering all risks
required to be covered by the insurance provided for in subsection (i) above; (C) in an
amount equal to one hundred percent (100%) of the projected gross revenues from the
operation of the Property (as reduced to reflect expenses not incurred during a period of
Restoration) for a period of at least eighteen (18) months after the date of the Casualty;
and (D) containing an extended period of indemnity endorsement which provides that after the
physical loss to the Improvements and Personal Property has been repaired, the continued
loss of income will be insured until such income either returns to the same level it was at
prior to the loss, or the expiration of six (6) months from the date that the Property is
repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding
that the policy may expire prior to the end of such period. The amount of such business
income insurance shall be determined prior to the date hereof and at least once each year
thereafter based on Borrower’s reasonable estimate of the gross revenues from the Property
for the succeeding twelve (12) month period. Notwithstanding the provisions of Section
2.7.1 hereof, all proceeds payable to Lender pursuant to this subsection shall be held by
Lender and shall be applied to the obligations secured by the Loan Documents from time to
time due and payable hereunder and under the Note; provided, however, that nothing herein
contained shall be deemed to relieve Borrower of its obligations to pay the obligations
secured by the Loan Documents on the respective dates of payment provided for in this
Agreement and the other Loan Documents except to the extent such amounts are actually paid
out of the proceeds of such business income insurance;




     (iii) at all times during which structural construction, repairs or alterations are
being made with respect to the Improvements, and only if the Property coverage form does not
otherwise apply, (A) owner’s contingent or protective liability insurance, otherwise known
as Owner Contractor’s Protective Liability, covering claims not covered by or under the
terms or provisions of the below mentioned commercial general liability insurance policy and
(B) the insurance provided for in subsection (i) above written in a so-called builder’s risk
completed value form (1) on a non-reporting basis, (2) against all risks insured against
pursuant to subsection (i) above, (3) including permission to occupy the Property and (4)
with an agreed amount endorsement waiving co-insurance provisions;




     (iv) comprehensive boiler and machinery insurance, if steam boilers or other
pressure-fixed vessels are in operation, in amounts as shall be reasonably required by
Lender on terms consistent with the commercial property insurance policy required under
subsection (i) above;




     (v) commercial general liability insurance against claims for personal injury, bodily
injury, death or property damage occurring upon, in or about the Property, such insurance
(A) to be on the so-called “occurrence” form with a combined limit of not less than Two
Million and 00/100 Dollars ($2,000,000.00) in the aggregate and One Million Seven Hundred
Fifty Thousand and 00/100 Dollars ($1,750,000.00) per occurrence; (B) to continue at not
less than the aforesaid limit until required to be changed by Lender in writing by reason of
changed economic conditions making such protection inadequate and (C) to cover at least the
following hazards: (1) premises and



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operations; (2) products and completed operations on an
“if any” basis; (3) independent contractors; (4) blanket contractual liability for all
written contracts and (5) contractual liability covering the indemnities contained in
Article 9 of the Mortgage to the extent the same is available;




     (vi) automobile liability coverage for all owned and non-owned vehicles, including
rented and leased vehicles containing minimum limits per occurrence of One Million Dollars
and 00/100 Dollars ($1,000,000.00);




     (vii) worker’s compensation and employer’s liability subject to the worker’s
compensation laws of the applicable state;




     (viii) umbrella and excess liability insurance in an amount not less than Sixteen
Million and 00/100 Dollars ($16,000,000.00) per occurrence on terms consistent with the
commercial general liability insurance policy required under subsection (v) above,
including, but not limited to, supplemental coverage for employer liability and automobile
liability, which umbrella liability coverage shall apply in excess of the automobile
liability coverage in clause (vi) above;




     (ix) If the policy or policies of insurance covering the risks required to be covered
under Section 6.1(a) do not provide coverage for acts of terrorism, Borrower shall make
commercially reasonable efforts to obtain and maintain a separate policy providing such
coverages in the event of any act of terrorism, provided such coverage is available for
properties similar to the Property and located in or around the region in which the Property
is located; and




     (x) upon sixty (60) days written notice, such other reasonable insurance, including,
but not limited to, sinkhole or land subsidence insurance, and in such reasonable amounts as
Lender from time to time may reasonably request against such other insurable hazards which
at the time are commonly insured against for property similar to the Property located in or
around the region in which the Property is located.



          (b) All insurance provided for in Section 6.1(a) hereof, shall be obtained under valid and
enforceable policies (collectively, the “Policies” or in the singular, the “Policy”), and shall be
subject to the approval of Lender as to insurance companies, amounts, deductibles, loss payees and
insureds. The Policies shall be issued by financially sound and responsible insurance companies
authorized to do business in the State and having a claims paying ability rating of “A-” or better
(and the equivalent thereof) by at least two (2) of the Rating Agencies rating the Securities (one
(1) of which shall be S&P if they are rating the Securities and one (1) of which will be Moody’s if
they are rating the Securities), or if only one (1) Rating Agency is
rating the Securities, then only by such Rating Agency. The Policies described in Section 6.1
hereof (other than those strictly limited to liability protection) shall designate Lender as loss
payee. Not less than ten (10) days prior to the expiration dates of the Policies theretofore
furnished to Lender, certificates of insurance evidencing the Policies accompanied by evidence
satisfactory to Lender of payment of the premiums due thereunder (the “Insurance Premiums”), shall
be delivered by Borrower to Lender.





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          (c) Any blanket insurance Policy shall specifically allocate to the Property the amount of
coverage from time to time required hereunder and shall otherwise provide the same protection as
would a separate Policy insuring only the Property in compliance with the provisions of Section
6.1(a) hereof.




          (d) All Policies provided for or contemplated by Section 6.1(a) hereof, except for the Policy
referenced in Section 6.1(a)(vii) of this Agreement, shall name Borrower as the insured and Lender
as the additional insured, as its interests may appear, and in the case of property damage, boiler
and machinery, flood and earthquake insurance, shall contain a so-called New York standard
non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be
payable to Lender.




          (e) All Policies shall contain clauses or endorsements to the effect that:





     (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any Tenant
or other occupant, or failure to comply with the provisions of any Policy, which might
otherwise result in a forfeiture of the insurance or any part thereof, shall in any way
affect the validity or enforceability of the insurance insofar as Lender is concerned;




     (ii) the Policy shall not be materially changed (other than to increase the coverage
provided thereby) or canceled without at least thirty (30) days written notice to Lender and
any other party named therein as an additional insured;




     (iii) the issuers thereof shall give written notice to Lender if the Policy has not
been renewed thirty (30) days prior to its expiration; and




     (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any
assessments thereunder.



          (f) If at any time Lender is not in receipt of written evidence that all insurance required
hereunder is in full force and effect, Lender shall have the right, without notice to Borrower, to
take such action as Lender deems necessary to protect its interest in the Property, including,
without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems
appropriate after three (3) Business Days notice to Borrower if prior to the date upon which any
such coverage will lapse or at any time Lender deems necessary (regardless of prior notice to
Borrower) to avoid the lapse of any such coverage. All premiums incurred by Lender in connection
with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower
to Lender upon demand and, until paid, shall be secured by the Mortgage and shall bear interest at
the Default Rate.




          (g) To the extent that any portion of the Improvements consisting of an entire building
separate in all respects from any other building comprising part of the Improvements is occupied by
a single Tenant, and such Tenant provides insurance satisfying the requirements hereof with respect
to such Improvements (including, without limitation, naming Lender as an additional insured or loss
payee, as applicable), such insurance shall satisfy Borrower’s obligations hereunder. In addition,
provided no default shall exist under such Tenant’s Lease, and further provided that such Tenant
(or the corporate guarantor of such Tenant’s Lease) shall




64









 







either maintain a credit rating issued by
Standard and Poor’s of BB or better (or an equivalent rating issued by another nationally
recognized rating agency reasonably acceptable to Lender) or have an audited net worth in excess of
$100,000,000, such Tenant shall be permitted to self-insure in accordance with its Lease with
respect to the coverage required hereunder, and such self-insurance shall be deemed to satisfy the
requirements hereof. Lender acknowledges that the insurance in place as of the date hereof, as
evidenced by the certificates of insurance provided by Borrower and each Tenant in connection with
the closing of the Loan, other than with respect to business income insurance coverage required
under Section 6.1(a)(ii), shall be deemed to satisfy the foregoing requirements as in effect on the
date hereof.




          (h) Borrower hereby agrees to pay to Lender following a Casualty any amounts Lender would be
entitled to receive under a business income insurance policy that satisfies the requirements of
Section 6.1(a)(ii). In consideration for such agreement, Lender agrees that, so long as the
Academy Lease is in effect, Borrower’s failure to provide the business income insurance coverage
required under Section 6.1(a)(ii) shall not be an Event of Default hereunder.




     Section 6.2 Casualty. If the Property shall be damaged or destroyed, in whole or in part,
by fire or other casualty (a “Casualty”), Borrower shall give prompt notice of such damage to
Lender and shall promptly commence and diligently prosecute the completion of the Restoration of
the Property pursuant to Section 6.4 hereof as nearly as possible to the condition the Property was
in immediately prior to such Casualty, with such alterations as may be reasonably approved by
Lender and otherwise in accordance with Section 6.4 hereof. Borrower shall pay (or cause to be
paid) all costs of such Restoration whether or not such costs are covered by insurance. Lender
may, but shall not be obligated to make proof of loss if not made promptly by Borrower. In
addition, Lender may participate in any settlement discussions with any insurance companies (and
shall approve the final settlement, which approval shall not be unreasonably withheld or delayed)
with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration
are equal to or greater than One Hundred Thousand and 00/100 Dollars ($100,000.00) and Borrower
shall deliver to Lender all instruments required by Lender to permit such participation.



     Section 6.3 Condemnation. Borrower shall promptly give Lender notice of the actual or
threatened commencement of any proceeding for the Condemnation of the Property and shall deliver to
Lender copies of any and all papers served in connection with such proceedings. Lender may
participate in any such proceedings, and Borrower shall from time to time deliver to Lender all
instruments requested by
it to permit such participation. Borrower shall, at its expense, diligently prosecute any such
proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in
the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or
quasi-public authority through Condemnation or otherwise (including, but not limited to, any
transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall
continue to pay the Debt at the time and in the manner provided for its payment in the Note and in
this Agreement and the Debt shall not be reduced until any Award shall have been actually received
and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge
of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning
authority but shall be entitled to receive out of



65









 







the Award interest at the rate or rates provided
herein or in the Note. If any portion of the Property is taken by a condemning authority, Borrower
shall promptly commence and diligently prosecute the Restoration of the Property pursuant to
Section 6.4 hereof and otherwise comply with the provisions of Section 6.4 hereof. If the Property
is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall have been sought,
recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt.



     Section 6.4 Restoration. The following provisions shall apply in connection with the
Restoration of the Property:



          (a) If the Net Proceeds shall be less than Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00) and the costs of completing the Restoration shall be less than Two Million
Five Hundred Thousand and 00/100 Dollars ($2,500,000.00), the Net Proceeds will be disbursed by
Lender to Borrower upon receipt, provided that all of the conditions set forth in Section 6.4(b)(i)
hereof are met and Borrower delivers to Lender a written undertaking to expeditiously commence and
to satisfactorily complete with due diligence the Restoration in accordance with the terms of this
Agreement.




          (b) If the Net Proceeds are equal to or greater than Two Million Five Hundred Thousand and
00/100 Dollars ($2,500,000.00) or the costs of completing the Restoration are equal to or greater
than Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) Lender shall make the Net
Proceeds available for the Restoration in accordance with the provisions of this Section 6.4. The
term “Net Proceeds” for purposes of this Section 6.4 shall mean: (i) the net amount of all
insurance proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (ix) and (x) as a
result of such damage or destruction, after deduction of its reasonable costs and expenses
(including, but not limited to, reasonable counsel fees), if any, in collecting same (“Insurance
Proceeds”), or (ii) the net amount of the Award, after deduction of its reasonable costs and
expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same
(“Condemnation Proceeds”), whichever the case may be.




          (c) The Net Proceeds shall be made available to Borrower for Restoration provided that
each of the following conditions are met:





          (i) no Event of Default shall have occurred and be continuing;




          (ii) (1) in the event the Net Proceeds are Insurance Proceeds, less than forty percent
(40%) of the total floor area of the Improvements on the Property has been damaged,
destroyed or rendered unusable as a result of such Casualty or (2) in the event the Net
Proceeds are Condemnation Proceeds, less than twenty five percent (25%) of the land
constituting the Property is taken, and such land is located along the perimeter or
periphery of the Property, and no material portion of the Improvements is located on such
land;




          (iii) Intentionally omitted;




          (iv) Borrower shall commence the Restoration as soon as reasonably practicable (but in
no event later than sixty (60) days after such Casualty or



66









 







Condemnation, whichever the case
may be, occurs) and shall diligently pursue the same to satisfactory completion;




          (v) Lender shall be satisfied that any operating deficits, including 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 Casualty or Condemnation, whichever
the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage
referred to in Section 6.1(a)(ii) hereof, if applicable, or (3) by other funds of Borrower;




          (vi) Lender shall be satisfied that the Restoration will be completed on or before the
earliest to occur of (1) six (6) months prior to the Maturity Date, (2) the earliest date
required for such completion under the terms of any Leases, (3) such time as may be required
under all applicable Legal Requirements in order to repair and restore the Property to the
condition it was in immediately prior to such Casualty or to as nearly as possible the
condition it was in immediately prior to such Condemnation, as applicable, or (4) the
expiration of the insurance coverage referred to in Section 6.1(a)(ii) hereof;




          (vii) the Property and the use thereof after the Restoration will be in material
compliance with and permitted under all applicable Legal Requirements;




          (viii) the Restoration shall be done and completed by Borrower in a reasonably
expeditious and diligent fashion and in material compliance with all applicable Legal
Requirements;




          (ix) such Casualty or Condemnation, as applicable, does not result in the loss of
access to the Property or the Improvements;




          (x) the Debt Service Coverage Ratio for the Property, after giving effect to the
Restoration shall be equal to or greater than .94 to 1.0 as determined by Lender;




          (xi) Borrower shall deliver, or cause to be delivered, to Lender a signed detailed
budget approved in writing by Borrower’s architect or engineer stating the entire cost of
completing the Restoration, which budget shall be acceptable to Lender; and




          (xii) the Net Proceeds together with any cash or cash equivalent deposited by Borrower
with Lender are sufficient in Lender’s discretion to cover the cost of the Restoration
(provided that Borrower shall not be required to deposit any cash or cash equivalent with
Lender if the Net Proceeds and the costs of completing the Restoration are each less than
One Hundred Thousand and 00/100 Dollars ($100,000.00) and the conditions in the preceding
subsections (A) through (K) shall be satisfied).




          (xiii) The Net Proceeds shall be held by Lender in an interest-bearing account and,
until disbursed in accordance with the provisions of this Section 6.4(b), shall constitute
additional security for the Debt and Other Obligations under the Loan Documents. The Net
Proceeds shall be disbursed by Lender to, or as directed by,



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Borrower from time to time
during the course of the Restoration, 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 same, or any other liens or
encumbrances of any nature whatsoever on the Property which have not either been fully
bonded to the satisfaction of Lender or discharged of record or in the alternative fully
insured to the satisfaction of Lender by the title company issuing the Title Insurance
Policy.




          (xiv) All plans and specifications required in connection with the Restoration shall be
subject to prior review and acceptance in all respects by Lender and by an independent
consulting engineer selected by Lender (the “Casualty Consultant”), such acceptance not to
be unreasonably withheld, conditioned or delayed. 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, 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 the Casualty
Consultant, such acceptance not to be unreasonably withheld, conditioned or delayed. All
reasonable costs and expenses incurred by Lender in connection with making the Net Proceeds
available for the Restoration including, without limitation, reasonable counsel fees and
disbursements and the Casualty Consultant’s reasonable fees, shall be paid by Borrower.




          (xv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in
excess of an amount equal to the costs actually incurred from time to time for work in place
as part of the Restoration, as certified by the Casualty Consultant, minus the
Casualty Retainage. The term “Casualty Retainage” shall mean an amount equal to ten percent
(10%) of the costs actually incurred for work in place as part of the Restoration, as
certified by the Casualty Consultant, until the Restoration has been completed. The
Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth
above in this Section 6.4(b), be less than the amount actually held back by Borrower from
contractors, subcontractors and materialmen engaged in the Restoration. The Casualty
Retainage shall not be released until the Casualty Consultant certifies to Lender that the
Restoration has been completed in accordance with the provisions of this Section 6.4(b) and
that all approvals necessary for the re-occupancy
and use of the Property have been obtained from all appropriate governmental and
quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the
costs of the Restoration have been paid in full or will be paid in full out of the Casualty
Retainage; provided, however, that Lender will release the portion of the Casualty Retainage
being held with respect to any contractor, subcontractor or materialman engaged in the
Restoration as of the date upon which the Casualty Consultant certifies to Lender that the
contractor, subcontractor or materialman has satisfactorily completed all work and has
supplied all materials in accordance with the provisions of the contractor’s,
subcontractor’s or materialman’s contract, the contractor, subcontractor or materialman
delivers the lien waivers and evidence of payment in full of all sums due to the contractor,
subcontractor or materialman as may be reasonably requested by Lender or by



68









 







the title
company issuing the Title Insurance Policy, and Lender receives an endorsement to the Title
Insurance Policy insuring the continued priority of the lien of the Mortgage and evidence of
payment of any premium payable for such endorsement. If required by Lender, the release of
any such portion of the Casualty Retainage shall be approved by the surety company, if any,
which has issued a payment or performance bond with respect to the contractor, subcontractor
or materialman.




          (xvi) Lender shall not be obligated to make disbursements of the Net Proceeds more
frequently than once every calendar month.




          (xvii) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in
the opinion of Lender in consultation with the Casualty Consultant, 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
(the “Net Proceeds Deficiency”) with Lender 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 6.4(b) shall constitute additional security for the Debt
and Other Obligations under the Loan Documents.




          (xviii) The excess, if any, of the Net Proceeds (and the remaining balance, if any, of
the Net Proceeds Deficiency) deposited with Lender after the Casualty Consultant certifies
to Lender that the Restoration has been completed in accordance with the provisions of this
Section 6.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs
incurred in connection with the Restoration have been paid in full, shall be delivered to
Borrower; provided that, if a Cash Management Trigger has occurred, the excess shall be
deposited into the Cash Management Account and shall be disbursed in accordance with the
terms hereof, provided no Event of Default shall have occurred and shall be continuing under
the Note, this Agreement or any of the other Loan Documents.



          (d) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be
deposited into the Cash Management Account as excess Net Proceeds pursuant to Section 6.4(b)(vii)
hereof may be retained and applied by Lender toward the payment of the Debt
in accordance with Section 2.4.2 hereof, or, at the discretion of Lender, the same may be
paid, either in whole or in part, to Borrower for such purposes as Lender shall approve, in its
discretion.




          (e) In the event of foreclosure of the Mortgage with respect to the Property, or other
transfer of title to the Property in extinguishment in whole or in part of the Debt all right,
title and interest of Borrower in and to the Policies that are not blanket Policies then in force
concerning the Property (other than to the extent those Policies provide liability coverages to
Borrower) and all proceeds payable thereunder shall thereupon vest in the purchaser at such
foreclosure or Lender or other transferee in the event of such other transfer of title.




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          (f) Notwithstanding the foregoing provisions of this Section 6.4, to the extent the Academy
Lease remains in effect and Acadmey remains liable for the obligations under the Academy Lease, the
disposition of any Casualty insurance proceeds and any Award shall be governed by the Academy
Lease.




     VII. RESERVE FUNDS



     Section 7.1 Required Repairs.



          7.1.1 Deposits. Borrower shall perform or cause to be performed the repairs at the
Property, as more particularly set forth on Schedule II hereto (such repairs hereinafter referred
to as “Required Repairs”) within six (6) months from the Closing Date, or such earlier time as is
specified on Schedule II. If Borrower has not delivered to Lender evidence reasonably satisfactory
to Lender that it has completed or caused the completion of all Required Repairs on or before the
date that is six (6) months from the Closing Date, or such earlier time as specified on Schedule
II, Borrower shall deposit with Lender the amount for the Property set forth on such Schedule II
hereto, if any (less the amount allocated to the performance of Required Repairs for which evidence
of completion has been delivered to Lender), to perform the Required Repairs for the Property.
Amounts so deposited with Lender, if any, shall be held by Lender in an interest bearing account.
Amounts so deposited, if any, shall be referred to as Borrower’s “Required Repair Fund” and the
account, if any, in which such amounts are held hereinafter shall be referred to as Borrower’s
“Required Repair Account”. It shall be an Event of Default under this Agreement if Borrower does
not either (i) deposit with Lender the Required Repair Fund as set forth above, or (ii) complete
the Required Repairs at the Property within twelve (12) months from the Closing Date. Upon the
occurrence of such an Event of Default, Lender, at its option, may withdraw all Required Repair
Funds from the Required Repair Account and Lender may apply such funds either to completion of the
Required Repairs at the Property or toward payment of the Debt in such order, proportion and
priority as Lender may determine in its sole discretion. Lender’s right to withdraw and apply
Required Repair Funds shall be in addition to all other rights and remedies provided to Lender
under this Agreement and the other Loan Documents.




          7.1.2 Release of Required Repair Funds. Lender shall disburse to Borrower the Required
Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of
each of the following conditions:
(a) Borrower shall submit a written request for payment to Lender at least fifteen (15) days prior
to the date on which Borrower requests such payment be made and specifies the Required Repairs to
be paid, (b) on the date such payment is to be made, no Event of Default shall exist and remain
uncured, (c) Lender shall have received an Officers’ Certificate (i) stating that all Required
Repairs to be funded by the requested disbursement have been completed in good and workmanlike
manner and in accordance with all applicable federal, state and local laws, rules and regulations,
such certificate to be accompanied by a copy of any license, permit or other approval by any
Governmental Authority required to commence and/or complete the Required Repairs, (ii) identifying
each Person that supplied materials or labor in connection with the Required Repairs to be funded
by the requested disbursement, and (iii) stating that each such Person has been paid in full or
will be paid in full upon such disbursement, such Officers’ Certificate to be accompanied by lien
waivers or other evidence of payment satisfactory to Lender, (d) at Lender’s option, a title search
for the Property indicating that the Property is free from all liens,




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claims and other encumbrances
other than Permitted Encumbrances and those previously approved by Lender, and (e) Lender shall
have received such other evidence as Lender shall reasonably request that the Required Repairs to
be funded by the requested disbursement have been completed and are paid for or will be paid upon
such disbursement to Borrower. Lender shall not be required to make disbursements from the
Required Repair Account with respect to the Property unless such requested disbursement is in an
amount greater than Twenty-five Thousand and 00/100 Dollars ($25,000.00) (or a lesser amount if the
total amount in the Required Repair Account is less than Twenty-five Thousand and 00/100 Dollars
($25,000.00), in which case only one disbursement of the amount remaining in the account shall be
made) and such disbursement shall be made only upon satisfaction of each condition contained in
this Section 7.1.2.




     Section 7.2 Tax and Insurance Escrow Fund. Borrower shall pay to Lender on each Payment
Date (a) one-twelfth (1/12) of the Taxes and Other Charges that Lender estimates will be payable
during the next ensuing twelve (12) months in order to accumulate with Lender sufficient funds to
pay all such Taxes and Other Charges at least thirty (30) days prior to their respective due dates,
and (b) one-twelfth (1/12) of the Insurance Premiums that Lender estimates will be payable for the
renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate
with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to
the expiration of the Policies (said amounts in (a) and (b) above hereinafter called the “Tax and
Insurance Escrow Fund”). The Tax and Insurance Escrow Fund and the Monthly Debt Service Payment
Amount, shall be added together and shall be paid as an aggregate sum by Borrower to Lender.
Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums
required to be made by Borrower pursuant to Sections 5.1.2 and 6.1 hereof and under the Mortgage.
In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to
any bill, statement or estimate procured from the appropriate public office (with respect to Taxes)
or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien
or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the
amounts due for Taxes, Other Charges and Insurance Premiums pursuant to Sections 5.1.2 and 6.1
hereof, Lender shall, in its sole discretion, return any excess to Borrower or credit such excess
against future payments to be made to the Tax and Insurance
Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund after the Debt has been
paid in full shall be returned to Borrower. If at any time Lender reasonably determines that the
Tax and Insurance Escrow Fund is not or will not be sufficient to pay Taxes, Other Charges and
Insurance Premiums by the dates set forth in (a) and (b) above, Lender shall notify Borrower of
such determination and Borrower shall increase its monthly payments to Lender by the amount that
Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to the due
date of the Taxes and Other Charges and/or thirty (30) days prior to expiration of the Policies, as
the case may be.



     Notwithstanding the foregoing, provided no Event of Default shall exist, in the event that
Borrower provides (1) evidence satisfactory to Lender that the Property is insured in accordance
with Section 6.1 of this Agreement, and (2) evidence satisfactory to Lender that the Taxes and
Other Charges for the Property have been paid in accordance with the requirements set forth in this
Agreement, Lender waives the requirement set forth herein for Borrower to make deposits into the
Tax and Insurance Escrow Fund for the payment of Insurance Premiums and for



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payment of Taxes and
Other Charges, provided, however, Lender expressly reserves the right to require Borrower to make
deposits to the Tax and Insurance Escrow Fund for the payment of Insurance Premiums and/or for
payment of Taxes and Other Charges if an Event of Default shall exist, or Borrower fails to provide
to Lender evidence that the Property is insured in accordance with Section 6.1 of this Agreement or
that Taxes and Other Charges have been paid in accordance with the requirements of this Agreement,
in either case, within ten (10) days of Lender’s request.



     Section 7.3 Replacements and Replacement Reserve.



          7.3.1 Replacement Reserve Fund. Borrower shall pay to Lender on each Payment Date
one-twelfth (1/12) of an annualized amount equal to $0.15 per gross leasable square foot at the
Property (the “Replacement Reserve Monthly Deposit”) reasonably estimated by Lender in its sole
discretion to be due for replacements and repairs required to be made to the Property during the
calendar year (collectively, the “Replacements”). Amounts so deposited shall hereinafter be
referred to as Borrower’s “Replacement Reserve Fund” and the account in which such amounts are held
shall hereinafter be referred to as Borrower’s “Replacement Reserve Account”. Lender may reassess
its estimate of the amount necessary for the Replacement Reserve Fund from time to time, and may
increase the monthly amounts required to be deposited into the Replacement Reserve Fund upon thirty
(30) days notice to Borrower if Lender determines in its reasonable discretion that an increase is
necessary to maintain the proper maintenance and operation of the Property. Notwithstanding the
foregoing, provided no Event of Default shall exist, in the event that Lender determines, in its
reasonable discretion, that the Property is being maintained at a standard required under any
applicable Lease and consistent with similar properties owned by other national office and
warehouse property owners operating in the market in which the Property is located, Lender waives
the requirement set forth herein for Borrower to make the Replacement Reserve Monthly Deposit,
provided, however, Lender expressly reserves the right to require Borrower to make the Replacement
Reserve Monthly Deposit if an Event of Default shall exist, or Lender determines that the Property
is not being so maintained.




          7.3.2 Disbursements from Replacement Reserve Account.




          (a) Lender shall make disbursements from the Replacement Reserve Account to pay Borrower only
for the costs of the Replacements. Lender shall not be obligated to make disbursements from the
Replacement Reserve Account to reimburse Borrower for the costs of routine maintenance to the
Property, replacements of inventory or for costs which are to be reimbursed from the Required
Repair Fund.




          (b) Lender shall, upon written request from Borrower and satisfaction of the requirements set
forth in this Section 7.3.2, disburse to Borrower amounts from the Replacement Reserve Account
necessary to pay for the actual approved costs of Replacements or to reimburse Borrower therefor,
upon completion of such Replacements (or, upon partial completion in the case of Replacements made
pursuant to Section 7.3.2(e) hereof) as determined by Lender. In no event shall Lender be
obligated to disburse funds from the Replacement Reserve Account if a Default or Event of Default
exists.





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          (c) Each request for disbursement from the Replacement Reserve Account shall be in a form
specified or approved by Lender and shall specify (i) the specific Replacements for which the
disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement
includes the purchase or replacement of specific items, (iii) the price of all materials (grouped
by type or category) used in any Replacement other than the purchase or replacement of specific
items, and (iv) the cost of all contracted labor or other services applicable to each Replacement
for which such request for disbursement is made. With each request Borrower shall certify that all
Replacements have been made in accordance with all applicable Legal Requirements of any
Governmental Authority having jurisdiction over the Property. Each request for disbursement shall
include copies of invoices for all items or materials purchased and all contracted labor or
services provided and, unless Lender has agreed to issue joint checks as described below in
connection with a particular Replacement, each request shall include evidence satisfactory to
Lender of payment of all such amounts. Except as provided in Section 7.3.2(e) hereof, each request
for disbursement from the Replacement Reserve Account shall be made only after completion of the
Replacement for which disbursement is requested. Borrower shall provide Lender evidence of
completion of the subject Replacement satisfactory to Lender in its reasonable judgment.




          (d) Borrower shall pay all invoices in connection with the Replacements with respect to which
a disbursement is requested prior to submitting such request for disbursement from the Replacement
Reserve Account or, at the request of Borrower, Lender will issue joint checks, payable to Borrower
and the contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment
is due in connection with a Replacement. In the case of payments made by joint check, Lender may
require a waiver of lien from each Person receiving payment prior to Lender’s disbursement from the
Replacement Reserve Account. In addition, as a condition to any disbursement, Lender may require
Borrower to obtain lien waivers from each contractor, supplier, materialman, mechanic or
subcontractor who receives payment in an amount equal to or greater than Twenty-five Thousand and
00/100 Dollars ($25,000.00) for completion of its work or delivery of its materials. Any lien
waiver delivered hereunder shall conform to the requirements of applicable law and shall cover all
work performed and materials supplied (including equipment and fixtures) for the Property by that
contractor, supplier,
subcontractor, mechanic or materialman through the date covered by the current reimbursement
request (or, in the event that payment to such contractor, supplier, subcontractor, mechanic or
materialmen is to be made by a joint check, the release of lien shall be effective through the date
covered by the previous release of funds request).




          (e) If (i) the cost of a Replacement exceeds Twenty-five Thousand and 00/100 Dollars
($25,000.00), (ii) the contractor performing such Replacement requires periodic payments pursuant
to terms of a written contract, and (iii) Lender has approved in writing in advance such periodic
payments (such approval not to be unreasonably, withheld, delayed or conditioned), a request for
reimbursement from the Replacement Reserve Account may be made after completion of a portion of the
work under such contract, provided (A) such contract requires payment upon completion of such
portion of the work, (B) the materials for which the request is made are on site at the Property
and are properly secured or have been installed in the Property, (C) all other conditions in this
Agreement for disbursement have been satisfied, (D) funds remaining in the Replacement Reserve
Account are, in Lender’s judgment, sufficient to complete such Replacement and other Replacements
when required, and (E) if required by




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Lender, each contractor or subcontractor receiving payments
under such contract shall provide a waiver of lien with respect to amounts which have been paid to
that contractor or subcontractor.




          (f) Borrower shall not make a request for disbursement from the Replacement Reserve Account
more frequently than once in any calendar month and (except in connection with the final
disbursement) the total cost of all Replacements in any request shall not be less than Twenty-five
Thousand and 00/100 Dollars ($25,000.00).




          7.3.3 Performance of Replacements.




          (a) Borrower shall make or cause to be made Replacements when required in order to keep the
Property in condition and repair consistent with other first class offices and warehouses in the
same market segment in the metropolitan area in which the Property is located, and to keep the
Property or any portion thereof from deteriorating in any material respect. Borrower shall
complete or cause to be completed all Replacements in a good and workmanlike manner as soon as
practicable following the commencement of making each such Replacement.




          (b) Lender reserves the right, at its option, to approve all contracts or work orders with
materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or
materials in connection with the Replacements, such approval not to be unreasonably, withheld,
delayed or conditioned. Upon Lender’s request, Borrower shall assign any contract or subcontract
to Lender.




          (c) In the event Lender determines in its reasonable discretion that any Replacement is not
being performed in a workmanlike or timely manner or that any Replacement has not been completed in
a workmanlike or timely manner, Lender shall have the option, upon prior notice to Borrower, to
withhold disbursement for such unsatisfactory Replacement and to proceed under existing contracts
or to contract with third parties to complete such Replacement and to apply the Replacement Reserve
Fund toward the labor and materials necessary to complete such Replacement.




          (d) In order to facilitate Lender’s completion or making of such Replacements pursuant to
Section 7.3.3(c) above, Borrower grants Lender the right to enter onto the Property and perform any
and all work and labor necessary to complete or make such Replacements and/or employ watchmen to
protect the Property from damage. All sums so expended by Lender, to the extent not from the
Replacement Reserve Fund, shall be deemed to have been advanced under the Loan to Borrower and
secured by the Mortgage. For this purpose Borrower constitutes and appoints Lender its true and
lawful attorney-in-fact with full power of substitution to complete or undertake such Replacements
in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an
interest and cannot be revoked. Borrower empowers said attorney-in-fact as follows: (i) to use
any funds in the Replacement Reserve Account for the purpose of making or completing such
Replacements; (ii) to make such additions, changes and corrections to such Replacements as shall be
necessary or desirable to complete such Replacements; (iii) to employ such contractors,
subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to
pay, settle or compromise all existing bills and claims which are or may become Liens against the
Property, or as may be




74









 







necessary or desirable for the completion of such Replacements, or for
clearance of title; (v) to execute all applications and certificates in the name of Borrower which
may be required by any of the contract documents; (vi) to prosecute and defend all actions or
proceedings in connection with the Property or the rehabilitation and repair of the Property; and
(vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of
this Section 7.3.




          (e) Nothing in this Section 7.3.3 shall: (i) make Lender responsible for making or completing
any Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund
to make or complete any Replacement; (iii) obligate Lender to proceed with any Replacements; or
(iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement.




          (f) Borrower shall permit Lender and Lender’s agents and representatives (including, without
limitation, Lender’s engineer, architect, or inspector) or third parties making Replacements
pursuant to this Section 7.3.3 to enter onto the Property during normal business hours (subject to
the rights of Tenants under their Leases) to inspect the progress of any Replacements and all
materials being used in connection therewith, to examine all plans and shop drawings relating to
such Replacements which are or may be kept at the Property, and to complete any Replacements made
pursuant to this Section 7.3.3 if Borrower shall fail to do so. Borrower shall cause all
contractors and subcontractors to cooperate with Lender or Lender’s representatives or such other
persons described above in connection with inspections described in this Section 7.3.3(f) or the
completion of Replacements pursuant to this Section 7.3.3.




          (g) Lender may require an inspection of the Property at Borrower’s expense prior to making a
monthly disbursement from the Replacement Reserve Account in order to verify completion of the
Replacements for which reimbursement is sought. Lender may require that such inspection be
conducted by an appropriate independent qualified professional selected by Lender and/or may
require a copy of a certificate of completion by an independent qualified professional acceptable
to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower
shall pay the reasonable expense of the inspection as required hereunder, whether such inspection
is conducted by Lender or by an independent qualified professional.




          (h) The Replacements and all materials, equipment, fixtures, or any other item comprising a
part of any Replacement shall be constructed, installed or completed, as applicable, free and clear
of all mechanic’s, materialmen’s or other liens (except for those Liens which constitute Permitted
Encumbrances or which otherwise have been approved in writing by Lender).




          (i) Before each disbursement from the Replacement Reserve Account, Lender may require Borrower
to provide Lender with a search of title to the Property effective to the date of the disbursement,
which search shows that no mechanic’s or materialmen’s liens or other liens of any nature have been
placed against the Property since the date of recordation of the related Mortgage and that title to
the Property is free and clear of all Liens (other than the lien of the related Mortgage, Permitted
Encumbrances and any other Liens previously approved in writing by Lender, if any).




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          (j) All Replacements shall comply with all applicable Legal Requirements of all Governmental
Authorities having jurisdiction over the Property and applicable insurance requirements including,
without limitation, applicable building codes, special use permits, environmental regulations, and
requirements of insurance underwriters.




          (k) In addition to any insurance required under the Loan Documents, Borrower shall provide or
cause to be provided workmen’s compensation insurance, builder’s risk, and public liability
insurance and other insurance to the extent required under applicable law in connection with a
particular Replacement. All such policies shall be in form and amount reasonably satisfactory to
Lender. All such policies which can be endorsed with standard mortgagee clauses making loss
payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be
delivered to Lender.




          7.3.4 Failure to Make Replacements. 




          (a) It shall be an Event of Default under this Agreement if Borrower fails to comply with any
provision of this Section 7.3 and such failure is not cured within thirty (30) days after notice
from Lender. Upon the occurrence and during the continuance of such an Event of Default, Lender
may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not
limited to completion of the Replacements as provided in Section 7.3.3, or for any other repair or
replacement to the Property or toward payment of the Debt in such order, proportion and priority as
Lender may determine in its sole discretion. Lender’s right to withdraw and apply the Replacement
Reserve Fund shall be in addition to all other rights and remedies provided to Lender under this
Agreement and the other Loan Documents.




          (b) Nothing in this Agreement shall obligate Lender to apply all or any portion of the
Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any
specific order or priority.




          7.3.5 Balance in the Replacement Reserve Account
        . The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower
from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents.




     Section 7.4 Excess Cash Reserve Fund. Following a Cash Management Trigger, on each Payment
Date all Excess Cash remaining in the Cash Management Account following the required transfers of
sums pursuant to Sections 2.7.2(c)(i) through (viii) of this Agreement shall be deposited with
Lender, to be held as additional collateral for the Loan (amounts so deposited shall hereinafter be
referred to as the “Excess Cash Reserve Fund” and the account to which such amounts are held shall
hereinafter be referred to as the “Excess Cash Reserve Account”). Subject to the terms of this
Agreement, sums from the Excess Cash Reserve Fund shall only be disbursed to Borrower upon payment
in full of the Debt. Notwithstanding the foregoing, upon the occurrence of a Cash Management
Termination Event, Lender shall disburse to Borrower all amounts in the Excess Cash Reserve
Account.



     Anything herein to the contrary notwithstanding, in the event the Cash Management Trigger is
caused by the events described in (iv) of the definition of Cash Management Trigger,



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Lender shall
make disbursements from the Excess Cash Reserve Account for (i) the costs incurred by Borrower for
market-rate tenant improvements required under (a) Leases or lease amendments approved by Lender in
accordance with Section 5.1.20 of this Agreement or (b) Leases or lease amendments for which no
approval is required under Section 5.1.20 of this Agreement and (ii) bona fide, market-rate leasing
commissions incurred by Borrower (in favor of duly licensed real estate agents) payable in
connection with (a) Leases or lease amendments approved by Lender in accordance with Section 5.1.20
of this Agreement or (b) Leases or lease amendments for which no approval is required under Section
5.1.20 of this Agreement (the foregoing categories of expenses hereinafter referred to as “Eligible
Rollover Expenses”). Borrower shall (x) complete each tenant improvement required to be made by
Borrower under the terms of such Leases in a good and workmanlike manner and in accordance with the
terms of such Leases and (y) pay all Eligible Rollover Expenses before the same become delinquent.
Provided no Event of Default has occurred, Lender shall make disbursements as requested by Borrower
on a monthly basis in increments of no less than $5,000.00 upon delivery by Borrower of Lender’s
standard form of draw request accompanied by copies of paid invoices for the amounts requested and,
if required by Lender, lien waivers and releases from all parties furnishing materials and/or
services in connection with the requested payment. Lender may require an inspection of the
Property at Borrower’s expense prior to making a monthly disbursement in order to verify completion
of improvements for which reimbursement is sought.



     Section 7.5 Reserve Funds, Generally. Borrower grants to Lender a first-priority perfected
security interest in each of the Reserve Funds and any and all monies now or hereafter deposited in
each Reserve Fund as additional security for payment of the Debt. Until expended or applied in
accordance herewith, the Reserve Funds shall constitute additional security for the Debt. Upon the
occurrence and during the continuance of an Event of Default, Lender may, in addition to any and
all other rights and remedies available to Lender, apply any sums then present in any or all of the
Reserve Funds to
the payment of the Debt in any order in its sole discretion. The Reserve Funds shall not
constitute trust funds and may be commingled with other monies held by Lender. The Reserve Funds
shall be held in an Eligible Account in Permitted Investments in accordance with the terms and
provisions hereof. All interest on a Reserve Fund shall not be added to or become a part thereof
and shall be the sole property of and shall be paid to Lender. Borrower shall be responsible for
payment of any federal, state or local income or other tax applicable to the interest earned on the
Reserve Funds that is credited or paid to Borrower, if any. Borrower shall not, without obtaining
the prior written consent of Lender, further pledge, assign or grant any security interest in any
Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto,
or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as
the secured party, to be filed with respect thereto. Lender shall not be liable for any loss
sustained on the investment of any funds constituting the Reserve Funds. Borrower shall indemnify
Lender and hold Lender harmless from and against any and all actions, suits, claims, demands,
liabilities, losses, damages, obligations and costs and expenses (including litigation costs and
reasonable attorneys fees and expenses) arising from or in any way connected with the Reserve Funds
or the performance of the obligations for which the Reserve Funds were established, unless arising
from the gross negligence, willful misconduct or bad faith of Lender. Borrower shall assign to
Lender all rights and claims Borrower may have against all persons or entities supplying labor,
materials or other services which are to be paid from or secured by the Reserve Funds; provided,



77









 







however, that Lender may not pursue any such right or claim unless an Event of Default has occurred
and remains uncured.



     VIII. DEFAULTS



     Section 8.1 Event of Default.



          (a) Each of the following events shall constitute an event of default hereunder (an “Event of
Default”):





     (i) if any payment of the Monthly Debt Service Payment Amount or any other payment
required hereunder or under the other Loan Documents is not paid within five (5) days of the
applicable due date, or the payment of all sums due hereunder and under the other Loan
Documents on the Maturity Date is not paid when due;




     (ii) if any of the Taxes or Other Charges are not paid prior to the date when the same
become delinquent, except to the extent that there are sufficient funds in the Tax and
Insurance Escrow Fund to pay such Taxes or Other Charges and Lender fails to or refuses to
release the same from the Tax and Insurance Escrow Fund;




     (iii) if the Policies are not kept in full force and effect, or if certified copies of
the Policies are not delivered to Lender within fifteen (15) days after request;




     (iv) if Borrower Transfers or otherwise encumbers any portion of the Property without
Lender’s prior written consent in violation of the provisions of this Agreement and Article
6 of the Mortgage;




     (v) if any representation or warranty made by Borrower herein or in any other Loan
Document, or in any report, certificate, financial statement or other instrument,
agreement or document furnished to Lender shall have been false or misleading in any
material respect as of the date the representation or warranty was made;




     (vi) if Borrower, Guarantor or any other guarantor under any guaranty issued in
connection with the Loan shall make an assignment for the benefit of creditors;




     (vii) if a receiver, liquidator or trustee shall be appointed for Borrower, Guarantor
or any other guarantor under any guarantee issued in connection with the Loan or if
Borrower, Guarantor or such other guarantor shall be adjudicated a bankrupt or insolvent, or
if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy
law, or any similar federal or state law, shall be filed by or against, consented to, or
acquiesced in by, Borrower, Guarantor or such other guarantor, or if any proceeding for the
dissolution or liquidation of Borrower, Guarantor or such other guarantor shall be
instituted; provided, however, if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower, Guarantor or such other guarantor, upon the
same not being discharged, stayed or dismissed within one hundred eighty (180) days;



78









 






     (viii) if Borrower attempts to assign its rights under this Agreement or any of the
other Loan Documents or any interest herein or therein in contravention of the Loan
Documents;




     (ix) if Borrower breaches any covenant contained in Section 4.1.30 hereof;




     (x) with respect to any term, covenant or provision set forth herein which specifically
contains a notice requirement and grace period, if Borrower shall be in default under such
term, covenant or condition after the giving of such notice and the expiration of such grace
period;




     (xi) if a material default has occurred and continues beyond any applicable cure period
under the Management Agreement as it relates to the Property (or any Replacement Management
Agreement) and if such default permits the Manager thereunder to remove the Property from
the application of the Management Agreement or terminate or cancel the Management Agreement
(or any Replacement Management Agreement);




     (xii) if Borrower shall continue to be in Default under any of the terms, covenants or
conditions of Section 9.1 hereof, or fails to cooperate with Lender in connection with a
Securitization pursuant to the provisions of Section 9.1 hereof, for five (5) Business Days
after notice to Borrower from Lender, provided, however, if such Default is susceptible of
cure but cannot reasonably be cured within such period and provided further that Borrower
shall have commenced to cure such Default within such period and thereafter diligently and
expeditiously proceeds to cure the same, such five (5) Business Day period shall be extended
for such time as is reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, such additional period not to exceed thirty (30) days;




     (xiii) if Borrower shall continue to be in default under any of the other terms,
covenants or conditions of this Agreement not specified in subsections (i) to (xii) above,
for ten (10) days after notice to Borrower from Lender, in the case of any Default
which can be cured by the payment of a sum of money, or for thirty (30) days after notice
from Lender in the case of any other Default; provided, however, that if such non-monetary
Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day
period and provided further that 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 such time as is reasonably necessary
for Borrower in the exercise of due diligence to cure such Default, such additional period
not to exceed one hundred eighty (180) days; or




     (xiv) if there shall be default under any of the other Loan Documents beyond any
applicable cure periods contained in such documents, whether as to Borrower or the Property, or if any other such event shall occur or condition shall exist, if the effect of such
default, event or condition is to accelerate the maturity of any portion of the Debt or to
permit Lender to accelerate the maturity of all or any portion of the Debt.



79









 





          (b) Upon the occurrence of an Event of Default (other than an Event of Default described in
clauses (vi), (vii) or (viii) above) and at any time thereafter while such Event of Default is
continuing, in addition to any other rights or remedies available to it pursuant to this Agreement
and the other Loan Documents or at law or in equity but subject to Section 9.3, Lender may take
such action, without notice or demand, that Lender deems advisable to protect and enforce its
rights against Borrower and the Property, including, without limitation, declaring the Debt to be
immediately due and payable, and Lender may enforce or avail itself of any or all rights or
remedies provided in the Loan Documents against Borrower and any or all of the Property, including,
without limitation, all rights or remedies available at law or in equity; and upon any Event of
Default described in clauses (vi), (vii) or (viii) above, the Debt and Other Obligations of
Borrower hereunder and under the other Loan Documents shall immediately and automatically become
due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or
demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.




     Section 8.2 Remedies.



          (a) Upon the occurrence and during the continuance of an Event of Default, subject to Section
9.3, all or any one or more of the rights, powers, privileges and other remedies available to
Lender against Borrower under this Agreement or any of the other Loan Documents executed and
delivered by, or applicable to, Borrower or at law or in equity may be exercised by Lender at any
time and from time to time, whether or not all or any of the Debt shall be declared due and
payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action
for the enforcement of its rights and remedies under any of the Loan Documents with respect to all
or any part of the Property. Subject to Section 9.3, any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singularly, successively, together or
otherwise, at such time and in such order as Lender may determine in its sole discretion, to the
fullest extent permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of
Default is continuing and to the fullest extent permitted by law
(i) Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii)
all liens and other rights, remedies or privileges provided to Lender shall remain in full force
and effect until Lender has exhausted all of its remedies against the Property and the Mortgage has
been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has
been paid in full.




          (b) With respect to Borrower and the Property, nothing contained herein or in any other Loan
Document shall be construed as requiring Lender to resort to the Property for the satisfaction of
any of the Debt in any preference or priority, and Lender may seek satisfaction out of the
Property, or any part thereof, in its absolute discretion in respect of the Debt. In addition, to
the fullest extent permitted by law, Lender shall have the right from time to time to partially
foreclose the Mortgage in any manner and for any amounts secured by the Mortgage then due and
payable as determined by Lender in its sole discretion including, without limitation, the following
circumstances: (i) in the event Borrower defaults beyond any applicable grace period in the
payment of one or more scheduled payments of principal and interest, Lender may foreclose the
Mortgage to recover such delinquent payments or (ii) in the event Lender elects to




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accelerate less
than the entire outstanding principal balance of the Loan, Lender may foreclose the Mortgage to
recover so much of the principal balance of the Loan as Lender may accelerate and such other sums
secured by the Mortgage as Lender may elect. Notwithstanding one or more partial foreclosures, the
Property shall remain subject to the Mortgage to secure payment of sums secured by the Mortgage and
not previously recovered, to the fullest extent permitted by law.




          (c) Lender shall have the right from time to time to sever the Note and the other Loan
Documents into one or more separate notes, mortgages and other security documents (the “Severed
Loan Documents”) in such denominations as Lender shall determine in its sole discretion for
purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall
execute and deliver to Lender from time to time, promptly after the request of Lender, a severance
agreement and such other documents as Lender shall request in order to effect the severance
described in the preceding sentence, all in form and substance reasonably satisfactory to Lender
and provided that such severance agreement and other documents incorporate the provisions of
Section 9.3. Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful
attorney, coupled with an interest, in its name and stead to make and execute all documents
necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said
attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such
documents under such power until ten (10) days after notice has been given to Borrower by Lender of
Lender’s intent to exercise its rights under such power. Borrower shall be obligated to pay any
costs or expenses incurred in connection with the preparation, execution, recording or filing of
the Severed Loan Documents and the Severed Loan Documents shall not contain any representations,
warranties or covenants not contained in the Loan Documents and any such representations and
warranties contained in the Severed Loan Documents will be given by Borrower only as of the Closing
Date.




     Section 8.3 Remedies Cumulative; Waivers. The rights, powers and remedies of Lender under
this Agreement shall be cumulative and, subject to Section 9.3, not exclusive of any other right,
power or remedy which Lender may have
against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in
equity or otherwise. Lender’s rights, powers and remedies may be pursued singularly, concurrently
or otherwise, at such time and in such order as Lender may determine in Lender’s sole discretion.
No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall
impair any such remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be deemed expedient.
A waiver of one Event of Default with respect to Borrower shall not be construed to be a waiver of
any subsequent Event of Default by Borrower or to impair any remedy, right or power consequent
thereon.



     IX. SPECIAL PROVISIONS



     Section 9.1 Securitization.



          9.1.1 Sale of Note and Securitization. Borrower acknowledges and agrees that Lender may
sell all or any portion of the Loan and the Loan Documents, or issue one or more participations
therein, or consummate one or more private or public securitizations of rated




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single- or
multi-class securities (the “Securities”) secured by or evidencing ownership interests in all or
any portion of the Loan and the Loan Documents or a pool of assets that include the Loan and the
Loan Documents (such sales, participations and/or securitizations, collectively, a
“Securitization”). At the request of Lender, and to the extent not already required to be provided
by or on behalf of Borrower under this Agreement, Borrower shall use reasonable efforts to provide
information not in the possession of Lender or which may be reasonably required by Lender or take
other actions reasonably required by Lender, in each case in order to satisfy the market standards
to which Lender customarily adheres or which may be reasonably required by prospective investors
and/or the Rating Agencies in connection with any such Securitization including, without
limitation, to:




          (a) provide additional and/or updated Provided Information;




          (b) assist in preparing descriptive materials for presentations to any or all of Lender’s
prospective investors or the Rating Agencies;




          (c) if required by any prospective investor and/or any Rating Agency, use commercially
reasonable efforts to deliver such additional tenant estoppel letters, subordination agreements or
other agreements from parties to agreements that affect the Property, which estoppel letters,
subordination agreements or other agreements shall be reasonably satisfactory to Lender,
prospective investors and/or the Rating Agencies;




          (d) execute such certifications and/or amendments to the Loan Documents as may be requested by
Lender, prospective investors and/or the Rating Agencies to effect the Securitization, provided
that Borrower shall not be required to modify or amend any Loan Document if such modification or
amendment would (i) initially change the weighted average interest rate on the Loan, the stated
maturity or the amortization of principal set forth herein or in the Note, (ii) modify or amend any
other material economic term of the Loan, or (iii) materially increase the obligations, or decrease
the rights, of Borrower under the Loan Documents;




          (e) if requested by Lender, review any information regarding the Property, Borrower,
Guarantor, Manager and the Loan which is contained in a preliminary or final private placement
memorandum, prospectus, prospectus supplement (including any amendment or supplement to either
thereof), or other disclosure document to be used by Lender or any affiliate thereof; and




          (f) supply to Lender such documentation, financial statements and reports regarding the
Property, Borrower, Guarantor, Manager and the Loan in form and substance required in order to
comply with any applicable securities laws.




          9.1.2 Securitization Costs. All reasonable third party costs and expenses incurred by
Borrower in connection with Borrower’s complying with requests made under this Section 9.1 shall be
paid by Borrower, provided, however, such costs and expenses shall not exceed $2,500.




     Section 9.2 Securitization. Borrower understands that certain of the Provided Information
may be included in disclosure documents in connection with the Securitization, including, without
limitation, a prospectus, prospectus supplement or private placement



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memorandum (each, a
“Disclosure Document”) and may also be included in filings with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or provided or made available
to investors or prospective investors in the Securities, the Rating Agencies, and service providers
relating to the Securitization. In the event that the Disclosure Document is required to be
revised prior to the sale of all Securities, Borrower will cooperate with the holder of the Note in
updating the Disclosure Document by providing all current information necessary to keep the
Disclosure Document accurate and complete in all material respects.



     Section 9.3 Exculpation. Notwithstanding anything to the contrary contained in this
Agreement, the Note, the Mortgage or the other Loan Documents but subject to the qualifications
below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in the Note, this Agreement, the Mortgage or the other Loan Documents by any
action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender
may bring a foreclosure action, an action for specific performance or any other appropriate action
or proceeding to enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Property, the Rents, or any other
collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as
specifically provided herein, any judgment in any such action or proceeding shall be enforceable
against Borrower only to the extent of Borrower’s interest in the Property, in the Rents and in any
other collateral given to Lender, and Lender, by accepting the Note, this Agreement, the Mortgage
and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency
judgment against Borrower in any such action or proceeding under or by reason of or under or in
connection with the Note, this Agreement, the Mortgage or the other
Loan Documents. The provisions of this Section shall not, however, (a) constitute a waiver,
release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b)
impair the right of Lender to name Borrower as a party defendant in any action or suit for
foreclosure and sale under the Mortgage as long as Lender shall not sue for, seek or demand any
deficiency judgment against Borrower; (c) affect the validity or enforceability of or any guaranty
made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair
the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of any of
the Assignment of Leases; (f) constitute a prohibition against Lender to seek a deficiency judgment
against Borrower if necessary in order to fully realize the security granted by the Mortgage or to
commence any other appropriate action or proceeding in order for Lender to exercise its remedies
against the Property; or (g) constitute a waiver of the right of Lender to enforce the liability
and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage,
cost, expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees
and costs reasonably incurred) arising out of or in connection with the following:




     (i) fraud or intentional misrepresentation by Borrower or Guarantor in connection with
the Loan;




     (ii) the willful misconduct of Borrower;



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     (iii) the breach of any representation, warranty, covenant or indemnification provision
in the Environmental Indemnity or in the Mortgage concerning environmental laws, hazardous
substances and asbestos and any indemnification of Lender with respect thereto in either
document;




     (iv) the removal or disposal by Borrower or any Affiliate of Borrower of any portion of
the Property after an Event of Default (unless otherwise permitted under the Loan
Documents);




     (v) the misapplication or conversion by Borrower of (A) any Insurance Proceeds paid by
reason of any loss, damage or destruction to the Property, which are not applied by Borrower
in accordance with this Agreement, (B) any Awards received in connection with a Condemnation
of all or a portion of the Property, which are not applied by Borrower in accordance with
this Agreement, (C) any Rents following an Event of Default, (D) any Rents paid more than
one month in advance, or (E) any amounts paid to Borrower by Tenants of the Property
specifically for Taxes and Other Charges, which are not applied by Borrower to pay such
Taxes and Other Charges or in accordance with this Agreement;




     (vi) failure to pay charges incurred by Borrower or any Affiliate of Borrower for labor
or materials that can create Liens on any portion of the Property, subject to any right to
contest such charges pursuant to the terms of this Agreement; and




     (vii) any security deposits, advance deposits or any other deposits collected with
respect to the Property which are not delivered to Lender upon a foreclosure of the Property
or action in lieu thereof, except to the extent any such security deposits were
applied in accordance with the terms and conditions of any of the Leases prior to the
occurrence of the Event of Default that gave rise to such foreclosure or action in lieu
thereof.



     Notwithstanding anything to the contrary in this Agreement, the Note or any of the Loan
Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under
Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for
the full amount of the Debt secured by the Mortgage or to require that all collateral shall
continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B)
the Debt shall be fully recourse to Borrower (i) in the event of: (a) Borrower filing a voluntary
petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b)
the filing by any Person of an involuntary petition against Borrower under the Bankruptcy Code or
any other Federal or state bankruptcy or insolvency law, in which Borrower colludes with, or
otherwise assists such Person, or solicits or causes to be solicited petitioning creditors for any
involuntary petition against Borrower from any Person; (c) Borrower filing an answer consenting to
or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other
Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (d)
Borrower consenting to or acquiescing in or joining in an application for the appointment of a
custodian, receiver, trustee, or examiner for Borrower or any portion of the Property (other than a
receiver requested by Lender in connection with enforcement of its rights under the Loan
Documents); (e) Borrower making an assignment



84









 







for the benefit of creditors, or admitting, in
writing or in any legal proceeding, its insolvency or inability to pay its debts as they become
due; (ii) if the first full monthly payment of interest on the Note is not paid within five (5)
days of notice that such payment is late (provided, however, that such grace period relates only to
the recourse trigger described in this paragraph); (iii) if Borrower fails to permit on-site
inspections of the Property subject to the rights of Tenants and any applicable cure period set
forth in the Loan Documents, fails to provide financial information as required under the Loan
Documents subject to any applicable cure period (except for financial information required to be
delivered by a Tenant pursuant to the applicable Lease that has not been delivered to Borrower,
provided Borrower has requested such financial information from such Tenant), or fails to maintain
its status as a Single Purpose Entity; (iv) if Borrower fails to obtain Lender’s prior written
consent to any Indebtedness incurred by Borrower and not otherwise permitted by this Agreement or
the Mortgage or voluntary Lien encumbering the Property created by Borrower and not otherwise
permitted by this Agreement or the Mortgage; or (v) if Borrower fails to obtain Lender’s prior
written consent to any Transfer as required by this Agreement or the Mortgage.



     Section 9.4 Matters Concerning Manager. If (a) the Debt has been accelerated pursuant to
Section 8.1(b) hereof, (b) Manager shall become bankrupt or insolvent, or (c) a default occurs
under the Management Agreement which is not cured within any applicable notice or grace period, or
(d) the Debt Service Coverage Ratio falls below 1.25 to 1.0 Borrower shall, at the request of
Lender, remove the Property from the application of the Management Agreement if permitted to do so
by the terms of the Management Agreement and the Consent Regarding Management Agreement, and
replace the Manager of the Property with a Qualified Manager pursuant to a Replacement Management
Agreement, it being
understood and agreed that the management fee for such Qualified Manager shall not exceed then
prevailing market rates.



     Section 9.5 Servicer. At the option of Lender, the Loan may be serviced by a
servicer/trustee (any such servicer/trustee, together with its agents, nominees or designees, are
collectively referred to as “Servicer”) selected by Lender and Lender may delegate all or any
portion of its responsibilities under this Agreement and the other Loan Documents to Servicer
pursuant to a servicing agreement (the “Servicing Agreement”) between Lender and Servicer.
Borrower shall not be responsible for payment of any set-up fees or any other initial costs
relating to or arising under the Servicing Agreement or the monthly servicing fee due to Servicer
under the Servicing Agreement.



     Section 9.6 Splitting the Loan. At the election of Lender in its sole discretion, the
Loan or any individual Note making up the Loan shall be split and severed into two or more loans
which, at Lender’s election, shall not be cross-collateralized or cross-defaulted with each other.
Borrower hereby agrees to deliver to Lender to effectuate such severing of the Loan or any
individual Note, as the case may be, as reasonably requested by Lender, (a) additional executed
documents, or amendments and modifications to the applicable Loan Documents, (b) new opinions or
updates to the opinions delivered to Lender in connection with the closing of the Loan, (c)
endorsements and/or updates to the title insurance policies delivered to Lender in connection with
the closing of the Loan, and (d) any other certificates, instruments and documentation reasonably
determined by Lender as necessary or appropriate to such severance (the items described in
subsections (a) through (d) collectively hereinafter shall be referred to as “Severing
Documentation”), which Severing Documentation shall be acceptable to Lender in



85









 







form and substance
in its reasonable discretion. Lender hereby agrees to be responsible for all third-party expenses
incurred in connection with the preparation and delivery of the Severing Documentation and the
effectuation of the uncrossing of the Loan from the additional Loans. Borrower hereby acknowledges
and agrees that upon such severing of the Loan, Lender may effect, in its sole discretion, one or
more Securitizations of which the severed loans may be a part.



     X. MISCELLANEOUS



     Section 10.1 Survival. This Agreement and all covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall survive the making
by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in
full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer
period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to include the legal
representatives, successors and assigns of such party. All covenants, promises and agreements in
this Agreement, by or on behalf of each party, shall inure to the benefit of the legal
representatives, successors and assigns of the other party.



     Section 10.2 Lender’s Discretion. Whenever pursuant to this Agreement, Lender exercises
any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to
Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms
are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be
in the reasonable discretion of Lender and shall be final and conclusive.



     Section 10.3 Governing Law.


THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN
WHICH THE PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED AND APPLICABLE
FEDERAL LAWS.




     Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension,
discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any
other Loan Document, nor consent to any departure by Borrower or Lender therefrom, shall in any
event be effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future notice or demand in
the same, similar or other circumstances (unless such future notice or demand is otherwise required
to be given).



     Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of any
party in insisting upon strict performance of any term, condition, covenant or agreement, or
exercising any right, power, remedy or privilege hereunder, or under the Note or under any other
Loan Document, or any other instrument given as security therefor, shall operate as or constitute



86









 







a
waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise,
or the exercise of any other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under this Agreement, the
Note or any other Loan Document, Lender shall not be deemed to have waived any right either to
require prompt payment when due of all other amounts due under this Agreement, the Note or the
other Loan Documents, or to declare a default for failure to effect prompt payment of any such
other amount.



     Section 10.6 Notices. All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing and shall be effective for all
purposes if hand delivered or sent by (a) certified or registered United States mail, postage
prepaid, return receipt requested or (b) expedited prepaid delivery service, either commercial or
United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back
acknowledged),
addressed as follows (or at such other address and Person as shall be designated from time to time
by any party hereto, as the case may be, in a written notice to the other parties hereto in the
manner provided for in this Section):



	 	 	 	 	 
	 

	 	If to Lender:
	 	Bear Stearns Commercial Mortgage, Inc.
	 

	 	 	 	383 Madison Avenue
	 

	 	 	 	New York, New York 10179
	 

	 	 	 	Attention: J. Christopher Hoeffel
	 

	 	 	 	Facsimile No.: (212) 272-7047
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Katten Muchin Rosenman LLP
	 

	 	 	 	401 South Tryon Street, Ste. 2600
	 

	 	 	 	Charlotte, North Carolina 28202
	 

	 	 	 	Attention: Daniel S. Huffenus, Esq.
	 

	 	 	 	Facsimile No.: (704) 344-3056
	 
	 	 	 	 
	 

	 	If to Borrower:
	 	Cole AS Katy TX, LP
	 

	 	 	 	2555 East Camelback Road, Ste. 400
	 

	 	 	 	Phoenix, Arizona 85016
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	Facsimile No.: (602) 778-8780





A notice shall be deemed to have been given: in the case of hand delivery, at the time of
delivery; in the case of registered or certified mail, when delivered or the first attempted
delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the
first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a
machine-generated confirmation of successful transmission after advice by telephone to recipient
that a telecopy notice is forthcoming.




     Section 10.7 Trial by Jury. BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY
SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED



87









 







TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS
HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY BORROWER.



     Section 10.8 Headings. The Article and/or Section headings and the Table of Contents in
this Agreement are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.



     Section 10.9 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.



          10.9.1 Preferences. Lender shall have the continuing and exclusive right to apply or
reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower
hereunder, provided such reapplication is consistent with the provisions of this Agreement. To the
extent Borrower makes a payment or payments to Lender, which payment or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such payment or proceeds
received, the obligations hereunder or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment or proceeds had not been received by Lender.




          10.9.2 Waiver of Notice. Borrower shall not be entitled to any notices of any nature
whatsoever from Lender except with respect to matters for which this Agreement or the other Loan
Documents specifically and expressly provide for the giving of notice by Lender to Borrower and
except with respect to matters for which Borrower is not, pursuant to applicable Legal
Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right
to receive any notice from Lender with respect to any matter for which this Agreement or the other
Loan Documents do not specifically and expressly provide for the giving of notice by Lender to
Borrower.




          10.9.3 Remedies of Borrower. In the event that a claim or adjudication is made that Lender
or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or
under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an
obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents shall
be liable for any monetary damages, and Borrower’s sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action
or proceeding to determine whether Lender has acted reasonably shall be determined by an action
seeking declaratory judgment.




          10.9.4 Expenses; Indemnity.





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          (a) Borrower covenants and agrees to pay or, if Borrower fails to pay, to reimburse, Lender
upon receipt of written notice from Lender for all reasonable costs and expenses (including
reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) the
preparation, negotiation, execution and delivery of this Agreement and the other Loan Documents and
the consummation of the transactions contemplated hereby and
thereby and all the costs of furnishing all opinions by counsel for Borrower (including
without limitation any opinions reasonably requested by Lender as to any legal matters arising
under this Agreement or the other Loan Documents with respect to the Property); (ii) Borrower’s
ongoing performance of and compliance with Borrower’s respective agreements and covenants contained
in this Agreement and the other Loan Documents on its part to be performed or complied with after
the Closing Date, including, without limitation, confirming compliance with environmental and
insurance requirements; (iii) the negotiation, preparation, execution, delivery and administration
of any consents, amendments, waivers or other modifications to this Agreement and the other Loan
Documents requested by Borrower or otherwise required hereunder, and any other documents or matters
requested by Borrower or otherwise required hereunder; (iv) securing Borrower’s compliance with any
requests made pursuant to the provisions of this Agreement; (v) the filing and recording fees and
expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all
reasonably required legal opinions, and other similar expenses incurred in creating and perfecting
the Lien in favor of Lender pursuant to this Agreement and the other Loan Documents; (vi) subject
to Section 9.3 hereof, enforcing or preserving any rights, in response to third party claims or the
prosecuting or defending of any action or proceeding or other litigation, in each case against,
under or affecting Borrower, this Agreement, the other Loan Documents, the Property, or any other
security given for the Loan; and (vii) subject to Section 9.3 hereof, enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with
respect to the Property (including any fees incurred by Servicer in connection with the transfer of
the Loan to a special servicer upon an Event of Default) or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the nature of a
“work-out” or of any insolvency or bankruptcy proceedings; provided, however, that Borrower shall
not be liable for the payment of any such costs and expenses to the extent the same arise by reason
of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any cost and
expenses due and payable to Lender may be paid from any amounts in the Cash Management Account, if
applicable.




          (b) Subject to Section 9.3 hereof, Borrower shall indemnify, defend and hold harmless Lender
from and against any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel for Lender in
connection with any investigative, administrative or judicial proceeding commenced or threatened,
whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or
asserted against Lender in any manner relating to or arising out of (i) any material breach by
Borrower of its obligations under, or any material misrepresentation by Borrower contained in, this
Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan
(collectively, the “Indemnified Liabilities”); provided, however, that Borrower shall not have any
obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross
negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the
undertaking to indemnify, defend and hold harmless set forth in




89









 







the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion
that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by Lender.




          (c) Borrower covenants and agrees to pay for or, if Borrower fails to pay, to reimburse Lender
for, any reasonable fees and expenses incurred by any Rating Agency in connection with any consent,
approval, waiver or confirmation obtained from such Rating Agency pursuant to the terms and
conditions of this Agreement or any other Loan Document and Lender shall be entitled to require
payment of such fees and expenses as a condition precedent to the obtaining of any such consent,
approval, waiver or confirmation.




     Section 10.10 Schedules Incorporated. The Schedules annexed hereto are hereby incorporated
herein as a part of this Agreement with the same effect as if set forth in the body hereof.



     Section 10.11 Offsets, Counterclaims and Defenses. Any assignee of Lender’s interest in
and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of
all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may
otherwise have against any assignor of such documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such
assignee upon such documents and any such right to interpose or assert any such unrelated offset,
counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.



     Section 10.12 No Joint Venture or Partnership; No Third Party Beneficiaries.




          (a) Borrower and Lender intend that the relationships created hereunder and under the other
Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to
create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender nor to grant Lender any interest in the Property other than that of mortgagee,
beneficiary or lender.




          (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and
Borrower and nothing contained in this Agreement or the other Loan Documents shall be deemed to
confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the
performance or observance of any of the obligations contained herein or therein. All conditions to
the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the
benefit of Lender and no other Person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that Lender will refuse to make
the Loan in the absence of strict compliance with any or all thereof and no other Person shall
under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may
be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it
advisable or desirable to do so.




     Section 10.13 Publicity All news releases, publicity or advertising by Borrower or its
Affiliates through any media intended to reach the general public which refers to the Loan



90









 







Documents or the financing evidenced by the Loan Documents, to Lender, or any of their Affiliates
shall be subject to the prior written approval of Lender.



     Section 10.14 Waiver of Marshalling of Assets. To the fullest extent permitted by law,
Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the
assets of Borrower, Borrower’s partners and others with interests in Borrower, and of the Property,
and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale
in inverse order of alienation, homestead exemption, the administration of estates of decedents, or
any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan
Documents to a sale of the Property for the collection of the Debt without any prior or different
resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds
of the Property in preference to every other claimant whatsoever.



     Section 10.15 Waiver of Counterclaim. Borrower hereby waives the right to assert a
counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it
by Lender or its agents.



     Section 10.16 Conflict; Construction of Documents; Reliance. In the event of any conflict
between the provisions of this Agreement and any of the other Loan Documents, the provisions of
this Agreement shall control. The parties hereto acknowledge that they were represented by
competent counsel in connection with the negotiation, drafting and execution of the Loan Documents
and that such Loan Documents shall not be subject to the principle of construing their meaning
against the party which drafted same. Borrower acknowledges that, with respect to the Loan,
Borrower shall rely solely on its own judgment and advisors in entering into the Loan without
relying in any manner on any statements, representations or recommendations of Lender or any
parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation
whatsoever in the exercise of any rights or remedies available to it under any of the Loan
Documents or any other agreements or instruments which govern the Loan by virtue of the ownership
by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may
acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take
any action on the basis of the foregoing with respect to Lender’s exercise of any such rights or
remedies. Borrower acknowledges that Lender engages in the business of real estate financings and
other real estate transactions and investments which may be viewed as adverse to or competitive
with the business of Borrower or its Affiliates.



     Section 10.17 Brokers and Financial Advisors. Each party hereby represents to the other
that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this Agreement. Each party hereby
agrees to indemnify, defend and hold the other harmless from and against any and all claims,
liabilities, costs and expenses of any kind (including reasonable attorneys’ fees and expenses) in
any way relating to or arising from a claim by any Person that such Person acted on behalf of such
party in connection with the transactions contemplated herein. The provisions of this Section
10.17 shall survive the expiration and termination of this Agreement and the payment of the Debt.



     Section 10.18 Prior Agreements. This Agreement and the other Loan Documents contain the
entire agreement of the parties hereto and thereto in respect of the transactions



91









 







contemplated
hereby and thereby, and all prior agreements among or between such parties, whether oral or
written, are superseded by the terms of this Agreement and the other Loan Documents.



     Section 10.19 Joint and Several Liability. If Borrower consists of more than one (1)
Person the obligations and liabilities of each Person shall be joint and several.



     Section 10.20 Certain Additional Rights of Lender (VCOC). Notwithstanding anything to the
contrary contained in this Agreement, Lender shall have:



          (a) the right to routinely consult with and advise Borrower’s management regarding the
significant business activities and business and financial developments of Borrower;
provided, however, that such consultations shall not include discussions of
environmental compliance programs or disposal of hazardous substances. Consultation meetings
should occur on a regular basis (no less frequently than quarterly) with Lender having the right to
call special meetings at any reasonable times and upon reasonable advance notice;




          (b) the right, in accordance with the terms of this Agreement, to examine the books and
records of Borrower at any reasonable times upon reasonable notice;




          (c) the right, in accordance with the terms of this Agreement to receive the financial
statements required to be delivered under Section 5.1.11 hereof; and




          (d) the right, without restricting any other rights of Lender under this Agreement (including
any similar right), to approve any acquisition by Borrower of any other significant property (other
than personal property required for the day to day operation of the Property).



The rights described above in this Section 10.20 may be exercised by any entity which owns
and controls, directly or indirectly, substantially all of the interests in Lender.




[NO FURTHER TEXT ON THIS PAGE]




92









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
duly authorized representatives, all as of the day and year first above written.



	 	 	 	 	 	 	 
	 	 	BORROWER:
	 
	 	 	 	 	 	 
	 	 	COLE AS KATY TX, LP, a Delaware limited partnership
	 
	 	 	 	 	 	 
	 	 	By:	 	Cole IM Katy TX, LLC, a Delaware limited

liability company, its General Partner
	 
	 	 	 	 	 	 
	 	 	By:	 	Cole REIT Advisors II, LLC, a Delaware limited

liability company, its Manager
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	John M. Pons
	 

	 	 	 	 	 	Senior Vice President
	 
	 	 	 	 	 	 
	 	 	LENDER:
	 
	 	 	 	 	 	 
	 	 	BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York
corporation
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Michael A. Forastiere
	 	 	 	 	Managing Director






 









 






SCHEDULE I




(Rent Roll)




N/A




Schedule I-1









 





SCHEDULE II




(Required Repairs — Deadlines For Completion)




	 	 	 	 	 	 	 	 	 
	Required Repair	 	Cost	 	Deadline
	1. Replace deteriorated and settled sections of asphalt pavement
	 	$	3,750.00	 	 	Six (6) months from the date hereof
	2. Concrete curb replacement
	 	$	4,687.50	 	 	Six (6) months from the date hereof
	3. Concrete parking lot repairs
	 	$	1,875.00	 	 	Six (6) months from the date hereof
	4. Repair and paint steel framed stairs
	 	$	2,187.50	 	 	Six (6) months from the date hereof
	5. Concrete slab crack grouting
	 	$	2,187.50	 	 	Six (6) months from the date hereof
	6. Repaint structural steel
	 	$	4,375.00	 	 	Six (6) months from the date hereof
	7. Repair loading dock canopy
	 	$	4,500.00	 	 	Six (6) months from the date hereof
	8. Replace damaged loading dock equipment
	 	$	8,437.50	 	 	Six (6) months from the date hereof
	9. Replace damaged or missing sections of roof leader
	 	$	2,000.00	 	 	Six (6) months from the date hereof
	10. Test existing fire safety equipment
	 	$	0.00	 	 	Six (6) months from the date hereof
	11. Insulate piping under lavatories
	 	$	1,150.00	 	 	Six (6) months from the date hereof
	 
	 	 	 	 	 	 	 	 
	TOTAL
	 	$	35,150.00	 	 	 	 	 







Schedule II-1









 








SCHEDULE III




Intentionally Deleted





Schedule III-1









 








SCHEDULE IV




Tenant Direction Letter




                                         , 200     

(Tenant’s name and address)

                                        

                                        





Re: Lease, dated                                         , by and between                        
                 , as original
landlord and predecessor-in-interest to                                         , as landlord, and
                                         as tenant as the same has been amended, concerning premises at
                                        


Ladies and Gentlemen:



The undersigned hereby requests that, commencing with the first Rent payment date occurring after
the date hereof, you deliver all Rent to the following address:




                                        




                                        




                                        




	 	 	 
	Account Name:

	 	                                        
	Account No.

	 	                                        
	Attention:

	 	                                        
	ABA#

	 	                                        





[Borrower]





Schedule IV-1









 








SCHEDULE V




Identified Affiliates



Each of the following entities shall be deemed to be an “Identified Affiliate” for purposes hereof:




Series A, LLC, an Arizona limited liability company;

Series B, LLC, an Arizona limited liability company;

Series C, LLC, an Arizona limited liability company;

Series D, LLC, an Arizona limited liability company;

Cole Acquisitions I, LLC, a Delaware limited liability company;

Cole Operating Partnership I, LP, a Delaware limited partnership;

Cole Operating Partnership II, LP, a Delaware limited partnership;

Cole Credit Property Trust, Inc., a Maryland corporation;

Cole Credit Property Trust II, Inc., a Maryland corporation; and

Any entity wholly-owned by one or more of the foregoing





Schedule V-1









 








SCHEDULE VI




OUT PARCEL RELEASE CONDITIONS





	1.	 	Lender shall have received, together with the request for release, a current survey depicting
the Out Parcel to be released and the Remaining Property (as defined below) and any
appurtenant easements;
	 
	2.	 	Lender shall have received evidence that there are no subordinate liens, mortgages, deeds of
trust or other security instruments, as the case may be, encumbering the Property remaining
encumbered by the lien of the Mortgage (the “Remaining Property”), including without
limitation, if available in the State where the Property is located, a “bring down” or “date
down” of the title insurance policies insuring the lien of the Mortgage on such Property and
an endorsement reflecting the Property remaining encumbered by the lien of the Mortgage
includes the Remaining Property and any necessary easements or agreements in connection with
the release of the Out Parcel;
	 
	3.	 	Lender shall have received from Borrower payment of all Lender’s costs and expenses,
including reasonable counsel fees and disbursements incurred in connection with the release of
the Out Parcel from the lien of the Mortgage and the review and approval of the documents and
information required to be delivered in connection therewith (“Release Expenses”);
	 
	4.	 	Lender shall have received from Borrower payment of the applicable Release Amount together
with (a) interest accrued and unpaid on the Release Amount to and including the date of
prepayment, (b) unless prepayment is tendered on the first day of a calendar month, an amount
equal to the interest that would have accrued on the amount being prepaid after the date of
prepayment through and including the last day of the calendar month in which the prepayment
occurs had the prepayment not been made (which amount shall constitute additional
consideration for the prepayment), (c) all other sums then due under the Note, the Mortgage
and the other Loan Documents, and (d) a prepayment consideration (the “Prepayment
Consideration”) equal to the greater of (i) three percent (3%) of the Out Parcel Release
Amount being prepaid and (ii) the excess, if any, of (A) the sum of the present values of all
then-scheduled payments of interest under the Note with respect to the Out Parcel Release
Amount including, but not limited to, principal and interest on the Anticipated Repayment Date
with respect to the Out Parcel Release Amount (with each such payment discounted to its
present value at the date of prepayment at the rate which, when compounded monthly, is
equivalent to the Prepayment Rate (hereinafter defined) when compounded semi-annually and
deducting from the sum of such present values any short-term interest paid from the date of
prepayment to the next succeeding Payment Date in the event such payment is not made on a
Payment Date), over (B) the principal amount of the Note being prepaid.
	 
	 	 	The term “Prepayment Rate” means the bond equivalent yield (in the secondary market) on the
United States Treasury Security that as of the Prepayment Rate Determination Date (hereinafter
defined) has a remaining term to maturity closest to, but not exceeding, the remaining term to
the Anticipated Repayment Date, as most recently published in the “Treasury Bonds, Notes and
Bills” section in The Wall Street Journal as of such Prepayment Rate Determination Date. If
more than one issue of United States Treasury Securities has the




Schedule VI









 






	 	 	remaining term to the Anticipated Repayment Date referred to above, the “Prepayment Rate” shall
be the yield on the United States Treasury Security most recently issued as of the Prepayment
Rate Determination Date. The rate so published shall control absent manifest error. The term
“Prepayment Rate Determination Date” shall mean the date which is five (5) Business Days prior
to the scheduled prepayment date. As used herein, “Business Day” shall mean any day other than
Saturday, Sunday or any other day on which banks are required or authorized to close in New
York, New York.
	 
	 	 	Lender shall notify Borrower of the amount and the basis of determination of the required
prepayment consideration. If the publication of the Prepayment Rate in The Wall Street Journal
is discontinued, Lender shall determine the Prepayment Rate on the basis of “Statistical Release
H.15 (519), Selected Interest Rates,” or any successor publication, published by the Board of
Governors of the Federal Reserve System, or on the basis of such other publication or
statistical guide as Lender may reasonably select.
	 
	5.	 	Lender shall have approved the deed and the legal description by which the Out Parcel shall
be conveyed, including any appurtenant easements for access, parking or drainage comprising
part of the Out Parcel, which approval shall not unreasonably be withheld or delayed;
	 
	6.	 	Lender shall have received evidence that Primewest 1996, Ltd., a Texas limited partnership or
its successors and assigns is exercising its rights to re-purchase the Out Parcel pursuant to
that certain Declaration of Covenants and Restrictions dated March 3, 1998, recorded March 5,
1998 in/under S892729 of the Real Property Records of Harris County, Texas, as amended.
	 
	7.	 	Lender shall have received evidence that title to the Out Parcel shall be transferred to an
entity other than a Borrower;
	 
	8.	 	Lender shall have received evidence that the Remaining Property is or shall be (upon the
completion of nondiscretionary acts of the relevant municipality) comprised of one or more
legally created, subdivided and wholly independent tax lots and zoning lots, if applicable,
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 Remaining Property
or any portion thereof;
	 
	9.	 	Lender shall have received evidence that the Remaining Property has adequate access to a
public road (a) for the use of the Remaining Property in connection with its permitted use,
and (b) in accordance with applicable zoning laws, ordinances and regulations. A date down
endorsement to the title policy delivered at the closing, which included endorsements for
access and zoning, without exception for such matters, shall satisfy the foregoing; and
	 
	10.	 	Lender shall have received an estoppel from Academy or other evidence that the Remaining
Property complies with the Academy Lease regarding parking and that the Out Parcel Release
will not result in a default by Borrower, as landlord under such Lease.




Schedule VI









 






	11.	 	Lender shall received evidence that the Remaining Property has adequate parking (a) for the
use of the Remaining Property in connection with its permitted use, and (b) in accordance with
applicable zoning laws, ordinances and regulations.




Schedule VI









 











SCHEDULE VII




Out Parcel Release Amounts




	 	 	 	 	 
	Tract 3

	 	$	379,500	 
	 
	 	 	 	 
	Tract 4

	 	$	796,950	 







Schedule VII