exv10w2






Exhibit 10.2



NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY
OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC
RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.




MS Loan No.: 05-20161




AmREIT UPTOWN PARK, LP, as grantor




(Borrower)




to



WARREN F. MILLER, as Trustee



and



MORGAN STANLEY MORTGAGE CAPITAL INC., as beneficiary



(Lender)



 





DEED OF TRUST AND SECURITY AGREEMENT



 





	 	 	 	 	 
	 

	 	Dated:
	 	June 1, 2005
	 

	 	Location:
	 	Post Oak Boulevard and 1-610, Houston, Texas
	 

	 	County:
	 	Harris
	 
	 	 	 	 
	 	 	PREPARED BY AND UPON

RECORDATION RETURN TO:
	 
	 	 	 	 
	 	 	PIRCHER, NICHOLS & MEEKS
	 	 	1925 Century Park East, Suite 1700
	 	 	Los Angeles, CA 90067
	 	 	Attention: Chad W. Buelow










 









 








     THIS DEED OF TRUST AND SECURITY AGREEMENT (this “Security Instrument”) is made as of June 1,
2005, by AmREIT UPTOWN PARK, LP, a Texas limited partnership, having its principal place of
business at 8 Greenway Plaza, Suite 1000, Houston, Texas 77046, as grantor (“Borrower”) to WARREN
F. MILLER, having an address at 1110 N. Post Oak Road, Suite 120, Houston, Texas 77055, as trustee
(“Trustee”), for the benefit of MORGAN STANLEY MORTGAGE CAPITAL INC., a New York corporation,
having an address at c/o ARCap Servicing, Inc., 5605 North MacArthur Boulevard, Suite 950, Irving,
Texas 75038, as beneficiary (“Lender”).



Recitals:




     Borrower by its promissory note of even date herewith given to Lender is indebted to Lender in
the principal sum of Forty-Nine Million and 00/100 Dollars ($49,000,000.00) (the “Loan Amount”) in
lawful money of the United States of America (the note together with all extensions, renewals,
modifications, substitutions and amendments thereof shall collectively be referred to as the
“Note”), with interest from the date thereof at the rates set forth in the Note, principal and
interest to be payable in accordance with the terms and conditions provided in the Note.



     Borrower desires to secure the payment of the Debt (as defined in Article 2) and the
performance of all of its obligations under the Note and the Other Obligations (as defined in
Article 2).



Article 1 — Grants of Security



     Section 1.1 Property Mortgaged. Borrower does hereby irrevocably mortgage, grant,
bargain, sell, pledge, assign, warrant, transfer and convey to Trustee, its successors and assigns,
WITH POWER OF SALE, for the benefit of Lender, and grant a security interest to Lender and Trustee
in, the following property, rights, interests and estates now owned, or hereafter acquired by
Borrower (collectively, the “Property”):



     (a) Land. The real property described in Exhibit A attached hereto and made a part
hereof (the “Land”);



     (b) Additional Land. All additional lands, estates and development rights hereafter
acquired by Borrower for use in connection with the Land and the development of the Land and all
additional lands and estates therein which may, from time to time, by supplemental mortgage or
otherwise be expressly made subject to the lien of this Security Instrument;



     (c) Improvements. The buildings, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements now or hereafter erected or
located on the Land (the “Improvements”);



     (d) Easements. All easements, rights-of-way or use, rights, strips and gores of land,
streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air
rights and development rights, and all estates, rights, titles, interests, privileges, liberties,



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servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or
hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and
reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the Land, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy,
property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in
and to the Land and the Improvements and every part and parcel thereof, with the appurtenances
thereto;




     (e) Fixtures and Personal Property. All machinery, equipment, fixtures (including,
but not limited to, all heating, air conditioning, plumbing, lighting, communications and elevator
fixtures) and other similar property of every kind and nature whatsoever owned by Borrower, or in
which Borrower has or shall have an interest, in each case now or hereafter located upon the Land
and the Improvements, or appurtenant thereto, and to be used in connection with the present or
future operation and occupancy of the Land and the Improvements and all building equipment,
materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, in each case now or hereafter located upon the Land and the Improvements,
or appurtenant thereto, or to be used in connection with the present or future operation and
occupancy of the Land and the Improvements (collectively, the “Personal Property”), and the right,
title and interest of Borrower in and to any of the Personal Property which may be subject to any
security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state
or states where any of the Property is located (the “Uniform Commercial Code”), and all proceeds
and products of the above;



     (f) Leases and Rents. All leases, subleases and other agreements affecting the use,
enjoyment or occupancy of the Land and/or the Improvements heretofore or hereafter entered into and
all extensions, amendments and modifications thereto, whether before or after the filing by or
against Borrower of any petition for relief under 11 U.S.C. §§ 101 et seq., as the same may be
amended from time to time (the “Bankruptcy Code”) (the “Leases”) and all right, title and interest
of Borrower, its successors and assigns therein and thereunder, including, without limitation, any
guaranties of the lessees’ obligations thereunder, cash or securities deposited thereunder to
secure the performance by the lessees of their obligations thereunder and all rents, additional
rents, early termination fees and payments and other termination fees and payments, revenues,
issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land
and the Improvements whether paid or accruing before or after the filing by or against Borrower of
any petition for relief under the Bankruptcy Code (the “Rents”) and all proceeds from the sale or
other disposition of the Leases and the right to receive and apply the Rents to the payment of the
Debt;



     (g) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance
policies covering the Property, including, without limitation, the right to receive and apply the
proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the
Property;



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     (h) Condemnation Awards. All awards or payments, including interest thereon, which
may heretofore and hereafter be made with respect to the Property, whether from the exercise of the
right of eminent domain (including but not limited to any transfer made in lieu of
or in anticipation of the exercise of the right), or for a change of grade, or for any other injury
to or decrease in the value of the Property;




     (i) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in
real estate taxes and assessments charged against the Property as a result of tax certiorari or any
applications or proceedings for reduction;



     (j) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of
the foregoing arising in connection with the Land or the Improvements including, without
limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims;



     (k) Rights. The right, in the name and on behalf of Borrower, to appear in and defend
any action or proceeding brought with respect to the Property and to commence any action or
proceeding to protect the interest of Lender in the Property;



     (l) Agreements. All agreements, contracts, certificates, instruments, franchises,
permits, licenses, plans, specifications and other documents, now or hereafter entered into, and
all rights therein and thereto, in each case respecting or pertaining to the use, occupation,
construction, management or operation of the Land and any part thereof and any Improvements or
respecting any business or activity conducted on the Land and any part thereof and all right, title
and interest of Borrower therein and thereunder, including, without limitation, the right, upon the
occurrence and during the continuance of an Event of Default (defined below), to receive and
collect any sums payable to Borrower thereunder;



     (m) Intangibles. All trade names, trademarks, servicemarks, logos, copyrights,
goodwill, books and records and all other general intangibles relating to or used in connection
with the operation of the Property; and



     (n) Other Rights. Any and all other rights of Borrower in and to the items set forth
in Subsections (a) through (m) above.



     Section 1.2 Assignment of Leases and Rents. Borrower hereby absolutely and
unconditionally assigns to Lender and Trustee Borrower’s right, title and interest in and to all
current and future Leases and Rents; it being intended by Borrower that this assignment constitutes
a present, absolute assignment and not an assignment for additional security only. Nevertheless,
subject to the terms of this Section 1.2 and Section 3.8, Lender grants to Borrower a revocable
license to collect and receive the Rents. Borrower shall hold a portion of the Rents sufficient to
discharge all current sums due on the Debt for use in the payment of such sums.



     Section 1.3 Security Agreement. This Security Instrument is both a real property
mortgage and a “security agreement” within the meaning of the Uniform Commercial Code. The Property
includes both real and personal property and all other rights and interests, whether tangible or
intangible in nature, of Borrower in the Property. By executing and delivering this



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Security Instrument, Borrower hereby grants to Lender and Trustee, as security for the Obligations
(defined in Section 2.3), a security interest in the Personal Property to the full extent that the
Personal Property may be subject to the Uniform Commercial Code.




     Section 1.4 Pledge of Monies Held. Borrower hereby pledges to Lender any and all
monies now or hereafter held by Lender, including, without limitation, any sums deposited in the
Escrow Fund (as defined in Section 3.5), Net Proceeds (as defined in Section 3.7) and condemnation
awards or payments described in Section 3.6, as additional security for the Obligations until
expended or applied as provided in this Security Instrument.



     Section 1.5 Conditions to Grant. TO HAVE AND TO HOLD the above granted and described
Property unto and to the use and benefit of Lender and of Trustee, and for their successors and
assigns, forever; IN TRUST, WITH POWER OF SALE, to secure payment to Lender of the Debt at the time
and in the manner provided for its payment in the Note and in this Security Instrument; PROVIDED,
HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay
to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument,
shall well and truly perform the Other Obligations as set forth in this Security Instrument and
shall well and truly abide by and comply with each and every covenant and condition set forth
herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be
void.



Article 2 — Debt and Obligations Secured




     Section 2.1 Debt. This Security Instrument and the grants, assignments and transfers
made in Article 1 are given for the purpose of securing the payment of the following, in such order
of priority as Lender may determine in its sole discretion (the “Debt”):



     (a) the indebtedness evidenced by the Note in lawful money of the United States of America;



     (b) interest, default interest, late charges and other sums, as provided in the Note, this
Security Instrument or the Other Security Documents (defined below);



     (c) the Default Consideration (as defined in the Note), if any;



     (d) all other moneys agreed or provided to be paid by Borrower in the Note, this Security
Instrument or the Other Security Documents;



     (e) all sums advanced pursuant to this Security Instrument to protect and preserve the
Property and the lien and the security interest created hereby; and



     (f) all sums advanced and costs and expenses incurred by Lender in connection with the Debt or
any part thereof, any renewal, extension, or change of or substitution for the Debt or any part
thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the
request of Borrower or Lender.



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     Section 2.2 Other Obligations. This Security Instrument and the grants, assignments
and transfers made in Article 1 are also given for the purpose of securing the performance of the
following (the “Other Obligations”):



     (a) all other obligations of Borrower contained herein;



     (b) each obligation of Borrower contained in the Note and in the Other Security Documents; and



     (c) each obligation of Borrower contained in any renewal, extension, amendment, modification,
consolidation, change of, or substitution or replacement for, all or any part of the Note, this
Security Instrument or the Other Security Documents.



     Section 2.3 Debt and Other Obligations. Borrower’s obligations for the payment of
the Debt and the performance of the Other Obligations shall be referred to collectively below as
the “Obligations.”



     Section 2.4 Payments. Unless payments are made in the required amount in immediately
available funds at the place where the Note is payable, remittances in payment of all or any part
of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment
until the required amount is actually received by Lender in funds immediately available at the
place where the Note is payable (or any other place as Lender, in Lender’s sole discretion, may
have established by delivery of written notice thereof to Borrower) and shall be made and accepted
subject to the condition that any check or draft may be handled for collection in accordance with
the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the failure to pay the
entire amount then due shall be and continue to be an Event of Default.



Article 3 — Borrower Covenants




     Borrower covenants and agrees that:



     Section 3.1 Payment of Debt. Borrower will pay the Debt at the time and in the
manner provided in the Note and in this Security Instrument.



     Section 3.2 Incorporation by Reference. All the covenants, conditions and agreements
contained in (a) the Note and (b) all and any of the documents other than the Note or this Security
Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which
wholly or partially secure or guaranty payment of the Note (the “Other Security Documents”), are
hereby made a part of this Security Instrument to the same extent and with the same force as if
fully set forth herein.



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     Section 3.3 Insurance.



     (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and
the Property providing at least the following coverages:



          (i) Property Insurance. Insurance with respect to the Improvements and
building equipment insuring against any peril now or hereafter included within the classification
“All Risks of Physical Loss” in amounts at all times sufficient to prevent Lender from becoming a
co-insurer within the terms of the applicable policies and under applicable law, but in any event
such insurance shall be maintained in an amount which, after application of deductible, shall be
equal to the full insurable value of the Improvements and building equipment, the term “full
insurable value” to mean the actual replacement cost of the Improvements and building equipment
(without taking into account any depreciation, and exclusive of excavations, footings and
foundations, landscaping and paving) determined annually by an insurer, a recognized independent
insurance broker or an independent appraiser selected and paid by Borrower and in no event less
than the coverage required pursuant to the terms of any Lease;




          (ii) Liability Insurance. Comprehensive general liability insurance, including bodily
injury, death and property damage liability, insurance against any and all claims, including all
legal liability to the extent insurable and imposed upon Lender and all court costs and attorneys’
fees and expenses, arising out of or connected with the possession, use, leasing, operation,
maintenance or condition of the Property in such amounts as are generally available at commercially
reasonable premiums and are generally required by institutional lenders for properties comparable
to the Property but in any event for a combined single limit of at least $5,000,000;



          (iii) Workers’ Compensation Insurance. Statutory workers’ compensation insurance with
respect to any work on or about the Property;



          (iv) Business Interruption Insurance. 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 for a period commencing at the time of loss for such length of time as it
takes to repair or replace with the exercise of due diligence and dispatch; (C) containing an
extended period of indemnity endorsement which provides that after the physical loss to the
Improvements and Personal Property has been repaired, the continued loss of income will be insured
until such income either returns to the same level it was at prior to the loss, or the expiration
of twelve (12) months from the date that the Property is repaired or replaced and operations are
resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of
such period; and (D) in an amount equal to one hundred percent (100%) of the projected gross income
from the Property for a period from the date of loss to a date (assuming total destruction) which
is twelve (12) months from the date that the Property is repaired or replaced and operations are
resumed. 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 income
from the Property for the succeeding twelve (12) month period, based upon the assumption that no
casualty has or will occur. All proceeds payable to Lender pursuant to this subsection shall be
held by Lender and shall be applied to the obligations



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secured by the Loan documents from time to time due and payable hereunder and under the Note and
the Other Security Documents and otherwise as determined by Lender in its sole discretion;
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 herein and in the Note and the Other Security Documents except to the extent such
amounts are actually paid out of the proceeds of such business income insurance;




          (v) Boiler and Machinery Insurance. If applicable, broad form boiler and machinery
insurance (without exclusion for explosion) covering all boilers or other pressure vessels,
machinery, and equipment located in, on or about the Property and insurance against loss of
occupancy or use arising from any breakdown in such amounts as are generally required by
institutional lenders for properties comparable to the Property;



          (vi) Flood Insurance. If required by Subsection 5.5(j) hereof, flood insurance in an
amount at least equal to the lesser of (A) the principal balance of the Note, or (B) the maximum
limit of coverage available for the Property 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;



          (vii) Builder’s Risk Insurance. At all times during which structural construction,
repairs or alterations are being made with respect to the Improvements (A) owner’s contingent or
protective liability insurance covering claims not covered by or under the terms or provisions of
the above mentioned commercial general liability insurance policy; and (B) the insurance provided
for in Subsection 3.3(a)(i) written in a so-called builder’s risk completed value form (1) on a
non-reporting basis, (2) against all risks insured against pursuant to Subsection 3.3(a)(i), (3)
including permission to occupy the Property, and (4) with an agreed amount endorsement waiving
co-insurance provisions; and



          (viii) Other Insurance. Such other insurance with respect to the Property against loss
or damage of the kinds from time to time customarily insured against and in such amounts as are
required by institutional lenders for properties comparable to the Property.


The comprehensive all risk insurance and business income insurance policies required under
subsections (i) and (iv) above shall be required to cover perils of terrorism and acts of terrorism
(for the amounts set forth in subsections (i) and (iv) above and with deductibles no greater than
those provided in subsections (i) and (iv) above).




     (b) All insurance provided for in Subsection 3.3(a) hereof shall be obtained under valid and
enforceable policies (the “Policies” or in the singular, the “Policy”), and shall be issued by one
or more domestic primary insurer(s) having (i) a general policy rating of A or better and a
financial class of VI or better by A.M. Best Company, Inc. (or if a rating of A.M. Best Company,
Inc. is no longer available, a similar rating from a similar or successor service) and (ii) a
claims paying ability rating by a credit rating agency approved by Lender (a “Rating Agency”) of
not less than AA by Standard & Poor’s Ratings Services or such comparable rating by such other
Rating Agency. All insurers providing insurance required by this Security Instrument shall be
authorized to issue insurance in the state in which the Property is located. The Policy referred to



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in Subsection 3.3(a)(ii) above shall name Lender as an additional named insured and the Policies
referred to in Subsection 3.3(a)(i), (iv), (v), (vi) and (vii), and as applicable (viii), above
shall provide that all proceeds be payable to Lender as set forth in Section 3.7 hereof. The
Policies referred to in Subsections 3.3(a)(i), (v), (vi) and (vii) shall also contain: (i) a
standard “non-contributory mortgagee” endorsement or its equivalent relating, inter alia, to
recovery by Lender notwithstanding the negligent or willful acts or omission of Lender; (ii) to the
extent available at commercially reasonable rates, a waiver of subrogation endorsement as to
Lender; and (iii) an endorsement providing for a deductible per loss of an amount not more than
that which is customarily maintained by prudent owners of similar properties in the general
vicinity of the Property, but in no event in excess of $10,000. The Policy referred to in
Subsection 3.3(a)(i) above shall provide coverage for contingent liability from Operation of
Building Laws, Demolition Costs and Increased Cost of Construction Endorsements together with an
“Ordinance or Law Coverage” or “Enforcement” endorsement if any of the Improvements or the use of
the Property shall at any time constitute legal non-conforming structures or uses. All Policies
shall contain (i) a provision that such Policies shall not be cancelled or terminated, nor shall
they expire, without at least thirty (30) days’ prior written notice to Lender in each instance;
and (ii) include effective waivers by the insurer of all claims for Insurance Premiums (defined
below) against any loss payees, additional insureds and named insureds (other than Borrower).
Certificates of insurance with respect to all renewal and replacement Policies shall be delivered
to Lender not less than fifteen (15) days prior to the expiration date of any of the Policies
required to be maintained hereunder, which certificates shall bear notations evidencing payment of
applicable premiums (the “Insurance Premiums”) Originals or certificates of such replacement
Policies shall be delivered to Lender promptly after Borrower’s receipt thereof but in any case
within thirty (30) days after the effective date thereof. If Borrower fails to maintain and deliver
to Lender the original Policies or certificates of insurance required by this Security Instrument,
upon ten (10) days’ prior notice to Borrower, Lender may procure such insurance at Borrower’s sole
cost and expense.




     (c) Borrower shall comply with all insurance requirements and shall not bring or keep or
permit to be brought or kept any article upon any of the Property or cause or permit any condition
to exist thereon which would be prohibited by an insurance requirement, or would invalidate the
insurance coverage required hereunder to be maintained by Borrower on or with respect to any part
of the Property pursuant to this Section 3.3.



     Section 3.4 Payment of Taxes, Etc.



     (a) Borrower shall promptly pay all taxes, assessments, water rates, sewer rents, governmental
impositions, and other charges, including without limitation vault charges and license fees for the
use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or
imposed against the Property or any part thereof (the “Taxes”), all ground rents, maintenance
charges and similar charges, now or hereafter levied or assessed or imposed against the Property or
any part thereof (the “Other Charges”), and all charges for utility services provided to the
Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender’s
request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges
have been so paid or are not then delinquent. Borrower shall not suffer and shall promptly cause to
be paid and discharged any lien or charge whatsoever which may be



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or become a lien or charge against the Property. Except to the extent sums sufficient to pay all
Taxes and Other Charges have been deposited with Lender in accordance with the terms of this
Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes
and Other Charges prior to the date the same shall become delinquent.




     (b) After prior written notice to Lender, Borrower, at its own expense, may contest by
appropriate legal proceeding, promptly initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any of the Taxes, provided
that (i) no Event of Default has occurred and is continuing under the Note, this Security
Instrument or any of the Other Security Documents, (ii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property,
(iii) such proceeding shall suspend the collection of the Taxes from Borrower and from the Property
or Borrower shall have paid all of the Taxes under protest, (iv) such proceeding shall be permitted
under and be conducted in accordance with the provisions of any other instrument to which Borrower
is subject and shall not constitute a default thereunder, (v) neither the Property nor any part
thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or
lost, and (vi) Borrower shall have deposited with Lender adequate reserves for the payment of the
Taxes, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes
under protest, or Borrower shall have furnished the security as may be required in the proceeding,
or as may be reasonably requested by Lender to insure the payment of any contested Taxes, together
with all interest and penalties thereon, taking into consideration the amount in the Escrow Fund
available for payment of Taxes.



     Section 3.5 Escrow Fund. In addition to the initial deposits with respect to Taxes
and Insurance Premiums made by Borrower to Lender on the date hereof to be held by Lender in
escrow, Borrower shall pay to Lender on the first day of each calendar month (a) one-twelfth of an
amount which would be sufficient to pay the Taxes payable, or estimated by Lender to be payable,
during the next ensuing twelve (12) months and (b) one-twelfth of an amount which would be
sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the
Policies upon the expiration thereof (the amounts in (a) and (b) above shall be called the “Escrow
Fund”). Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and
instructions for payment of any Taxes and Insurance Premiums of which it has or obtains knowledge
and authorizes Lender or its agent to obtain the bills for Taxes directly from the appropriate
taxing authority. The Escrow Fund and the payments of interest or principal or both, payable
pursuant to the Note shall be added together and shall be paid as an aggregate sum by Borrower to
Lender. Provided there are sufficient amounts in the Escrow Fund and no Event of Default exists,
Lender shall be obligated to pay the Taxes and Insurance Premiums as they become due on their
respective due dates on behalf of Borrower by applying the Escrow Fund to the payments of such
Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections 3.3 and 3.4
hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes and Insurance
Premiums pursuant to Sections 3.3 and 3.4 hereof, Lender shall, in its discretion, return any
excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In
allocating such excess, Lender may deal with the person shown on the records of Lender to be the
owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth in (a) and
(b) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall
reasonably estimate as sufficient to make up the deficiency. The



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Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by
Lender. Unless otherwise required by Applicable Laws (defined in Section 3.11), no earnings or
interest on the Escrow Fund shall be payable to Borrower. Notwithstanding anything to the contrary
in this Section 3.5, Borrower shall not be required to make monthly deposits into the Escrow Fund
for Insurance Premiums so long as all of the insurance requirements and coverages set forth in
Section 3.3 are provided pursuant to a “blanket” insurance policy.




     Section 3.6 Condemnation. Borrower shall promptly give Lender notice of the actual
or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to
Lender copies of any and all papers served in connection with such proceedings. Notwithstanding any
taking by any public or quasi-public authority through eminent domain or otherwise (including but
not limited to any transfer made in lieu of or in anticipation of the exercise of such taking),
Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in
the Note and in this Security Instrument and the Debt shall not be reduced until any award or
payment therefor shall have been actually received and applied by Lender, after the deduction of
expenses of collection, to the reduction or discharge of the Debt. Borrower shall cause the award
or payment made in any condemnation or eminent domain proceeding, which is payable to Borrower, to
be paid directly to Lender. Lender shall not be limited to the interest paid on the award by the
condemning authority but shall be entitled to receive out of the award interest at the rate or
rates provided herein or in the Note. Lender may apply any award or payment to the reduction or
discharge of the Debt whether or not then due and payable. If the Property is sold, through
foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have
the right, whether or not a deficiency judgment on the Note (to the extent permitted in the Note or
herein) shall have been sought, recovered or denied, to receive the award or payment, or a portion
thereof sufficient to pay the Debt.



     Section 3.7 Restoration After Casualty/Condemnation. In the event of a casualty or a
taking by eminent domain, the following provisions shall apply in connection with the Restoration
(defined below) of the Property:



     (a) If the Property shall be damaged or destroyed, in whole or in part, by fire or other
casualty, or if the Property or any portion thereof is taken by the power of eminent domain
Borrower shall give prompt notice of such damage or taking to Lender and shall promptly commence
and diligently prosecute the completion of the repair and restoration of the Property as nearly as
possible to the condition the Property was in immediately prior to such fire or other casualty or
taking, with such alterations as may be approved by Lender (the “Restoration”).



     (b) The term “Net Proceeds” for purposes of this Section 3.7 shall mean: (i) the net amount of
all insurance proceeds under the Policies carried pursuant to Subsections 3.3(a)(i), (iv), (v),
(vi), (vii) and (viii) of this Security Instrument as a result of such damage or destruction, after
deduction of Lender’s reasonable costs and expenses (including, but not limited to reasonable
counsel fees), if any, in collecting the same, or (ii) the net amount of all awards and payments
received by Lender with respect to a taking referenced in Section 3.6 of this Security Instrument,
after deduction of Lender’s reasonable costs and expenses (including, but not limited to reasonable
counsel fees), if any, in collecting the same, whichever the case may be. If (i) the



10









 




Net Proceeds do not exceed $150,000 (the “Net Proceeds Availability Threshold”); (ii) the costs of
completing the Restoration as reasonably estimated by Borrower shall be less than or equal to the
Net Proceeds; (iii) no Event of Default shall have occurred and be continuing under the Note, this
Security Instrument or any of the Other Security Documents; (iv) the Property and the use thereof
after the Restoration will be in compliance with, and permitted under, all applicable zoning laws,
ordinances, rules and regulations (including, without limitation, all applicable Environmental Laws
(defined in Section 12.1)); (v) (A) in the event that the Net Proceeds are insurance proceeds, less
than thirty-five percent (35%) of the total floor area of the
Improvements has been damaged or destroyed, or rendered unusable as a result of such fire or other
casualty; or (B) in the event that the Net Proceeds are condemnation awards, less than thirty-five
percent (35%) of the Land constituting the Property is taken, such Land that is taken is located
along the perimeter or periphery of the Property, no portion of the Improvements is located in such
Lands, and such taking does not materially impair access to the Property; and (vi) 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 fire or other casualty or taking, whichever the case may be, will be covered out of (1)
the Net Proceeds, or (2) other funds of Borrower, then the Net Proceeds will be disbursed directly
to Borrower.




     (c) If the Net Proceeds are greater than the Net Proceeds Availability Threshold or
Borrower is not otherwise entitled to have the Net Proceeds disbursed directly to Borrower pursuant
to Subsection 3.7(b), such Net Proceeds shall be forthwith paid to Lender to be held by Lender in a
segregated account to be made available to Borrower for the Restoration in accordance with the
provisions of this Subsection 3.7(c).




          The Net Proceeds held by Lender pursuant to this Subsection 3.7(c) shall be made available to
Borrower for payment or reimbursement of Borrower’s expenses in connection with the Restoration,
subject to the following conditions:




     (i) no Event of Default shall have occurred and be continuing under the Note, this
Security Instrument or any of the Other Security Documents;




     (ii) Lender shall, within a reasonable period of time prior to request for initial
disbursement, be furnished with an estimate of the cost of the Restoration accompanied by an
independent architect’s certification as to such costs and appropriate plans and
specifications for the Restoration, such plans and specifications and cost estimates to be
subject to Lender’s approval, not to be unreasonably withheld or delayed;




     (iii) the Net Proceeds, together with any cash or cash equivalent deposited by Borrower
with Lender, are sufficient to cover the cost of the Restoration as such costs are certified
by the independent architect;




     (iv) Net Proceeds are less than the then outstanding principal balance of the Note;



11









 






     (v) (A) in the event that the Net Proceeds are insurance proceeds, less than
thirty-five percent (35%) of the total floor area of the Improvements has been damaged or
destroyed, or rendered unusable as a result of such fire or other casualty; or (B) in the
event that the Net Proceeds are condemnation awards, less than thirty-five (35%) of the Land
constituting the Property is taken, such Land that is taken is located along the perimeter
or periphery of the Property, no portion of the Improvements is located in such Lands and
such taking does not materially impair access to the Property;




     (vi) 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 fire or other casualty or taking,
whichever the case may be, will be covered out of (1) the Net Proceeds, or (2) other funds
of Borrower;




     (vii) Lender shall be satisfied that, upon the completion of the Restoration, the net
cash flow of the Property will be restored to a level sufficient to cover all carrying costs
and operating expenses of the Property, including, without limitation, debt service on the
Note and all required replacement reserves, reserves for tenant improvements and leasing
commissions;




     (viii) the Restoration can reasonably be completed on or before the earliest to occur
of (A) six (6) months prior to the Maturity Date (as defined in the Note), (B) the earliest
date required for such completion under the terms of any Major Leases (defined below) and
(C) such time as may be required under applicable zoning law, ordinance, rule or regulation
in order to repair and restore the Property to as nearly as possible the condition it was in
immediately prior to such fire or other casualty or to such taking, as applicable; and




     (ix) the Property and the use thereof after the Restoration will be in compliance with,
and permitted under, all applicable zoning laws, ordinances, rules and regulations
(including, without limitation, all applicable Environmental Laws (defined in Section 12.1).




     (x) each Major Lease (defined in Section 3.8) in effect as of the date of the
occurrence of such fire or other casualty shall remain in full force and effect during and
after the completion of the Restoration without abatement of rent beyond the time required
for Restoration.



     (d) The Net Proceeds held by Lender until disbursed in accordance with the
provisions of this Section 3.7 shall constitute additional security for the Obligations. The Net
Proceeds (other than the Net Proceeds paid under the Policy described in Subsection 3.3(a)(iv)
which shall be applied by Lender pursuant to and in accordance with the provisions of Subsection
3.3(a)(iv)) shall be disbursed by Lender to, or as directed by, Borrower, in an amount equal to the
costs actually incurred from time to time for work in place as part of the Restoration less
customary retainage from time to time during the course of the Restoration, not more frequently
than once per month, upon receipt of evidence satisfactory to Lender that (A) all






12









 







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 arising out of the Restoration which have not either been fully bonded and discharged
of record or in the alternative fully insured to the satisfaction of Lender by the title company
insuring the lien of this Security Instrument. Final payment shall be made after submission to
Lender of all licenses, permits, certificates of occupancy and other required approvals of
governmental authorization having jurisdiction and Casualty Consultant’s (as defined below)
certification that the Restoration has been fully completed.




     (e) Lender shall have the use of the plans and specifications and all permits, licenses
and approvals required or obtained in connection with the Restoration. The identity of the
contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts
under which they have been engaged, shall be subject to prior review and acceptance by Lender and
an independent consulting engineer selected by Lender (the “Casualty Consultant”), such acceptance
not to be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection
with making the Net Proceeds available for the Restoration including, without limitation,
reasonable counsel fees and disbursements and the Casualty Consultant’s fees, shall be paid by
Borrower.




     (f) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the
reasonable opinion of Lender, be sufficient to pay in full the balance of the costs which are
estimated by the Casualty Consultant to be incurred in connection with the completion of the
Restoration, Borrower shall deposit the deficiency (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 3.7 shall constitute additional security
for the Obligations.



     (g) Except upon the occurrence and continuance of an Event of Default, Borrower shall settle
any insurance claims with respect to the Net Proceeds which in the aggregate are less than the Net
Proceeds Availability Threshold. Lender shall have the right to participate in and reasonably
approve any settlement for insurance claims with respect to the Net Proceeds which in the aggregate
are greater than the Net Proceeds Availability Threshold. If an Event of Default shall have
occurred and be continuing, Borrower hereby irrevocably empowers Lender, in the name of Borrower as
its true and lawful attorney-in-fact, to file and prosecute such claim and to collect and to make
receipt for any such payment. If the Net Proceeds are received by Borrower, such Net Proceeds
shall, until the completion of the related work, be held in trust for Lender and shall be
segregated from other funds of Borrower to be used to pay for the cost of the Restoration in
accordance with the terms hereof.



     (h) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net
Proceeds Deficiency deposited with Lender after (i) the Casualty Consultant certifies to Lender
that the Restoration has been completed in accordance with the provisions of this Section



13









 




3.7, and (ii) the receipt by Lender of evidence satisfactory to Lender that all costs incurred in
connection with the Restoration have been paid in full and all required permits, licenses,
certificates of occupancy and other required approvals of governmental authorities having
jurisdiction have been issued, shall be remitted by Lender to Borrower, provided no Event of
Default shall have occurred and shall be continuing under the Note, this Security Instrument or any
of the Other Security Documents.




     (i) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be
returned to Borrower as excess Net Proceeds pursuant to Subsection 3.7(h) shall be retained and
applied by Lender toward the payment of the Debt whether or not then due and payable in such order,
priority and proportions as Lender in its discretion shall deem proper or, at the discretion of
Lender, the same shall be paid, either in whole or in part, to Borrower. If Lender shall receive
and retain Net Proceeds, the lien of this Security Instrument shall be reduced only by the amount
received and retained by Lender and actually applied by Lender in reduction of the Debt.



     Section 3.8 Leases and Rents.



     (a) Borrower may enter into a proposed Lease (including the renewal or extension of an
existing Lease (“a Renewal Lease”)) without the prior written consent of Lender, provided such
proposed Lease or Renewal Lease (i) provides for rental rates and terms comparable to existing
local market rates and terms (taking into account the type and quality of the tenant) as of the
date such Lease is executed by Borrower (unless, in the case of a Renewal Lease, the rent payable
during such renewal, or a formula or other method to compute such rent, is provided for in the
original Lease), (ii) is an arms-length transaction with a bona fide, independent third party
tenant, (iii) does not have a materially adverse effect on the value of the Property taken as a
whole, (iv) is subject and subordinate to the Security Instrument and the lessee thereunder agrees
to attorn to Lender, and (v) is written on the standard form of lease approved by Lender. All
proposed Leases which do not satisfy the requirements set forth in this Subsection 3.8(a) shall be
subject to the prior approval of Lender and its counsel (which consent shall not be unreasonably
withheld or delayed), at Borrower’s expense. Borrower shall promptly deliver to Lender copies of
all Leases which are entered into pursuant to this Subsection together with Borrower’s
certification that it has satisfied all of the conditions of this Subsection.



     (b) Borrower (i) shall observe and perform all the obligations imposed upon the lessor under
the Leases and shall not do or permit to be done anything to impair the value of any of the Leases
as security for the Debt; (ii) upon request, shall promptly send copies to Lender of all notices of
default which Borrower shall send or receive thereunder; (iii) shall enforce all of the material
terms, covenants and conditions contained in the Leases upon the part of the tenant thereunder to
be observed or performed, (iv) shall not collect any of the Rents more than one (1) month in
advance (except security deposits shall not be deemed Rents collected in advance); (v) shall not
execute any other assignment of the lessor’s interest in any of the Leases or the Rents; and (vi)
shall not consent to any assignment of or subletting under any Leases not in accordance with their
terms, without the prior written consent of Lender (which consent shall not be unreasonably
withheld or delayed).



14









 





     (c) Borrower may, without the consent of Lender, amend, modify or waive the provisions of any
Lease or terminate, reduce rents under, accept a surrender of space under, or shorten the term of,
any Lease (including any guaranty, letter of credit or other credit support with respect thereto)
provided that such action (taking into account, in the case of a termination, reduction in rent,
surrender of space or shortening of term, the planned alternative use of the affected space) does
not have a materially adverse effect on the value of the Property taken as a whole, and provided
that such Lease, as amended, modified or waived, is otherwise in compliance with the requirements
of this Security Instrument and any subordination agreement binding upon Lender with respect to
such Lease. A termination of a Lease with a tenant who is in default beyond applicable notice and
grace periods shall not be considered an action which has a materially adverse effect on the value
of the Property taken as a whole. Any amendment, modification, waiver, termination, rent reduction,
space surrender or term shortening which does not satisfy the requirements set forth in this
Subsection shall be subject to the prior approval of
Lender and its counsel (which approval shall not The unreasonably withheld or delayed), at
Borrower’s expense. Borrower shall promptly deliver to Lender copies of amendments, modifications
and waivers which are entered into pursuant to this Subsection together with Borrower’s
certification that it has satisfied all of the conditions of this Subsection.




     (d) Notwithstanding anything contained herein to the contrary, Borrower shall not, without the
prior written consent of Lender (which consent shall not be unreasonably withheld or delayed),
enter into, renew, extend, amend, modify, waive any provisions of, terminate, reduce rents under,
accept a surrender of space under, or shorten the term of, any Major Lease. The term “Major Lease”
shall mean any Lease demising in the aggregate more than the lesser of (i) 15,000 rentable square
feet or (ii) fifteen percent (15%) of the total rentable square feet at the Property, or if the
Property is multi-family, any non-residential space at the Property.



     Section 3.9 Maintenance and Use of Property.



     (a) Borrower shall cause the Property to be maintained in a good and safe condition and
repair. The Improvements and the Personal Property shall not be removed, demolished or materially
altered (except for normal replacement of the Personal Property) without the consent of Lender.
Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed
by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding
of the character referred to in Section 3.6 hereof and shall complete and pay for any structure at
any time in the process of construction or repair on the Land. Borrower shall not initiate, join
in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made of the Property or
any part thereof. If under applicable zoning provisions the use of all or any portion of the
Property is or shall become a nonconforming use, Borrower will not cause or permit the
nonconforming use to be discontinued or the nonconforming Improvement to be abandoned without the
express written consent of Lender.



     (b) Notwithstanding anything to the contrary set forth in this Section 3.9, Borrower may
undertake the construction of up to 25,000 square feet of additional space at the Property without
the prior consent of Lender, subject to the following conditions:



15









 






     (i) No Event of Default exists under this Security Instrument or any of the Other
Security Documents.




     (ii) One hundred percent (100%) of the partnership interests in the Borrower shall be
directly or indirectly owned by AmREIT, a Texas real estate investment trust (“AmREIT”).




     (iii) The Debt Service Coverage Ratio (as defined below) for the Property is equal to
or greater than 1.25:1 and shall remain equal to or greater that 1.25:1 at all times during
such construction. “Debt Service Coverage Ratio” means the ratio of (a) Lender’s estimated
net underwritable cash flow from the Property based on current monthly rents (subject to the
adjustments below) and based on expenses over a trailing twelve (12) month period (as
determined by Lender and in accordance with the requirements of any rating agency selected
by Lender in its sole discretion) adjusted, if necessary, (I) to reflect




the results of an audit of the Property cash flows, (II) to exclude rents achieved which are
greater than market and cannot be supported by comparables acceptable to Lender, (III) to
reflect actual expenses which are greater than the amounts underwritten by Lender, (IV) to
reflect actual reimbursements from tenants which are less than the amounts underwritten by
Lender, (V) to exclude rents and reimbursements under any “master lease” or other lease for
space at the Property pursuant to which rent payments are to be made by Borrower or an
affiliate of Borrower and (VI) to exclude rents and reimbursements from tenants who (A) have
“gone dark”, (B) failed to take occupancy of their space at the Property, (C) filed for
bankruptcy protection, (D) are not beyond any free rent period or (E) have provided notice
of non-renewal, over (b) the sum of twelve (12) regularly scheduled principal and interest
payments on the Loan assuming a thirty (30) year amortization schedule.




     (iv) Borrower shall have provided Lender with a full and complete copy of the plans and
specifications for such construction.




     (v) Borrower shall have obtained all required permits in connection with such
construction.




     (vi) Borrower shall have provided Lender with full and complete copies of all contracts
entered into by Borrower in connection with such construction, including without limitation
any construction and architect contracts.




     (vii) Such construction shall not materially alter the appearance of the existing
retail space at the Property.




     (viii) Such construction shall not be unduly disruptive to the operation of the
Property or the tenants’ use and occupancy of their space at the Property during such
construction and at least ninety percent (90%) of the tenants shall remain in occupancy of
their space and continue to pay full rent at all times during such construction (unless rent
is not required pursuant to the terms of a tenant’s Lease).



16









 






     (ix) The Property shall at all times have no fewer than four (4) parking spaces per
1,000 square feet of rentable square footage at the Property.




     (x) The Property shall all times comply with Applicable Laws (as defined below),
including without limitation all zoning and land use laws.




     (xi) Borrower shall ensure that the existing retail space at the Property is properly
served by all utilities during the such construction.




     (xii) All costs and expenses of any and all labor, materials, supplies and equipment
used in such construction shall be paid in full on or before the date the same are due, and
Borrower shall not permit the Property to become subject to any mechanic’s, materialman’s or
other lien as a result of such construction or Borrower shall remove or bond over any
mechanic’s, materialman’s or other lien within three (3) business days of when such lien is
filed.




     (xiii) Such construction shall be diligently and promptly completed and in no event
shall such construction continue for a period of time longer than nine (9) months after the
date of commencement of such construction.




     (xiv) AmREIT shall provide Lender with a guaranty of the construction obligations and
costs in a form satisfactory to Lender.



     (c) Notwithstanding anything to the contrary set forth in this Section 3.9, upon the
completion of the construction described in subsection (b) of this Section 3.10, Borrower may
undertake the construction of up to 25,000 square feet of additional space at the Property without
the prior consent of Lender, subject to the conditions set forth in subsection (b) of this Section
3.9.



     Section 3.10 Waste. Borrower shall not commit or suffer any waste of the Property or
make any change in the use of the Property which will in any way materially increase the risk of
fire or other hazard arising out of the operation of the Property, or take any action that might
invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon
anything that may in any way impair the value of the Property or the security of this Security
Instrument. Borrower will not, without the prior written consent of Lender, permit any drilling or
exploration for or extraction, removal, or production of any minerals from the surface or the
subsurface of the Land, regardless of the depth thereof or the method of mining or extraction
thereof.



     Section 3.11 Compliance With Laws.



     (a) Borrower shall promptly comply with all existing and future federal, state and local laws,
orders, ordinances, governmental rules and regulations or court orders affecting Borrower, the
Property, or the use thereof, including, without limitation, Prescribed Laws (collectively,
“Applicable Laws”). The term “Prescribed Laws” shall mean, collectively, (a) the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and



17









 




Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive Order No.
13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the
International Emergency Economic Power Act, 50 U.S.C. §1701 et. seq. and (d) all other legal
requirements relating to money laundering or terrorism.




     (b) Borrower shall from time to time, upon Lender’s request, provide Lender with evidence
reasonably satisfactory to Lender that each of Borrower and the Property complies with all
Applicable Laws or is exempt from compliance with Applicable Laws.



     (c) Notwithstanding any provisions set forth herein or in any document regarding Lender’s
approval of alterations of the Property, Borrower shall not alter the Property in any manner which
would materially increase Borrower’s responsibilities for compliance with Applicable Laws without
the prior written approval of Lender. Lender’s approval of the plans, specifications, or working
drawings for alterations of the Property shall create no responsibility or liability on behalf of
Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The
foregoing shall apply to tenant improvements constructed by
Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a
certificate of compliance with Applicable Laws from an independent architect, engineer, or other
person acceptable to Lender.




     (d) Borrower shall give prompt notice to Lender of the receipt by Borrower of any notice
related to a violation of any Applicable Laws and of the commencement of any proceedings or
investigations which relate to compliance with Applicable Laws.



     (e) 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 Applicable Laws affecting the Property, provided that (i) no Event of Default has
occurred and is continuing under the Note, this Security Instrument or any of the Other Security
Documents; (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of
trust or deed to secure debt affecting the Property; (iii) such proceeding shall be permitted under
and be conducted in accordance with the provisions of any other instrument to which Borrower or the
Property is subject and shall not constitute a default thereunder; (iv) neither the Property, any
part thereof or interest therein, any of the tenants or occupants thereof, nor Borrower shall be
affected in any material adverse way as a result of such proceeding; (v) non-compliance with the
Applicable Laws shall not impose civil or criminal liability on Borrower or Lender; and (vi)
Borrower shall have furnished to Lender all other items reasonably requested by Lender.



     Section 3.12 Books and Records.



     (a) Borrower and any Guarantors (defined in Subsection 10.1(e)) and Indemnitor(s) (defined in
Section 13.4), if any, shall keep adequate books and records of account in accordance with
generally accepted accounting principles (“GAAP”), or in accordance with other methods acceptable
to Lender in its sole discretion, consistently applied and furnish to Lender:



18









 






     (i) monthly, or if the Loan (defined below) has been securitized or sold as a whole
loan by Lender, semi-annual and annual certified rent rolls signed and dated by Borrower,
detailing the names of all tenants of the Improvements, the portion of Improvements occupied
by each tenant, the base rent and any other charges payable under each Lease and the term of
each Lease, including the expiration date, the extent to which any tenant is in default
under any Lease, and any other information as is reasonably required by Lender, within
twenty (20) days after the end of each calendar month, thirty (30) days after the end of the
second quarter of each fiscal year of Borrower or sixty (60) days after the close of each
fiscal year of Borrower, as applicable;




     (ii) on a monthly basis, operating statements of the Property for the immediately
preceding month (and for previous periods if required by Lender), or if the Loan has been
securitized or sold as a whole loan by Lender, semi-annual and annual operating statements
of the Property, all of which shall be prepared and certified by Borrower in the form
required by Lender, detailing the revenues received, the expenses incurred and the net
operating income before and after debt service (principal and interest) and major capital
improvements for each month and containing appropriate year to date information, within
twenty (20) days after the end of each calendar month, thirty (30) days after the end of the
second quarter Of each fiscal year of Borrower or sixty (60) days after the close of each
fiscal year of Borrower, as applicable;




     (iii) an annual operating statement of the Property detailing the total revenues
received, total expenses incurred, total cost of all capital improvements, total debt
service and total cash flow, to be prepared and certified by Borrower in the form required
by Lender, or if required by Lender, an audited annual operating statement prepared and
certified by an independent certified public accountant acceptable to Lender, within sixty
(60) days after the close of each fiscal year of Borrower;




     (iv) quarterly and annual balance sheet and profit and loss statements of Borrower, any
Guarantors and any Indemnitor(s) in the form required by Lender, prepared and certified by
the respective Borrower, Guarantors and/or Indemnitor(s) or if required by Lender, audited
financial statements prepared by an independent certified public accountant acceptable to
Lender, within thirty (30) days after the end of each fiscal quarter or sixty (60) days
after the close of each fiscal year of Borrower, Guarantors and Indemnitor(s), as the case
may be; and




     (v) an annual operating budget presented on a monthly basis consistent with the annual
operating statement described above for the Property, including cash flow projections for
the upcoming year, and all proposed capital replacements and improvements at least fifteen
(15) days prior to the start of each fiscal year.



     (b) Upon request from Lender, Borrower, any Guarantor and any Indemnitor shall furnish in a
timely manner to Lender:




     (i) a property management report for the Property, showing the number of inquiries made
and/or rental applications received from tenants or prospective tenants and



19









 






deposits received from tenants and any other information requested by Lender, in reasonable
detail and certified by Borrower (or an officer, general partner, member or principal of
Borrower if Borrower is not an individual) under penalty of perjury to be true and complete,
but no more frequently than quarterly; and




     (ii) an accounting of all security deposits held in connection with any Lease of any
part of the Property, including the name and identification number of the accounts in which
such security deposits are held, the name and address of the financial institutions in which
such security deposits are held and the name of the person to contact at such financial
institution, along with any authority or release necessary for Lender to obtain information
regarding such accounts directly from such financial institutions.



     (c) Borrower, any Guarantor and any Indemnitor shall furnish Lender with such other additional
financial or management information (including State and Federal tax returns) as may, from time to
time, be reasonably required by Lender in form and substance satisfactory to Lender.



     (d) Borrower, any Guarantor and any Indemnitor shall furnish to Lender and its agents
convenient facilities for the examination and audit of any such books and records.



     (e) Borrower acknowledges the importance to Lender of the timely delivery of each of the items
required by this Section 3.12 (each, a “Required Financial Item” and collectively, the “Required
Financial Items”). In the event Borrower fails to deliver to Lender any of the Required Financial
Items within five (5) days of notice to Borrower that such Required Financial Items have not been
received by Lender within the time frame specified herein (each such event, a “Reporting Failure”),
in addition to constituting an Event of Default hereunder and without limiting Lender’s other
rights and remedies with respect to the occurrence of such an Event of Default, Borrower shall pay
to Lender the sum of $1,000.00 per occurrence for each Reporting Failure. It shall constitute a
further Event of Default hereunder if any such payment is not received by Lender within thirty (30)
days of the date on which such payment is due, and Lender shall be entitled to the exercise of all
of its rights and remedies provided hereunder.



     (f) In the event that two (2) Reporting Failures occur during any twelve (12) month period
during the term of the Loan, Borrower agrees to establish a lockbox and lockbox account pursuant to
Lender’s requirements, each in the name of Lender, and to execute Lender’s standard form Cash
Management Agreement, together with any documentation ancillary thereto as required by Lender,
including, without limitation, a lockbox agreement with a bank acceptable to Lender, signature
cards and letters to tenants, credit card companies and other account receivable counterparties
directing them to pay all rents, receivables and other sums directly to the lockbox account.



     Section 3.13 Payment for Labor and Materials. Borrower will promptly pay when due
all bills and costs for labor, materials, and specifically fabricated materials incurred in
connection with the Property and never permit to exist in respect of the Property or any part
thereof any lien or security interest, even though inferior to the liens and the security interests
hereof, and in any event never permit to be created or exist in respect of the Property or any part



20









 




thereof any other or additional lien or security interest other than the liens or security
interests hereof, except for the Permitted Exceptions (defined below).




     Section 3.14 Performance of Other Agreements. Borrower shall observe and perform
each and every term to be observed or performed by Borrower pursuant to the terms of any agreement
or recorded instrument affecting or pertaining to the Property, or given by Borrower to Lender for
the purpose of further securing an Obligation secured hereby and any amendments, modifications or
changes thereto.



     Section 3.15 Change of Name, Identity or Structure. Except as may be permitted under
Article 8 hereof, Borrower will not change Borrower’s name, identity (including its trade name or
names) or, if not an individual, Borrower’s corporate, partnership or other structure without first
(a) notifying the Lender of such change in writing at least thirty (30) days prior to the effective
date of such change, (b) taking all action required by Lender for the purpose of perfecting or
protecting the lien and security interest of Lender and (c) in the case of a change in Borrower’s
structure, without first obtaining the prior written consent of the Lender. Borrower shall promptly
notify Lender in writing of any change in its organizational identification number. If Borrower
does not now have an organizational identification number and later obtains one, Borrower shall
promptly notify Lender in writing of such organizational identification number.



     Section 3.16 Existence. Borrower will continuously maintain (a) its existence and
shall not dissolve or permit its dissolution, (b) its rights to do business in the state where the
Property is located and (c) its franchises and trade names, if any.



     Section 3.17 Management. The management of the Property shall be by either: (a)
Borrower or an entity affiliated with Borrower approved by Lender for so long as Borrower or said
affiliated entity is managing the Property in a first class manner; or (b) a professional property
management company approved by Lender in its reasonable discretion. Such management by an
affiliated entity or a professional property management company shall be pursuant to a written
agreement approved by Lender. In no event shall any manager be removed or replaced or the terms of
any management agreement modified or amended without the prior written consent of Lender. Lender
shall have the right to immediately terminate, or to direct Borrower to immediately terminate, such
management contract and to retain, or to direct Borrower to retain, a new management agent approved
by Lender (a) following an Event of Default or a default under any management contract then in
effect, which default is not cured within any applicable grace or cure period, or (b) in the event
that the “Debt Service Coverage Ratio” (defined below) drops below 1.05:1. All Rents generated by
or derived from the Property shall first be utilized solely for current expenses directly
attributable to the ownership and operation of the Property, including, without limitation, current
expenses relating to Borrower’s liabilities and obligations with respect to the Note, this Security
Instrument and the Other Security Documents, and none of the Rents generated by or derived from the
Property shall be diverted by Borrower and utilized for any other purpose unless all such current
expenses attributable to the ownership and operation of the Property have been fully paid and
satisfied.



     Section 3.18 ERISA. 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




21











 




rights under the Note, this Security Instrument or the Other Security Documents) to be a non-exempt
(under a statutory or administrative class exemption) prohibited transaction under the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”). Borrower shall 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 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
investments 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 is held by “benefit plan investors” within the meaning of 29 C.F.R.
§2510.3-101(0(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).



Article 4 — Special Covenants


Borrower covenants and agrees that:




     Section 4.1 Property Use. The Property shall be used only as a retail shopping
center, and for no other use, without the prior written consent of Lender.



     Section 4.2 Single Purpose Entity. It has not since the date of its formation and
shall not and agrees that its general partner(s), if Borrower is a partnership, or its managing
member(s), if Borrower is a limited liability company (in each case, “Principal”), has not since
the date of its formation and shall not:



     (a) with respect to any Principal, fail to be organized as a corporation;



     (b) with respect to Borrower, fail to be organized solely for the purpose of (i)
acquiring, developing, owning, managing or operating the Property, (ii) entering into this Security
Instrument and the documents related hereto, and (iii) engaging in any activity that is incidental,
necessary or appropriate to accomplish the foregoing and, with respect to a Principal, be organized
for any purpose other than (I) owning at least a 0.5% interest in Borrower, (II) serving as a
manager of Borrower and (III) engaging in any activity that is incidental, necessary or appropriate
to owning an interest in Borrower and serving as a manager of Borrower;



     (c) with respect to Borrower, engage in any business or activity other than the ownership,
operation and maintenance of the Property, and activities incidental thereto and with respect to
Principal, engage in any business or activity other than the ownership of its interest in Borrower,
and activities incidental thereto including the management of the Property;



22









 





     (d) with respect to Borrower, acquire or own any material assets other than (i) the
Property, and (ii) such incidental Personal Property as may be necessary for the operation of the
Property and with respect to Principal, acquire or own any material asset other than (i) its
interest in Borrower, and (ii) such incidental Personal Property as may be necessary to effectuate
its purpose;



     (e) merge into or consolidate with any person or entity or dissolve, terminate or
liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its
assets or change its legal structure;



     (f) fail to preserve its existence as an entity duly organized, validly existing and in
good standing (if applicable) under the laws of the jurisdiction of its organization or formation,
and qualification to do business in the state where the Property is located, if applicable, or
without the prior written consent of Lender, amend, modify, terminate or fail to comply with the
provisions of Borrower’s Partnership Agreement, Articles or Certificate of Incorporation, Articles
of Organization, Certificate of Formation, Operating Agreement or similar organizational documents,
as the case may be, or of Principal’s Articles or Certificate of Incorporation or similar
organizational documents, as the case may be;



     (g) own, form or acquire any subsidiary or make any investment in, any person or entity,
other than Principal’s investment in Borrower;



     (h) commingle its assets with the assets of any of its members, general partners,
affiliates, principals or of any other person or entity nor fail to hold all of its assets in its
own name;



     (i) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Debt, except for (i) the Permitted
Subordinate Debt (as defined in Section 8.5) and (ii) trade payables in the ordinary course of its
business of owning and operating the Property, provided that such debt is not evidenced by a note
and is paid when due and, with respect to Principal, incur any debt secured or unsecured, direct or
contingent (including guaranteeing any obligations), except for trade payables in the ordinary
course of its business of owning an interest in Borrower and serving as a manager of Borrower,
provided that such debt is not evidenced by a note and is paid when due;



     (j) become insolvent or fail to pay its debts and liabilities from its assets as the same
shall become due;



     (k) fail to maintain its records, books of account and bank accounts separate and apart
from those of the members, general partners, principals and affiliates of Borrower or of Principal,
as the case may be, the affiliates of a member, general partner or principal of Borrower or
Principal, as the case may be, and any other person or entity or fail to maintain such books and
records in the ordinary course of its business;



23









 





     (l) enter into any contract or agreement with any member, general partner, principal or
affiliate of Borrower or of Principal, as the case may be, Guarantor or Indemnitor, or any member,
general partner, principal or affiliate thereof, except upon terms and conditions that are
intrinsically fair, commercially reasonable and substantially similar to those that would be
available on an arms-length basis with third parties other than any member, general partner,
principal or affiliate of Borrower or of Principal, as the case may be, Guarantor or 1ndemnitor, or
any member, general partner, principal or affiliate thereof;



     (m) seek the dissolution or winding up in whole, or in part, of Borrower or of Principal,
as the case may be;



     (n) fail to correct any known misunderstandings regarding the separate identity of
Borrower, or of Principal, as the case may be, from any member, general partner, principal or
affiliate thereof or any other person;



     (o) guaranty or become obligated for the debts of any other person or entity or hold out
its credit as being able to satisfy the debts of another person or entity, except if a Principal is
a general partner of Borrower, such an entity may be under state law liable for the debts of
Borrower in its capacity as a “general partner”;



     (p) make any loans or advances to any third party, including any member, general partner,
principal or affiliate of Borrower, or of Principal, as the case may be, or any member, general
partner, principal or affiliate thereof, nor buy or hold evidence of indebtedness issued by any
other person or entity (other than cash or investment grade securities);



     (q) fail to file its own tax returns, nor file a consolidated federal income tax return
with any other entity, unless required by law;



     (r) fail to hold itself out to the public as a legal entity separate and distinct from any
other entity or person, fail to conduct its business solely in its own name, mislead others as to
the identity with which such other party is transacting business, or suggest that Borrower or
Principal, as the case may be, is responsible for the debts of any third party (including any
member, general partner, principal or affiliate of Borrower, or of Principal, as the case may be,
or any member, general partner, principal or affiliate thereof);



     (s) fail to maintain adequate capital for the normal obligations reasonably foreseeable in
a business of its size and character and in light of its contemplated business operations;



     (t) share any common logo with or hold itself out as or be considered as a department or
division of (i) any general partner, principal, member or affiliate of Borrower or of Principal, as
the case may be, (ii) any affiliate of a general partner, principal or member of Borrower or of
Principal, as the case may be, or (iii) any other person or entity;



     (u) fail to maintain separate financial statements and accounting records, showing its
assets and liabilities separate and apart from those of any other person or entity;



24









 





     (v) have its assets listed on the financial statement of any other entity;



     (w) fail to observe all applicable organizational formalities;



     (x) fail to pay the salaries of its own employees (if any) from its own funds;



     (y) fail to maintain a sufficient number of employees in light of its contemplated
business operations;



     (z) fail to allocate fairly and reasonably any overhead expenses that are shared with an
affiliate, including paying for office space and services performed by any employee of an
affiliate;



     (aa) fail to use separate stationery, invoices and checks bearing its own name;



     (bb) pledge its assets for the benefit of any other person or entity, other than in the
case of Borrower, in connection with the loan secured hereby;



     (cc) acquire the obligations or securities of any member, general partner, principal or
affiliate of Borrower or of Principal, as the case may be, Guarantor or Indemnitor, or any member,
general partner, principal or affiliate thereof;



     (dd) fail to maintain its assets in such a manner that it will not be costly or difficult
to segregate, ascertain or identify its individual assets from those of any other entity;



     (ee) with respect to Borrower, have any obligation to indemnify its partners, officers,
directors or members, as the case may be, or have such an obligation only if it is fully
subordinated to the Debt and will not constitute a claim against it in the event that cash flow in
excess of the amount required to pay the Debt is insufficient to pay such obligation;



     (ff) fail, to the fullest extent permitted by law, to consider the interests of its
creditors in connection with all actions if such entity is a corporation;



     (gg) have any of its obligations guaranteed by any member, general partner, principal or
affiliate except Guarantor or Indemnitor;



     (hh) if Borrower is a single member limited liability company, fail to be organized in the
State of Delaware;



     (ii) if Borrower is a single member limited liability company, fail to have a springing
member which, upon the dissolution of the sole member of Borrower or the withdrawal or the
disassociation of such sole member from Borrower, shall immediately become the sole member of
Borrower;



     (jj) take for itself or cause any other entity to take any of the following actions
without the unanimous consent of its partners or members, as applicable, and the unanimous




25









 




affirmative
vote of the Board of Directors of Principal: (i) 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 any relief under any laws relating to the relief from debts or the
protection of debtors generally, (ii) seek or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator, custodian or any similar official for itself or any other entity,
(iii) make an assignment of its assets for the benefit of its creditors or an assignment of the
assets of another entity for the benefit of such entity’s creditors, or (iv) take any action in
furtherance of the foregoing.




Article 5 — Representations and Warranties


Borrower represents and warrants to Lender as of the date of this Security Instrument that:




     Section 5.1 Warranty of Title. Borrower has good title to the Property and has the
right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and
that Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements
and that it owns the Property free and clear of all liens, encumbrances and charges whatsoever
except for those exceptions shown in the title insurance policy insuring the lien of this Security
Instrument (the “Permitted Exceptions”). Borrower shall forever warrant, defend and preserve the
title and the validity and priority of the lien of this Security Instrument and shall forever
warrant and defend the same to Lender and/or Trustee against the claims of all persons whomsoever.



     Section 5.2 Legal Status and Authority. (a) Borrower (i) is duly organized, validly
existing and in good standing under the laws of its state of organization or incorporation; (ii) is
duly qualified to transact business and is in good standing in the state where the Property is
located; (iii) has all necessary approvals, governmental and otherwise, and full power and
authority to own, operate and lease the Property; and (iv) is in compliance with all Prescribed
Laws. Borrower (and the undersigned representative of Borrower, if any) has full power, authority
and legal right to execute this Security Instrument, and to mortgage, grant, bargain, sell, pledge,
assign, warrant, transfer and convey the Property pursuant to the terms hereof and to keep and
observe all of the terms of this Security Instrument on Borrower’s part to be performed.



     (b) Borrower’s exact legal name is correctly set forth in the first paragraph of this
Security Instrument. Borrower is an organization of the type specified in the first paragraph of
this Security Instrument. Borrower is incorporated in or organized under the laws of the state
specified in the first paragraph of this Security Instrument. 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 (4)
months (or, if less than four (4) months, the entire period of the existence of Borrower) and will
continue to be the address of Borrower set forth in the first paragraph of this Security Instrument
(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 800497174.



26









 





     Section 5.3 Validity of Documents. (a) The execution, delivery and performance of
the Note, this Security Instrument and the Other Security Documents and the borrowing evidenced by
the Note (i) are within the power and authority of Borrower; (ii) have been authorized by all
requisite organizational action; (iii) have received all necessary approvals and consents,
corporate, governmental or otherwise; (iv) will not violate, conflict with, result in a breach of
or constitute (with notice or lapse of time, or both) a material default under any provision of
law, any order or judgment of any court or governmental authority, the articles of incorporation,
by-laws, partnership or trust agreement, articles of organization, operating agreement, or other
governing instrument of Borrower, or any indenture, agreement or other instrument to which Borrower
is a party or by which it or any of its assets or the Property is or may be bound or affected; (v)
will not result in the creation or imposition of any lien, charge or encumbrance whatsoever upon
any of its assets, except the lien and security interest created hereby; and (vi) will not require
any authorization or license from, or any filing with, any governmental or other body (except for
the recordation of this Security Instrument in appropriate land records in the State where the
Property is located and except for Uniform Commercial Code filings relating to the security
interest created hereby); and (b) to the best knowledge of Borrower, the Note, this Security
Instrument and the Other Security Documents constitute the legal, valid and binding obligations of
Borrower.



     Section 5.4 Litigation. There is no action, suit or proceeding, judicial,
administrative or otherwise (including any condemnation or similar proceeding), pending or, to the
best of Borrower’s knowledge, threatened or contemplated against Borrower, a Guarantor, if any, an
Indemnitor, if any, or against or affecting the Property that (a) has not been disclosed to Lender
by Borrower in writing, and has a material adverse affect on the Property or Borrower’s, any
Guarantor’s or any Indemnitor’s ability to perform its obligations under the Note, this Security
Instrument or the Other Security Documents, or (b) is not adequately covered by insurance, each as
determined by Lender in its sole discretion.



     Section 5.5 Status of Property.



     (a) Borrower has obtained all necessary certificates, licenses and other approvals,
governmental and otherwise, necessary for the operation of the Property and the conduct of its
business and all required zoning, building code, land use, environmental and other similar permits
or approvals, all of which are in full force and effect as of the date hereof and not subject to
revocation, suspension, forfeiture or modification.



     (b) The Property and the present and contemplated use and occupancy thereof axe in full
compliance with all applicable zoning ordinances, building codes, land use laws, Environmental
Laws, Prescribed Laws and other similar laws.



     (c) The Property is served by all utilities required for the current or contemplated use
thereof. All utility service is provided by public utilities and the Property has accepted or is
equipped to accept such utility service.



27









 





     (d) All public roads and streets necessary for service of and access to the Property for
the current or contemplated use thereof have been completed, are serviceable and all-weather and
are physically and legally open for use by the public.



     (e) The Property is served by public water and sewer systems.



     (f) The Property is free from damage caused by fire or other casualty.



     (g) All costs and expenses of any and all labor, materials, supplies and equipment used in
the construction of the Improvements have been paid in full.



     (h) Borrower has paid in full for, and is the owner of, all furnishings, fixtures and
equipment (other than tenants’ property) used in connection with the operation of the Property,
free and clear of any and all security interests, liens or encumbrances, except the lien and
security interest created hereby.



     (i) All liquid and solid waste disposal, septic and sewer systems located on the Property
are in a good and safe condition and repair and in compliance with all Applicable Laws.



     (j) No portion of the Improvements is located in an area identified by the Secretary of
Housing and Urban Development or any successor thereto as an area having special flood hazards
pursuant to the Flood Insurance Acts or, if any portion of the Improvements is located within such
area, Borrower has obtained and will maintain the insurance prescribed in Section 3.3 hereof.



     (k) All the Improvements lie within the boundaries of the Land.



     Section 5.6 No Foreign Person. Borrower is not a “foreign person” within the meaning
of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury
Department regulations.



     Section 5.7 Separate Tax Lot. The Property is assessed for real estate tax purposes
as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements
not constituting a part of such lot or lots, and no other land or improvements is assessed and
taxed together with the Property or any portion thereof.



     Section 5.8 Leases. (a) Except as disclosed in the rent roll for the Property
delivered to and approved by Lender in writing prior to the date hereof, (i) Borrower is the sole
owner of the entire lessor’s interest in the Leases; (ii) the Leases are valid and enforceable and
in full force and effect; (iii) all of the Leases are arms-length agreements with bona fide,
independent third parties; (iv) no party under any Lease is in default; (v) all Rents due have been
paid in full; (vi) the terms of all alterations, modifications and amendments to the Leases are
reflected in the certified occupancy statement delivered to and approved by Lender; (vii) none of
the Rents reserved in the Leases have been assigned or otherwise pledged or hypothecated; (viii)
none of the Rents have been collected for more than one (1) month in advance (except a security
deposit shall not be deemed rent collected in advance); (ix) the premises demised under the Leases
have



28









 




been completed and the tenants under the Leases have accepted the same and have taken possession of
the same on a rent-paying basis; (x) there exist no offsets or defenses to the payment of any
portion of the Rents and Borrower has no monetary obligation to any tenant under any Lease; (xi)
Borrower has received no notice from any tenant challenging the validity or enforceability of any
Lease; (xii) there are no agreements with the tenants under the Leases other than expressly set
forth in each Lease; (xiii) the Leases are valid and enforceable against Borrower and the tenants
set forth therein; (xiv) no Lease contains an option to purchase, right of first refusal to
purchase or any other similar provision; (xv) no person or entity has any possessory interest in,
or right to occupy, the Property except under and pursuant to a Lease; (xvi) each Lease is
subordinate to this Security Instrument, either pursuant to its terms or a recordable subordination
agreement; (xvii) no Lease has the benefit of a non-disturbance agreement that would be considered
unacceptable to prudent institutional lenders, (xviii) all security deposits relating to the Leases
reflected on the certified rent roll delivered to Lender have been collected by Borrower; and (xix)
no brokerage commissions or finders fees are due and payable regarding any Lease.




     (b) Notwithstanding anything contained herein to the contrary, Borrower shall not
willfully withhold from Lender any material information regarding renewal, extension, amendment,
modification, waiver of provisions of, termination, rental reduction of, surrender of space of, or
shortening of the term of, any Lease during the term of the Loan. Borrower further covenants and
agrees that all tenants at the Property as of the date hereof are in physical occupancy of the
premises demised under their Leases, are paying full rent under their Leases, and have not
exercised any right to “go dark” that they may have under the provisions of their Leases. Borrower
further agrees to provide Lender with written notice of a tenant “going dark” under such tenant’s
lease within five (5) business days after such tenant “goes dark” and Borrower’s failure to provide
such notice shall constitute an Event of Default under this Security Instrument.



     Section 5.9 Financial Condition. (a)(i) Borrower is solvent, and no bankruptcy,
reorganization, insolvency or similar proceeding under any state or federal law with respect to
Borrower has been initiated, and (ii) Borrower has received reasonably equivalent value for the
granting of this Security Instrument.



     (b) No petition in bankruptcy has ever been filed by or against Borrower, any Guarantor,
any Indemnitor or any related entity, or any principal, general partner or member thereof, in the
last seven (7) years, and neither Borrower, any Guarantor, any Indemnitor nor any related entity,
or any principal, general partner or member thereof, in the last seven (7) years has ever made any
assignment for the benefit of creditors or taken advantage of any insolvency act or any act for the
benefit of debtors.



     Section 5.10 Business Purposes. The loan evidenced by the Note secured by the
Security Instrument and the Other Security Documents (the “Loan”) is solely for the business
purpose of Borrower, and is not for personal, family, household, or agricultural purposes.



     Section 5.11 Taxes. Borrower, any Guarantor and any Indemnitor have filed all
federal, state, county, municipal, and city income and other tax returns required to have been
filed by



29









 




them and have paid all taxes and related liabilities which have become due pursuant to such returns
or pursuant to any assessments received by them. Neither Borrower, any Guarantor nor any Indemnitor
knows of any basis for any additional assessment in respect of any such taxes and related
liabilities for prior years. Borrower confirms that its federal tax identification number is:
20-2890239.




     Section 5.12 Mailing Address. Borrower’s mailing address, as set forth in the
opening paragraph hereof or as changed in accordance with the provisions hereof, is true and
correct.



     Section 5.13 No Change in Facts or Circumstances. All information in the application
for the Loan submitted to Lender (the “Loan Application”) and in all financial statements, rent
rolls, reports, certificates and other documents submitted in connection with the Loan Application
or in satisfaction of the terms thereof, are accurate, complete and correct in all respects. There
has been no adverse change in any condition, fact, circumstance or event that would make any such
information inaccurate, incomplete or otherwise misleading.



     Section 5.14 Disclosure. Borrower has disclosed to Lender all material facts and has
not failed to disclose any material fact that could cause any representation or warranty made
herein to be materially misleading.



     Section 5.15 Third Party Representations. Each of the representations and the
warranties made by each Guarantor and 1ndemnitor herein or in any Other Security Document(s) is
true and correct in all material respects.



     Section 5.16 Illegal Activity. No portion of the Property has been or will be
purchased, improved, equipped or furnished with proceeds of any illegal activity and to the best of
Borrower’s knowledge, there are no illegal activities or activities relating to controlled
substances at the Property.



     Section 5.17 Regulations T, U and X. Borrower does not own any “margin stock” as
such term is defined in Regulation U of the Board of Governors of the Federal Reserve System (12
CFR Part 221), as amended. Borrower will not use any part of the proceeds from the loan to be made
under this Security Instrument (a) directly or indirectly, to purchase or carry any such stock or
to reduce or retire any Obligations originally incurred to purchase any such stock within the
meaning of such Regulation, (b) so as to involve Borrower in a violation of Regulation T, U or X of
such Board (12 CFR Parts 220, 221 and 224), as amended, or (c) for any other purpose not permitted
by Section 7 of the Securities Exchange Act of 1934, as amended, or any of the rules and
regulations respecting the extension of credit promulgated thereunder.



     Section 5.18 No Plan Assets. As of the date hereof and throughout the term of the
loan (a) Borrower is not and will not be an “employee benefit plan,” as defined in Section 3(3) of
ERISA, subject to Title I of ERISA, (b) 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, (c) Borrower is not and will not be a “governmental plan” within the meaning of Section
3(32) of ERISA, and (d) transactions by or with Borrower are not and will not be subject



30









 




to any state statute regulating investments of, or fiduciary obligations with respect to,
governmental plans.




     Section 5.19 No Breach of Fiduciary Duty. No person or entity currently owning a
direct or indirect membership or partnership interest in Borrower (nor any past or current
affiliate of such person or entity), has breached any fiduciary duty owed by such person or entity
to any other person or entity now or previously owning a direct or indirect membership or
partnership interest in Borrower or any prior owner of the Property.



Article 6 — Obligations and Reliances



     Section 6.1 Relationship of Borrower and Lender. The relationship between Borrower
and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special
relationship with Borrower, and no term or condition of any of the Note, this Security Instrument
and the Other Security Documents shall be construed so as to deem the relationship between Borrower
and Lender to be other than that of debtor and creditor.



     Section 6.2 No Reliance On Lender. The members, general partners, principals and (if
Borrower is a trust) beneficial owners of Borrower are experienced in the ownership and operation
of properties similar to the Property, and Borrower and Lender are relying solely upon such
expertise and business plan in connection with the ownership and operation of the Property.
Borrower is not relying on Lender’s expertise, business acumen or advice in connection with the
Property.



     Section 6.3 No Lender Obligations. Notwithstanding the provisions of Subsections
1.1(f) and (1) or Section 1.2, Lender is not undertaking the performance of (i) any obligations
under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates,
instruments, franchises, permits, trademarks, licenses and other documents. By accepting or
approving anything required to be observed, performed or fulfilled or to be given to Lender
pursuant to this Security Instrument, the Note or the Other Security Documents, including without
limitation, any officer’s certificate, balance sheet, statement of profit and loss or other
financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, the legality or effectiveness of same, and
such acceptance or approval thereof shall not constitute any warranty or affirmation with respect
thereto by Lender.



     Section 6.4 Reliance. Borrower recognizes and acknowledges that in accepting the
Note, this Security Instrument and the Other Security Documents, Lender is expressly and primarily
relying on the truth and accuracy of the warranties and representations set forth in Article 5 and
Article 12 without any obligation to investigate the Property and notwithstanding any investigation
of the Property by Lender; that such reliance existed on the part of Lender prior to the date
hereof; that the warranties and representations are a material inducement to Lender in accepting
the Note, this Security Instrument and the Other Security Documents; and that Lender would not be
willing to make the Loan and accept this Security Instrument in the absence of the warranties and
representations as set forth in Article 5 and Article 12.



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Article 7 — Further Assurances



     Section 7.1 Recording of Security Instrument, Etc. Borrower forthwith upon the
execution and delivery of this Security Instrument and thereafter, from time to time, will cause
this Security Instrument and any of the Other Security Documents creating a lien or security
interest or evidencing the lien hereof upon the Property and each instrument of further assurance
to be filed, registered or recorded in such manner and in such places as may be required by any
present or future law in order to publish notice of and fully to protect and perfect the lien or
security interest hereof upon, and the interest of Lender in, the Property. Borrower will pay all
taxes, filing, registration or recording fees, and all expenses incident to the preparation,
execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other
Security Documents, any note or deed of trust or mortgage supplemental hereto, any security
instrument with respect to the Property and any instrument of further assurance, and any
modification or amendment of the foregoing documents, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection with the execution
and delivery of this Security Instrument, any deed of trust or mortgage supplemental hereto, any
security instrument with respect to the Property or any instrument of further assurance, and any
modification or amendment of the foregoing documents, except where prohibited by law so to do.



     Section 7.2 Further Acts, Etc. Borrower will, at the cost of Borrower, and without
expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and
assurances as Lender shall, from time to time, require, for the better assuring, conveying,
assigning, transferring, and confirming unto Lender and Trustee the Property and rights hereby
deeded, mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become
bound to convey or assign to Lender, or for carrying out the intention or facilitating the
performance of the terms of this Security Instrument or for filing, registering or recording this
Security Instrument, or for complying with all Applicable Laws. Borrower, on demand, will execute
and deliver and hereby authorizes Lender, following 10 days’ notice to Borrower, to execute in the
name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, (i)
one or more financing statements (including, without limitation, initial financing statements,
amendments thereto and continuation statements) with or without the signature of Borrower as
authorized by applicable law, chattel mortgages or other instruments, to evidence more effectively
the security interest of Lender in the Property and (ii)
any amendments or modifications to the Note, this Security Instrument and/or the Other Security
Documents in order to correct any scrivener’s errors contained herein or therein, including,
without limitation, any errors with respect to the spelling of Borrower’s name, the address of the
Property, the legal description of the Property and/or the date of execution of the Note, this
Security Instrument and/or the Other Security Documents. Borrower also ratifies its authorization
for Lender to have filed any initial financing statements, amendments thereto and continuation
statements, if filed prior to the date of this Security Instrument. Borrower grants to Lender an
irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting
any and all rights and remedies available to Lender pursuant to this Section 7.2. To the extent not
prohibited by applicable law, Borrower hereby ratifies all acts Lender has






32









 







lawfully done in the past or shall lawfully do or cause to be done in the future by virtue of such
power of attorney.




     Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws.



     (a) If any law is enacted or adopted or amended after the date of this Security Instrument
which deducts the Debt from the value of the Property for the purpose of taxation or which imposes
a tax, either directly or indirectly, on the Debt or Lender’s interest in the Property, Borrower
will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel
chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or
unenforceable or provide the basis for a defense of usury, then Lender shall have the option,
exercisable by written notice of not less than ninety (90) days, to declare the Debt immediately
due and payable.



     (b) Borrower will not claim or demand or be entitled to any credit or credits on account
of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part
thereof, and no deduction shall otherwise be made or claimed from the assessed value of the
Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument
or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the
option, exercisable by written notice of not less than ninety (90) days, to declare the Debt
immediately due and payable.



     (c) If at any time the United States of America, any State thereof or any subdivision of
any such State shall require revenue or other stamps to be affixed to the Note, this Security
Instrument, or any of the Other Security Documents or impose any other tax or charge on the same,
Borrower will pay for the same, with interest and penalties thereon, if any.



     Section 7.4 Estoppel Certificates.



     (a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or
any proposed assignee with a statement, duly acknowledged and certified, setting forth (i) the
original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate
of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date
installments of interest and/or principal were last paid, (vi) that, except as provided in such
statement, there are no defaults or events which with the passage of time or the giving of notice
or both, would constitute an event of default under the Note or the Security Instrument, (vii) that
the Note and this Security Instrument are valid, legal and binding obligations and have not been
modified or if modified, giving particulars of such modification, (viii) whether any offsets or
defenses exist against the obligations secured hereby and, if any are alleged to exist, a detailed
description thereof, (ix) that all Leases are in full force and effect and (provided the Property
is not a residential multifamily property) have not been modified (or if modified, setting forth
all modifications), (x) the date to which the Rents thereunder have been paid pursuant to the
Leases, (xi) whether or not, to the best knowledge of Borrower, any of the lessees under the Leases
are in default under the Leases, and, if any of the lessees are in default, setting forth the
specific nature of all such defaults, (xii) the amount of security deposits held by Borrower under
each Lease and that such amounts are consistent with the amounts required under each Lease, and
(xiii) as to any






33









 







other matters reasonably requested by Lender and reasonably related to the Leases, the obligations
secured hereby, the Property or this Security Instrument.




     (b) Borrower shall use its best efforts to deliver to Lender, promptly upon request, duly
executed estoppel certificates from any one or more lessees as required by Lender attesting to such
facts regarding the Lease as Lender may require, including but not limited to attestations that
each Lease covered thereby is in full force and effect with no defaults thereunder on the part of
any party, that none of the Rents have been paid more than one month in advance, and that the
lessee claims no defense or offset against the full and timely performance of its obligations under
the Lease.



     (c) Upon any transfer or proposed transfer contemplated by Section 18.1 hereof, at
Lender’s request, Borrower, any Guarantors and any Indemnitor(s) shall provide an estoppel
certificate to the Investor (defined in Section 18.1) or any prospective Investor in such form,
substance and detail as Lender, such Investor or prospective Investor may require.



     Section 7.5 Flood Insurance. After Lender’s request, Borrower shall deliver evidence
satisfactory to Lender that no portion of the Improvements is situated in a federally designated
“special flood hazard area” or if it is, that Borrower has obtained insurance meeting the
requirements of Section 3.3(a)(vi).



     Section 7.6 Replacement Documents. Upon receipt of an affidavit of an officer of
Lender as to the loss, theft, destruction or mutilation of the Note or any Other Security Document
which is not of public record, and, in the case of any such mutilation, upon surrender and
cancellation of such Note or Other Security Document, Borrower will issue, in lieu thereof, a
replacement Note or Other Security Document, dated the date of such lost, stolen, destroyed or
mutilated Note or Other Security Document in the same principal amount thereof and otherwise of
like tenor.



Article 8 — Due On Sale/Encumbrance



     Section 8.1 No Sale/Encumbrance. Except as expressly provided in this Article 8,
Borrower agrees that Borrower shall not, without the prior written consent of Lender, sell, convey,
mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or any part
thereof or any interest therein or any direct or indirect interest in Borrower or permit the
Property or any part thereof or any interest therein or any direct or indirect interest in Borrower
to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise
transferred, other than pursuant to Leases of space in the Improvements to tenants in accordance
with the provisions of Section 3.8.



     Section 8.2 Sale/Encumbrance Defined. A sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer within the meaning of this Article 8 shall be deemed
to include, but not be limited to, (a) an installment sales agreement wherein Borrower agrees to
sell the Property or any part thereof for a price to be paid in installments; (b) 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



34









 




a security interest in, Borrower’s right, title and interest in and to any Leases or any Rents; (c)
if Borrower, any Guarantor, any Indemnitor, or any general or limited partner or member of
Borrower, any Guarantor or any Indemnitor is a corporation, any merger, consolidation or voluntary
or involuntary sale, conveyance, transfer or pledge of such corporation’s stock (or the stock of
any corporation directly or indirectly controlling such corporation by operation of law or
otherwise) or the creation or issuance of new stock in one or a series of transactions by which an
aggregate of more than 10% of such corporation’s stock shall be vested in a party or parties who
are not now stockholders; (d) if Borrower, any Guarantor or any Indemnitor or any general or
limited partner or member of Borrower, any Guarantor or any Indemnitor is a limited or general
partnership or joint venture, the change, removal or resignation of a general partner or the
transfer or pledge of the partnership interest of any general partner or any profits or proceeds
relating to such partnership interest or the voluntary or involuntary sale, conveyance, transfer or
pledge of limited partnership interests (or the limited partnership interests of any limited
partnership directly or indirectly controlling such limited partnership by operation of law or
otherwise); and (e) if Borrower, any Guarantor, any Indemnitor or any general or limited partner or
member of Borrower, any Guarantor or any Indemnitor is a limited liability company, the change,
removal or resignation of a managing member (or if no managing member, any member or non-member
manager) or the transfer of the membership interest of a managing member (or if no managing member,
any member) or any profits or proceeds relating to such membership interest or the voluntary or
involuntary sale, conveyance, transfer or pledge of membership interests (or the membership
interests of any limited liability company directly or indirectly controlling such limited
liability company by operation of law or otherwise). Notwithstanding the foregoing, the following
transfers shall not be deemed to be a sale, conveyance or transfer within the meaning of this
Article 8: (A) a transfer by devise or descent or by operation of law upon the death of a member,
partner or stockholder of Borrower, any Guarantor or any Indemnitor or any general or limited
partner or member thereof; (B) transfers of partnership interests, membership interests or
corporate shares in Borrower to immediate family members of existing partners, members or
shareholders or to trusts for estate planning purposes for the benefit of existing partners,
members or shareholders or members of the transferor’s immediate family; and (C) the sale or
transfer of a limited partnership or non managing membership interest in Borrower, any Guarantor or
any Indemnitor or any general or limited partner or member thereof by which, in a single
transaction or a series of transactions, in the aggregate, directly or indirectly, not more than
forty nine percent (49%) of the limited partnership or membership interests (as the case may be) in
Borrower, any Guarantor or any Indemnitor or any general or limited partner or member thereof, as
applicable, shall be vested in parties not having an ownership interest as of the date hereof;
provided, however, that as a condition to each such transfer, (i) such transfer shall not, directly
or indirectly, result in the change of voting control in the Borrower, Guarantor or Indemnitor or
general or limited partner or member thereof, as applicable, (ii) no Event of Default has occurred
and remains uncured, (iii) the legal and financial structure of Borrower after such transfer and
its shareholders, partners or members and the single purpose and bankruptcy remoteness nature of
Borrower satisfies Lender’s then current applicable underwriting criteria and requirements
including, without limitation, the requirement at the request of Lender, to deliver evidence
reasonably satisfactory to Lender that the single purpose and bankruptcy remoteness nature of
Borrower following such transfer is in accordance with the standards of two of the Rating Agencies
or, if a securitization has occurred, the Rating Agencies rating the Securities in the
securitization (including, in such event, written






35









 







confirmations from such Rating Agencies that such transfer or series of transfers will not result
in a requalification, reduction or withdrawal of the ratings then applicable to such Securities),
(iv) Lender shall receive not less than ten (10) days prior written notice of such proposed
transfer and (v) Borrower shall deliver to Lender such opinions of counsel, if any, in form and
substance satisfactory to Lender which may be deemed necessary by any Rating Agency and/or
reasonably necessary by Lender.




     Section 8.3 Lender’s Rights. Lender reserves the right to condition the consent
required hereunder upon a modification of the terms hereof and on assumption of the Note, this
Security Instrument and the Other Security Documents as so modified by the proposed transferee,
payment of a transfer fee equal to one percent (1%) of the then outstanding principal balance of
the Note, and all of Lender’s expenses incurred in connection with such transfer, the approval by a
Rating Agency of the proposed transferee, the proposed transferee’s continued compliance with the
covenants set forth in this Security Instrument, including, without limitation, the covenants in
Section 4.2 hereof, or such other conditions as Lender shall determine in its sole discretion to be
in the interest of Lender. All of Lender’s expenses incurred shall be payable by Borrower whether
or not Lender consents to the transfer. Lender shall not be required to demonstrate any actual
impairment of its security or any increased risk of default hereunder in order to declare the Debt
immediately due and payable upon Borrower’s sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer of the Property without Lender’s consent. This
provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
assignment, or transfer of the Property regardless of whether voluntary or not, or whether or not
Lender has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance,
pledge, assignment, or transfer of the Property.



     Section 8.4 Permitted Transfers. Lender shall not unreasonably withhold consent to
three (3) sales, conveyances or transfers of the Property in its entirety (hereinafter, each a
“Sale”) after the first anniversary of the first day of the first calendar month after the date
hereof (or the date hereof if dated the first day of a calendar month), or if before such first
anniversary, at least ninety (90) days prior to the date of Lender’s anticipated securitization of
the Loan or at least ninety (90) days after Lender’s securitization of the Loan, and with respect
to such Sale, Lender shall not require a modification of the material economic terms hereof (other
than a corresponding increase in Borrower’s deposits into the Escrow Fund with respect to Taxes in
the event such Sale results in an increase in the real property tax assessment by the applicable
taxing authority), to any person or entity provided that each of the following terms and conditions
are satisfied:




     (i) no default after the expiration of notice or grace periods is then continuing
hereunder, under the Note or under any of the Other Security Documents;




     (ii) Borrower gives Lender written notice of the terms of such prospective Sale not
less than thirty (30) days before the date on which such Sale is scheduled to close and,
concurrently therewith, gives Lender all such information concerning the proposed transferee
of the Property (hereinafter, “Buyer”) as Lender would reasonably require in evaluating an
initial extension of credit to a borrower and pays to Lender a non-refundable application
fee in the amount of $2,500.00. Lender shall have the right to



36









 






approve or disapprove the proposed Buyer, such approval not to be unreasonably withheld. In
determining whether to give or withhold its approval of the proposed Buyer, Lender shall
consider the Buyer’s experience and track record in owning and operating facilities similar
to the Property, the Buyer’s financial strength, the Buyer’s general business standing and
the Buyer’s relationships and experience with contractors, vendors, tenants, lenders and
other business entities; provided, however, that, notwithstanding Lender’s agreement to
consider the foregoing factors in determining whether to give or withhold such approval,
such approval shall be given or withheld based on what Lender determines to be commercially
reasonable and, if given, may be given subject to such conditions as Lender may deem
reasonably appropriate;




     (iii) Borrower pays Lender, concurrently with the closing of such Sale, a
non-refundable assumption fee in an amount equal to all out-of-pocket costs and expenses,
including, without limitation, reasonable attorneys’ fees, incurred by Lender in connection
with the Sale plus: (a) in connection with the first Sale, no additional amount shall be
due; (b) in connection with the second Sale, an amount equal to one half of one percent
(0.5%) of the then outstanding principal balance of the Note; and (c) in connection with the
third Sale, an amount equal to one percent (1.0%) of the then outstanding principal balance
of the Note. Borrower also pays, concurrently with the closing of such Sale, all costs and
expenses of all third parties and Rating Agencies in connection with the Sale;




     (iv) Buyer assumes and agrees to pay the indebtedness secured hereby as and when
due subject to the provisions of Article 11 of the Note and, prior to or concurrently with
the closing of such Sale, the Buyer executes, without any cost or expense to Lender, such
documents and agreements as Lender shall reasonably require to evidence and effectuate said
assumption;




     (v) Borrower and the Buyer execute, without any cost or expense to Lender, new
financing statements or financing statement amendments and any additional documents
reasonably requested by Lender;




     (vi) Borrower delivers to Lender, without any cost or expense to Lender, such
endorsements to Lender’s title insurance policy, hazard insurance endorsements or
certificates and other similar materials as Lender may deem necessary at the time of the
Sale, all in form and substance satisfactory to Lender, including, without limitation, an
endorsement or endorsements to Lender’s title insurance policy insuring the lien of this
Security Instrument insuring that fee simple title to the Property is vested in the Buyer;




     (vii) Buyer shall furnish, if the Buyer is a corporation, partnership or other
entity, all appropriate papers evidencing the Buyer’s capacity and good standing, and the
qualification of the signers to execute the assumption of the indebtedness secured hereby,
which papers shall include certified copies of all documents relating to the organization
and formation of the Buyer and of the entities, if any, which are partners or members of the
Buyer. The Buyer and such constituent partners, members or shareholders of Buyer (as the
case may be), as Lender shall require, shall be single purpose, “bankruptcy



37









 






remote” entities which satisfy the requirements of Article 4 hereof and the requirements of
the Rating Agencies, and whose formation documents shall be approved by counsel to Lender.
An individual recommended by the Buyer and approved by Lender shall serve as an independent
director of the Buyer (if the Buyer is a corporation) or the Buyer’s corporate general
partner or an independent member or, in Lender’s discretion, manager, of Buyer if the Buyer
is a limited liability company. The consent of such independent party shall be required for,
among other things, any merger, consolidation, dissolution, bankruptcy or insolvency of such
independent party or of the Buyer;




     (viii) Buyer shall assume the obligations of Borrower under any management
agreements pertaining to the Property or assign to Lender as additional security any new
management agreement entered into in connection with such Sale;




     (ix) Buyer shall furnish an opinion of counsel satisfactory to Lender and its
counsel (A) that the Buyer’s formation documents provide for the matters described in
subparagraph (vii) above, (B) that the assumption of the indebtedness evidenced hereby has
been duly authorized, executed and delivered, and that the Note, this Security Instrument,
the assumption agreement and the Other Security Documents are valid, binding and enforceable
against the Buyer in accordance with their terms, (C) that the Buyer and any entity which is
a controlling stockholder, member or general partner of Buyer, have been duly organized, and
are in existence and good standing, (D) if required by Lender, that the assets of the Buyer
will not be consolidated with the assets of any other entity having an interest in, or
affiliation with, the Buyer, in the event of bankruptcy or insolvency of any such entity,
and (E) with respect to such other matters as Lender may reasonably request;




     (x) Lender shall have received confirmation in writing from the Rating Agencies
that rate the Securities or Participations (as defined in Section 18.1) to the effect that
the Sale will not result in a qualification, downgrade or withdrawal of any rating initially
assigned or then currently assigned or to be assigned to the Securities or Participations,
as applicable; and




     (xi) Borrower’s obligations under the contract of sale pursuant to which the Sale
is proposed to occur shall expressly be subject to the satisfaction of the terms and
conditions of this Section 8.4.



     Section 8.5 Permitted Subordinate Debt.



     (a) Notwithstanding any provision of this Article 8 to the contrary, nothing contained
in this Security Instrument shall be deemed to prohibit the beneficial owners of Borrower (the
“Mezzanine Borrower”), from incurring the “Permitted Subordinate Debt”, subject to the following
conditions:





     (i) No Event of Default exists under this Security Instrument or any of the Other
Security Documents.



38









 






     (ii) The Permitted Subordinate Debt shall have been incurred more than ninety (90)
days before or more than ninety (90) days after any transfer made or any Securities (as
defined below) created pursuant to Article 18 below.




     (iii) One hundred percent (100%) of the partnership interests in the Borrower shall
be directly or indirectly owned by AmREIT immediately prior to the issuance of the Permitted
Subordinate Debt.




     (iv) Lender shall have approved all material terms of the Permitted Subordinate
Debt.




     (v) Lender shall have approved all material terms and provisions of the loan
documents evidencing the Permitted Subordinate Debt.




     (vi) The maximum principal amount of the Permitted Subordinate Debt shall be less
than eighty-five percent (85%), when combined with the outstanding principal balance of the
Loan, of the appraised value of the Property, as evidenced by an appraisal reasonably
acceptable to Lender.




     (vii) The combined Debt Service Coverage Ratio, as determined by Lender, of the
Loan and the Permitted Subordinate Debt shall be equal to or greater than 1.10:1.




     (viii) Lender and Subordinate Lender shall have entered into Lender’s Subordination
and Standstill Agreement substantially in the form attached hereto as Exhibit B.




     (ix) The Permitted Subordinate Debt shall either be unsecured or secured by a
pledge by Mezzanine Borrower of the ownership interests in one or more entities that
directly or indirectly own partnership interests in Borrower, but in no event shall the
Permitted Subordinate Debt be secured by a lien on the Property or direct general
partnership interests in the Borrower or otherwise encumber or result in any lien or charge
upon or against the Property or the rents derived therefrom.




     (x) The Permitted Subordinate Debt and the performance of the obligations of the
Mezzanine Borrower under the loan documents entered into in connection therewith shall not
cause a breach of any of the representations, warranties and covenants under this Security
Instrument or any of the Other Security Documents.




     (xi) Borrower shall be responsible for, and shall reimburse Lender for any costs
incurred by Lender in connection with, the Permitted Subordinate Debt.




     (xii) If required by any Rating Agency associated with any transfer made or any
Securities created pursuant to Article 18, Lender shall have received evidence in writing to
the effect that the Permitted Subordinate Debt will not result in a requalification,
reduction or withdrawal of any rating in effect immediately prior to the



39









 






obtaining of the Permitted Subordinate Debt issued in connection with such transfer or
creation of Securities pursuant to Article 18.



     (b) “Permitted Subordinate Debt” shall mean the indebtedness from Mezzanine Borrower owing
to Subordinate Lender (as defined below).



     (c) “Subordinate Lender” shall mean a lender approved by Lender.



Article 9 — Prepayment



     Section 9.1 Prepayment. The Debt may not be prepaid in whole or in part except in
strict accordance with the express terms and conditions of the Note.



Article 10 — Default



     Section 10.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an “Event of Default”:



     (a) if any portion of the Debt (other than the payment due on the Maturity Date (as
defined in the Note)) is not paid prior to the fifth (5th) day after the same is due or if the
entire Debt is not paid on or before the Maturity Date;



     (b) if any of the Taxes or Other Charges is not paid when the same is due and payable
except to the extent sums sufficient to pay such Taxes and Other Charges have been deposited with
Lender in accordance with the terms of this Security Instrument or any Other Security Document;



     (c) if the Policies are not kept in full force and effect, or if the Policies are not
delivered to Lender upon request;



     (d) if Borrower violates or does not comply with any of the provisions of Section 3.12,
Section 4.2 or Article 8;



     (e) if any representation or warranty of Borrower, any Indemnitor or any person
guaranteeing payment of the Debt or any portion thereof or performance by Borrower of any of the
terms of this Security Instrument (a “Guarantor”), or any member, general partner, principal or
beneficial owner of any of the foregoing, made herein or in the Environmental Indemnity (defined
below) or in any guaranty, or in any certificate, report, financial statement or other instrument
or document furnished to Lender shall have been false or misleading in any material respect when
made;



     (f) if (1) Borrower or any managing member or general partner of Borrower, or any
Guarantor or Indemnitor shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,



40









 




arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part of its assets, or
the Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor
shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced
against Borrower or any managing member or general partner of Borrower, or any Guarantor or
Indemnitor any case, proceeding or other action of a nature referred to in clause (i) above which
(A) results in the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall
be commenced against the Borrower or any managing member or general partner of Borrower, or any
Guarantor or Indemnitor any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any substantial part of its
assets which results in the entry of any order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry
thereof; or (iv) the Borrower or any managing member or general partner of Borrower, or any
Guarantor or Indemnitor shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or
(v) the Borrower or any managing member or general partner of Borrower, or any Guarantor or
Indemnitor shall generally not, or shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due;




     (g) if Borrower shall be in default beyond applicable notice and grace periods under any
other mortgage, deed of trust, deed to secure debt or other security agreement covering any part of
the Property whether it be superior or junior in lien to this Security Instrument, including but
not limited to the Permitted Subordinate Debt;



     (h) if the Property becomes subject to any mechanic’s, materialman’s or other lien other
than a lien for local real estate taxes and assessments not then due and payable and the lien shall
remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) days;



     (i) if any federal tax lien is filed against Borrower, any member or general partner of
Borrower, any Guarantor, any Indemnitor or the Property and same is not discharged of record within
thirty (30) days after same is filed;



     (j) if any default occurs under any guaranty or indemnity executed in connection herewith
(including the Environmental Indemnity, defined in Section 13.4) and such default continues after
the expiration of applicable grace periods, if any;



     (k) if Borrower shall fail to comply with the covenants as to Prescribed Laws set forth in
Section 3.11 hereof;



     (l) if Borrower shall fail to deliver to Lender, within ten (10) days after request by
Lender, the estoppel certificates required pursuant to Section 7.4; or



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     (m) if any default occurs under any other term, covenant or condition of the Note, this
Security Instrument or the Other Security Documents and such default continues (i) in the case of
any default which can be cured by the payment of a sum of money, for more than ten (10) days after
notice from Lender or (ii) in the case of any other such default, for thirty (30) days after notice
from Lender, provided that if such default cannot reasonably be cured within such thirty (30) day
period and Borrower shall have commenced to cure such default within such thirty (30) day period
and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period
shall be extended for so long as it shall require Borrower in the exercise of due diligence to cure
such default, it being agreed that no such extension shall be for a period in excess of sixty (60)
days.



Article 11 — Rights and Remedies



     Section 11.1 Remedies. Upon the occurrence and during the continuation of any Event
of Default, Borrower agrees that Lender may or acting by or through Trustee may take such action,
without notice or demand, as it deems advisable to protect and enforce its rights against Borrower
and in and to the Property, including, but not limited to, the following actions, each of which may
be pursued concurrently or otherwise, at such time and in such order as Lender or Trustee may
determine, in their sole discretion, without impairing or otherwise affecting the other rights and
remedies of Lender or Trustee:



     (a) declare the entire unpaid Debt to be immediately due and payable;



     (b) institute proceedings, judicial or otherwise, for the complete foreclosure of this
Security Instrument under any applicable provision of law in which case the Property or any
interest therein may be sold for cash or upon credit in one or more parcels or in several interests
or portions and in any order or manner;



     (c) with or without entry, to the extent permitted and pursuant to the procedures provided
by applicable law, institute proceedings for the partial foreclosure of this Security Instrument
for the portion of the Debt then due and payable, subject to the continuing lien and security
interest of this Security Instrument for the balance of the Debt not then due, unimpaired and
without loss of priority;



     (d) sell for cash or upon credit the Property or any part thereof and all estate, claim,
demand, right, title and interest of Borrower therein and rights of redemption thereof, pursuant to
power of sale or otherwise, at one or more sales, in one or more parcels, at such time and place,
upon such terms and after such notice thereof as may be required or permitted by law;



     (e) subject to the provisions of Article 11 of the Note, institute an action, suit or
proceeding in equity for the specific performance of any covenant, condition or agreement contained
herein, in the Note or in the Other Security Documents;



     (f) subject to the provisions of Article 11 of the Note, recover judgment on the Note
either before, during or after any proceedings for the enforcement of this Security Instrument or
the Other Security Documents;



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     (g) apply for the appointment of a receiver, trustee, liquidator or conservator of the
Property, without notice and without regard for the adequacy of the security for the Debt and
without regard for the solvency of Borrower, any Guarantor, Indemnitor or of any person, firm or
other entity liable for the payment of the Debt;



     (h) subject to any applicable law, the license granted to Borrower under Section 1.2 shall
automatically be revoked and Lender may enter into or upon the Property, either personally or by
its agents, nominees or attorneys and dispossess Borrower and its agents and servants therefrom,
without liability for trespass, damages or otherwise and exclude Borrower and its agents or
servants wholly therefrom, and take possession of all books, records and accounts relating thereto
and Borrower agrees to surrender possession of the Property and of such books, records and accounts
to Lender upon demand, and thereupon Lender may (i) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every part of the Property and conduct
the business thereat; (ii) complete any construction on the Property in such manner and form as
Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements
to or on the Property; (iv) exercise all rights and powers of Borrower with respect to the
Property, whether in the name of Borrower or otherwise, including, without limitation, the right to
make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and
receive all Rents of the Property and every part thereof; (v) require Borrower to pay monthly in
advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of such part of the Property as may be occupied by Borrower; (vi)
require Borrower to vacate and surrender possession of the Property to Lender or to such receiver
and, in default thereof, Borrower may be evicted by summary proceedings or otherwise; and (vii)
apply the receipts from the Property to the payment of the Debt, in such order, priority and
proportions as Lender shall deem appropriate in its sole discretion after deducting therefrom all
expenses (including reasonable attorneys’ fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges, insurance and other expenses
in connection with the Property, as well as just and reasonable compensation for the services of
Lender, its counsel, agents and employees;



     (i) exercise any and all rights and remedies granted to a secured party upon default under
the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the
right to take possession of the Personal Property or any part thereof, and to take such other
measures as Lender or Trustee may deem necessary for the care, protection and preservation of the
Personal Property, and (ii) request Borrower at its expense to assemble the Personal Property and
make it available to Lender at a convenient place acceptable to Lender. Any notice of sale,
disposition or other intended action by Lender or Trustee with respect to the Personal Property
sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such
action, shall constitute commercially reasonable notice to Borrower;



     (j) apply any sums then deposited in the Escrow Fund and any other sums held in escrow or
otherwise by Lender in accordance with the terms of this Security Instrument or any
Other Security Document to the payment of the following items in any order in its sole discretion:
(i) Taxes and Other Charges; (ii) Insurance Premiums; (iii) interest on the unpaid principal
balance of the Note; (iv) amortization of the unpaid principal balance of the Note; (v)






43









 







all other sums payable pursuant to the Note, this Security Instrument and the Other Security
Documents, including without limitation advances made by Lender pursuant to the terms of this
Security Instrument;




     (k) surrender the Policies maintained pursuant to Article 3 hereof, collect ‘the unearned
Insurance Premiums and apply such sums as a credit on the Debt in such priority and proportion as
Lender in its discretion shall deem proper, and in connection therewith, Borrower hereby appoints
Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore
irrevocable) for Borrower to collect such Insurance Premiums;



     (l) apply the undisbursed balance of any Net Proceeds Deficiency deposit, together with
interest thereon, to the payment of the Debt in such order, priority and proportions as Lender
shall deem to be appropriate in its discretion; or



     (m) pursue such other remedies as Lender may have under applicable law.


In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the
Property, this Security Instrument shall continue as a lien and security interest on the remaining
portion of the Property unimpaired and without loss of priority. Notwithstanding the provisions of
this Section 11.1 to the contrary, if any Event of Default as described in clause (i) or (ii) of
Subsection 10.1(f) shall occur and be continuing, the entire unpaid Debt shall be automatically due
and payable, without any further notice, demand or other action by Lender.




     Section 11.2 Application of Proceeds. The purchase money, proceeds and avails of any
disposition of the Property, or any part thereof, or any other sums collected by Lender pursuant to
the Note, this Security Instrument or the Other Security Documents, may be applied by Lender to the
payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper.



     Section 11.3 Right to Cure Defaults. Upon the occurrence and during the continuance
of any Event of Default or if Borrower fails to make any payment or to do any act as herein
provided, Lender may, but without any obligation to do so and without notice to or demand on
Borrower and without releasing Borrower from any obligation hereunder, make or do the same in such
manner and to such extent as Lender may deem necessary to protect the security hereof. Lender or
Trustee is authorized to enter upon the Property for such purposes, or appear in, defend, or bring
any action or proceeding to protect its interest in the Property or to foreclose this Security
Instrument or collect the Debt. The cost and expense of any cure hereunder (including reasonable
attorneys’ fees to the extent permitted by law), with interest as provided in this Section 11.3,
shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such
costs and expenses incurred by Lender or Trustee in remedying such Event of Default or such failed
payment or act or in appearing in, defending, or bringing any such action or proceeding shall bear
interest at the Default Rate (as defined in the Note), for the period after notice from Lender that
such cost or expense was incurred to the date of payment to Lender. All such costs and expenses
incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to
constitute a portion of the Debt and be secured by this Security



44









 




Instrument and the Other Security Documents and shall be immediately due and payable upon demand by
Lender therefor.




     Section 11.4 Actions and Proceedings. Lender or Trustee has the right to appear in
and defend any action or proceeding brought with respect to the Property and, after the occurrence
and during the continuance of an Event of Default, to bring any action or proceeding, in the name
and on behalf of Borrower, which Lender, in its discretion, decides should be brought to protect
its interest in the Property.



     Section 11.5 Recovery of Sums Required To Be Paid. Lender shall have the right from
time to time to take action to recover any sum or sums which constitute a part of the Debt as the
same become due, without regard to whether or not the balance of the Debt shall be due, and without
prejudice to the right of Lender or Trustee thereafter to bring an action of foreclosure, or any
other action, for a default or defaults by Borrower existing at the time such earlier action was
commenced.



     Section 11.6 Examination of Books and Records. Lender, its agents, accountants and
attorneys shall have the right, upon prior written notice to Borrower if no Event of Default
exists, to examine and audit, during reasonable business hours, the records, books, management and
other papers of Borrower and its affiliates or of any Guarantor or Indemnitor which pertain to
their financial condition or the income, expenses and operation of the Property, at the Property or
at any office regularly maintained by Borrower, its affiliates or any Guarantor or Indemnitor where
the books and records are located. Lender and its agents shall have the right to make copies and
extracts from the foregoing records and other papers.



     Section 11.7 Other Rights, Etc. (a) The failure of Lender or Trustee to insist upon
strict performance of any term hereof shall not be deemed to be a waiver of any term of this
Security Instrument. Borrower shall not be relieved of Borrower’s obligations hereunder by reason
of (i) the failure of Lender or Trustee to comply with any request of Borrower, any Guarantor or
any Indemnitor to take any action to foreclose this Security Instrument or otherwise enforce any of
the provisions hereof or of the Note or the Other Security Documents, (ii) the release, regardless
of consideration, of the whole or any part of the Property, or of any person liable for the Debt or
any portion thereof, or (iii) any agreement or stipulation by Lender extending the time of payment
or otherwise modifying or supplementing the terms of the Note, this Security Instrument or the
Other Security Documents.



     (b) It is agreed that the risk of loss or damage to the Property is on Borrower, and
Lender shall have no liability whatsoever for decline in value of the Property, for failure to
maintain the Policies, or for failure to determine whether insurance in force is adequate as to the
amount of risks insured. Possession by Lender shall not be deemed an election of judicial relief,
if any such possession is requested or obtained, with respect to any Property or collateral not in
Lender’s possession.



     (c) Lender may resort for the payment of the Debt to any other security held by Lender in
such order and manner as Lender, in its discretion, may elect. Lender or Trustee may



45









 




take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Lender or Trustee thereafter to foreclose this Security Instrument. The
rights of Lender or Trustee under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act of Lender or
Trustee shall be construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Neither Lender nor Trustee shall be limited exclusively to the
rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter
afforded at law or in equity.




     Section 11.8 Right to Release Any Portion of the Property. Lender may release any
portion of the Property for such consideration as Lender may require without, as to the remainder
of the Property, in any way impairing or affecting the lien or priority of this Security
Instrument, or improving the position of any subordinate lienholder with respect thereto, except to
the extent that the obligations hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may accept by assignment, pledge or
otherwise any other property in place thereof as Lender may require without being accountable for
so doing to any other lienholder. This Security Instrument shall continue as a lien and security
interest in the remaining portion of the Property.



     Section 11.9 Violation of Laws. If the Property is not in compliance with Applicable
Laws, Lender may impose additional requirements upon Borrower in connection herewith including,
without limitation, monetary reserves or financial equivalents.



     Section 11.10 Right of Entry. Lender and its agents shall have the right to enter
and inspect the Property at all reasonable times.



     Section 11.11 Subrogation. If any or all of the proceeds of the Note have been used
to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to
the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens,
titles, and interests existing against the Property heretofore held by, or in favor of, the holder
of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not
waived but rather are continued in full force and effect in favor of Lender and are merged with the
lien and security interest created herein as cumulative security for the repayment of the Debt, the
performance and discharge of Borrower’s obligations hereunder, under the Note and the Other
Security Documents and the performance and discharge of the Other Obligations.



Article 12 — Environmental Matters



     Section 12.1 Environmental Representations and Warranties. Borrower represents and
warrants, based upon an environmental site assessment of the Property and information that Borrower
knows or should reasonably have known, that: (a) there are no Hazardous Materials (defined below)
or underground storage tanks in, on, or under the Property, except those that are both (i) in
compliance with Environmental Laws (defined below) and with permits issued pursuant thereto (if
such permits are required), if any, and (ii) either (A) in amounts not in excess of that necessary
to operate the Property or (B) fully disclosed to and approved by Lender in writing pursuant to the
written reports resulting from the environmental site assessments of the



46









 




Property delivered to Lender (the “Environmental Report”); (b) there are no past, present or
threatened Releases (defined below) of Hazardous Materials in violation of any Environmental Law
and which would require remediation by a governmental authority in, on, under or from the Property
except as described in the Environmental Report; (c) there is no threat of any Release of Hazardous
Materials migrating to the Property except as described in the Environmental Report; (d) there is
no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto,
in connection with the Property except as described in the Environmental Report; (e) Borrower does
not know of, and has not received, any written or oral notice or other communication from any
person or entity (including but not limited to a governmental entity) relating to Hazardous
Materials in, on, under or from the Property; (f) Borrower has truthfully and fully provided to
Lender, in writing, any and all information relating to environmental conditions in, on, under or
from the Property known to Borrower or contained in Borrower’s files and records, including but not
limited to any reports relating to Hazardous Materials in, on, under or migrating to or from the
Property and/or to the environmental condition of the Property; (g) the Property currently displays
no evidence of water infiltration or water damage; (h) there are no prior or current complaints by
tenants at the Property regarding water infiltration or water damage or leaks or odors related
thereto, and (i) the Property currently displays no conspicuous evidence of the growth of Microbial
Matter. “Environmental Law” means any present and future federal, state and local laws, statutes,
ordinances, rules, regulations, standards, policies and other government directives or
requirements, as well as common law, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act and the Resource Conservation and Recovery Act, that apply
to Borrower or the Property and relate to Hazardous Materials and/or Microbial Matter. “Hazardous
Materials” shall mean petroleum and petroleum products and compounds containing them, including
gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials;
polychlorinated biphenyls (“PCBs”) and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become friable; underground
or above-ground storage tanks, whether empty or containing any substance; any substance the
presence of which on the Property is prohibited by any federal, state or local authority; any
substance that requires special handling; and any other material or substance now or in the future
defined as a “hazardous substance,” “hazardous material”, hazardous waste”, toxic substance”,
“toxic pollutant”, “contaminant”, or pollutant” within the meaning of any Environmental Law.
“Release” of any Hazardous Materials includes but is not limited to any release, deposit,
discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials. “Microbial Matter” shall
mean fungi or bacterial matter located on the Land or the Improvements which reproduces through the
release of spores or the splitting of cells, including, but not limited to, mold, mildew and
viruses, whether or not such Microbial Matter is living.




     Section 12.2 Environmental Covenants. Borrower covenants and agrees that so long as
Borrower owns, manages, is in possession of, or otherwise controls the operation of the Property:
(a) all uses and operations on or of the Property, whether by Borrower or any other person or
entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b)
there shall be no Releases of Hazardous Materials in, on, under or from the Property; (c) there
shall be no Hazardous Materials in, on, or under the Property, except those that are both (i) in
compliance with all Environmental Laws and with permits issued pursuant thereto, if and to



47









 




the extent required, and (ii) (A) in amounts not in excess of that necessary to operate the
Property or (B) fully disclosed to and approved by Lender in writing; (d) Borrower shall keep the
Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental
Law, whether due to any act or omission of Borrower or any other person or entity (the
“Environmental Liens”); (e) Borrower shall, at its sole cost and expense, fully and expeditiously
cooperate in all activities pursuant to Section 12.3 below, including but not limited to providing
all relevant information and making knowledgeable persons available for interviews; (f) Borrower
shall, at its sole cost and expense, perform any environmental site assessment or other
investigation of environmental conditions in connection with the Property, pursuant to any
reasonable written request of Lender, upon Lender’s reasonable belief that the Property is not in
full compliance with all Environmental Laws, and share with Lender the reports and other results
thereof, and Lender and other Indemnified Parties shall be entitled to rely on such reports and
other results thereof; (g) Borrower shall, at its sole cost and expense, comply with all reasonable
written requests of Lender to (i) reasonably effectuate remediation of any Hazardous Materials in,
on, under or from the Property; and (ii) comply with any Environmental Law; (h) Borrower shall not
allow any tenant or other user of the Property to violate any Environmental Law; (i) Borrower shall
immediately notify Lender in writing after it has become aware of (A) any presence or Release or
threatened Releases of Hazardous Materials in, on, under, from or migrating towards the Property;
(B) any non-compliance with any Environmental Laws related in any way to the Property; (C) any
actual or potential Environmental Lien; (D) any required or proposed remediation of environmental
conditions relating to the Property; and (E) any written or oral notice or other communication of
which Borrower becomes aware from any source whatsoever (including but not limited to a
governmental entity) relating in any way to Hazardous Materials; (j) Borrower shall undertake any
course of action recommended by the Environmental Protection Agency to prevent the growth of
Microbial Matter; and (k) Borrower shall comply with any and all local, state or federal laws,
legislation, guidelines or statutes at any time in effect with respect to Microbial Matter. Any
intentional failure of Borrower to perform its obligations pursuant to this Section 12.2 shall
constitute bad faith waste with respect to the Property.




     Section 12.3 Lender’s Rights. Lender and any other person or entity designated by
Lender, including but not limited to any representative of a governmental entity, and any
environmental consultant, and any receiver appointed by any court of competent jurisdiction, shall
have the right, but not the obligation, to enter upon the Property at all reasonable times to
assess any and all aspects of the environmental condition of the Property and its use, including
but not limited to conducting any environmental assessment or audit (the scope of which shall be
determined in Lender’s sole discretion) and taking samples of soil, groundwater or other water,
air, or building materials, and conducting other invasive testing. Borrower shall cooperate with
and provide access to Lender and any such person or entity designated by Lender.



     Section 12.4 Operations and Maintenance Programs. Where recommended by the
Environmental Report or as a result of any other environmental assessment or audit of the Property,
Borrower shall establish and comply with an operations and maintenance program with respect to the
Property, in form and substance reasonably acceptable to Lender, prepared by an environmental
consultant reasonably acceptable to Lender, which program shall address any asbestos containing
material or lead based paint that may now or in the future be detected at or on the Property.
Without limiting the generality of the preceding sentence, Lender may require



48









 




the Borrower to deliver (a) periodic notices or reports to Lender in form, substance and at such
intervals as Lender may specify, (b) an amendment to such operations and maintenance program to
address changing circumstances, laws or other matters, (c) at Borrower’s sole expense, supplemental
examination of the Property by consultants specified by Lender, (d) access to the Property by
Lender, its agents or servicer, to review and assess the environmental condition of the Property
and Borrower’s compliance with any operations and maintenance program, and (e) variation of the
operations and maintenance program in response to the reports provided by any such consultants.




Article 13 — Indemnifications



     Section 13.1 General Indemnification. Borrower shall, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Indemnified Parties (defined below) from
and against any and all Losses (defined below) imposed upon or incurred by or asserted against any
Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or
more of the following: (a) any accident, injury to or death of persons or loss of or damage to
property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways; (b) any use, nonuse or
condition in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways; (c) performance of any labor or
services or the furnishing of any materials or other property in respect of the Property or any
part thereof; (d) any failure of the Property to be in compliance with any Applicable Laws; (e) any
and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the terms, covenants, or
agreements contained in any Lease; or (f) the payment of any commission, charge or brokerage fee to
anyone which may be payable in connection with the funding of the Loan evidenced by the Note and
secured by this Security Instrument. Any amounts payable to Lender by reason of the application of
this Section 13.1 shall become immediately due and payable and shall bear interest at the Default
Rate from the date loss or damage is sustained by Lender until paid.



     The term “Losses” shall mean any and all claims, suits, liabilities (including, without
limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs,
expenses, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement
of whatever kind or nature (including but not limited to attorneys’ fees and other costs of
defense). The term “Indemnified Parties” shall mean (a) Lender, (b) any prior owner or holder of
the Note, (c) any servicer or prior servicer of the Loan, (d) the officers, directors,
shareholders, partners, members, employees and trustees of any of the foregoing, and (e) the heirs,
legal representatives, successors and assigns of each of the foregoing.



     Section 13.2 Mortgage and/or Intangible Tax. Borrower shall, at its sole cost and
expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and
against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties
and directly or indirectly arising out of or in any way relating to any tax on the making and/or
recording of this Security Instrument, the Note or any of the Other Security Documents.



49









 





     Section 13.3 Duty to Defend; Attorneys’ Fees and Other Fees and Expenses. Upon
written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if
requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other
professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified
Parties may, in their sole discretion, engage their own attorneys and other professionals to defend
or assist them, and, at the option of Indemnified Parties, their attorneys shall control the
resolution of any claim or proceeding. Upon demand, Borrower shall pay or, in the sole discretion
of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees
and disbursements of attorneys, engineers, environmental consultants, laboratories and other
professionals in connection therewith.



     Section 13.4 Environmental Indemnity. Simultaneously with this Security Instrument,
Borrower and any other person(s) or entity(ies) identified therein (collectively, the
“Indemnitors”) have executed and delivered that certain environmental indemnity agreement dated the
date hereof to Lender (the “Environmental Indemnity”).



Article 14 — Waivers



     Section 14.1 Waiver of Counterclaim. Borrower hereby waives the right to assert a
counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding
brought against it by Lender arising out of or in any way connected with this Security Instrument,
the Note, any of the Other Security Documents, or the Obligations.



     Section 14.2 Marshalling and Other Matters. Borrower hereby waives, to the extent
permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and
redemption laws now or hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby
expressly waives any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every
person acquiring any interest in or title to the Property subsequent to the date of this Security
Instrument and on behalf of all persons to the extent permitted by Applicable Laws.



     Section 14.3 Waiver of Notice. Borrower shall not be entitled to any notices of any
nature whatsoever from Lender or Trustee except (a) with respect to matters for which this Security
Instrument specifically and expressly provides for the giving of notice by Lender or Trustee to
Borrower and (b) with respect to matters for which Lender or Trustee is required by Applicable Laws
to give notice, and Borrower hereby expressly waives the right to receive any notice from Lender or
Trustee with respect to any matter for which this Security Instrument does not specifically and
expressly provide for the giving of notice by Lender or Trustee to Borrower.



     Section 14.4 Waiver of Statute of Limitations. Borrower hereby expressly waives and
releases to the fullest extent permitted by law, the pleading of any statute of limitations as a
defense to payment of the Debt or performance of its Other Obligations.



     Section 14.5 Sole Discretion of Lender. Wherever pursuant to this Security
Instrument (a) Lender exercises any right given to it to approve or disapprove, (b) any arrangement
or term



50









 




is to be satisfactory to Lender, or (c) any other decision or determination is to be made by
Lender, the decision of Lender to approve or disapprove, all decisions that arrangements or terms
are satisfactory or not satisfactory and all other decisions and determinations made by Lender,
shall be in the sole discretion of Lender, except as may be otherwise expressly and specifically
provided herein.




     Section 14.6 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE
APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER
SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS
IN CONNECTION THEREWITH.



Article 15 — Exculpation



     Section 15.1 Exculpation. The provisions of Article 11 of the Note are hereby
incorporated by reference to the fullest extent as if the text of such Article were set forth in
its entirety herein.



Article 16 — Notices



     Section 16.1 Notices. Except for notices of sales, which shall be given in the
manner provided by law, all notices or other written communications hereunder shall be deemed to
have been properly given (i) upon delivery, if delivered in person or by facsimile transmission
with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one
(1) Business Day (defined below) after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after having been deposited
in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested, addressed to Borrower or
Lender, as the case may be, at the addresses set forth on the first page of this Security
Instrument or addressed as such party may from time to time designate by written notice to the
other parties.



     Notices to Borrower shall be addressed to the attention of H. Kerr Taylor. Borrower’s
telephone number is (713) 850-1400 and facsimile number is (713) 850-0498.



     Either party by notice to the other may designate additional or different addresses for
subsequent notices or communications.



     For purposes of this Subsection, “Business Day” shall mean a day on which commercial banks are
not authorized or required by law to close in New York, New York.



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Article 17 — Applicable Law



     Section 17.1 Choice of Law. This Security Instrument shall be governed, construed,
applied and enforced in accordance with the laws of the state in which the Property is located
without reference or giving effect to any choice of law doctrine.



     Section 17.2 Provisions Subject to Applicable Law. All rights, powers and remedies
provided in this Security Instrument may be exercised only to the extent that the exercise thereof
does not violate any applicable provisions of law and are intended to be limited to the extent
necessary so that they will not render this Security Instrument invalid, unenforceable or not
entitled to be recorded, registered or filed under the provisions of any Applicable Laws.



Article 18 — Secondary Market



     Section 18.1 Transfer of Loan. Lender may, at any time, sell, transfer or assign the
Note, this Security Instrument and the Other Security Documents, and any or all servicing rights
with respect thereto, or grant participations therein (the “Participations”) or issue mortgage
pass-through certificates or other securities evidencing a beneficial interest in a rated or
unrated public offering or private placement (the “Securities”). Lender may forward to each
purchaser, transferee, assignee, servicer, participant, or investor in such Participations or
Securities (collectively, the “Investor”) or any Rating Agency rating such Securities, each
prospective Investor, and any organization maintaining databases on the underwriting and
performance of commercial mortgage loans, all documents and information which Lender now has or may
hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitor(s) and the
Property, whether furnished by Borrower, any Guarantor, any Indemnitor(s) or otherwise, as Lender
determines necessary or desirable. Borrower irrevocably waives any and all rights it may have under
Applicable Laws to prohibit such disclosure, including but not limited to any right of privacy.



     Section 18.2 Cooperation. Borrower, any Guarantor and any Indemnitor agree to
cooperate with Lender in connection with any transfer made or any Securities created pursuant to
this Article 18, including, without limitation, the taking, or refraining from taking, of such
action as may be necessary to satisfy all of the conditions of any Investor, the delivery of an
estoppel certificate required in accordance with Subsection 7.4(c) hereof and such other documents
as may be reasonably requested by Lender and the execution of amendments to the Note, this Security
Instrument and Other Security Documents and Borrower’s organizational documents as reasonably
requested by Lender. Borrower shall also furnish and Borrower, any Guarantor and any Indemnitor
consent to Lender furnishing to such Investors or such prospective Investors or such Rating Agency
any and all information concerning the Property, the Leases, the financial condition of Borrower,
any Guarantor and any Indemnitor as may be requested by Lender, any Investor, any prospective
Investor or any Rating Agency in connection with any sale, transfer or Participations or
Securities.



Article 19 — Costs



     Section 19.1 Performance at Borrower’s Expense. Borrower acknowledges and confirms
that Lender shall impose certain administrative processing and/or commitment fees in connection
with (a) the extension, renewal, modification, amendment and termination of the



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Loan, (b) the release or substitution of collateral therefor, (c) obtaining certain consents,
waivers and approvals with respect to the Property, or (d) the review of any Lease or proposed
Lease or the preparation or review of any subordination, non-disturbance agreement (the occurrence
of any of the above shall be called an “Event”). Borrower further acknowledges and confirms that it
shall be responsible for the payment of all costs of reappraisal of the Property or any part
thereof, whether required by law, regulation, Lender or any governmental or quasi-governmental
authority. Borrower hereby acknowledges and agrees to pay, immediately, with or without demand, all
such fees (as the same may be increased or decreased from time to time), and any additional fees of
a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of
any Event or otherwise. Wherever it is provided for herein that Borrower pay any costs and
expenses, such costs and expenses shall include, but not be limited to, all reasonable legal fees
and disbursements of Lender, whether with respect to retained firms, the reimbursement for the
expenses of in-house staff or otherwise.




     Section 19.2 Legal Fees for Enforcement. (a) Borrower shall pay all reasonable legal
fees incurred by Lender in connection with (i) the preparation of the Note, this Security
Instrument and the Other Security Documents and (ii) the items set forth in Section 19.1 above, and
(b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and
attorneys’ fees, incurred or paid by Lender in protecting its interest in the Property or in
collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the
Property, whether or not any legal proceeding is commenced hereunder or thereunder, together with
interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses
are paid by Borrower.



Article 20 — Definitions



     Section 20.1 General Definitions. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Security Instrument may
be used interchangeably in singular or plural form and the word “Borrower” shall mean “each
Borrower and any subsequent owner or owners of the Property or any part thereof or any interest
therein,” the word “Lender” shall mean “Lender and any subsequent holder of the Note,” the word
“Trustee” shall mean “Trustee and any substitute Trustee of the estates, properties, powers, trusts
and rights conferred upon Trustee pursuant to this Security Instrument,” the word “Note” shall mean
“the Note and any other evidence of indebtedness secured by this Security Instrument,” the word
“person” shall include an individual, corporation, partnership, limited liability company, trust,
unincorporated association, government, governmental authority, and any other entity, the word
“Property” shall include any portion of the Property and any interest therein, and the phrases
“attorneys’ fees” and “counsel fees” shall include any and all attorneys’, paralegal and law clerk
fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial,
trial and appellate levels incurred or paid by Lender in protecting its interest in the Property,
the Leases and the Rents and enforcing its rights hereunder.



     Section 20.2 Headings, Etc. The headings and captions of various Articles and
Sections of this Security Instrument are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the provisions hereof.



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Article 21 — Miscellaneous Provisions



     Section 21.1 No Oral Change. This Security Instrument, and any provisions hereof,
may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any
act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed
by the party against whom enforcement of any modification, amendment, waiver, extension, change,
discharge or termination is sought.



     Section 21.2 Liability. If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and several. This Security
Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns forever.



     Section 21.3 Inapplicable Provisions. If any term, covenant or condition of the Note
or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the
Note and this Security Instrument shall be construed without such provision.



     Section 21.4 Duplicate Originals; Counterparts. This Security Instrument may be
executed in any number of duplicate originals and each duplicate original shall be deemed to be an
original. The failure of any party hereto to execute this Security Instrument, shall not relieve
the other signatories from their obligations hereunder.



     Section 21.5 Number and Gender. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and the singular form
of nouns and pronouns shall include the plural and vice versa.



Article 22 — Deed of Trust Provisions



     Section 22.1 Concerning the Trustee. Trustee shall be under no duty to take any
action hereunder except as expressly required hereunder or by law, or to perform any act which
would involve Trustee in any expense or liability or to institute or defend any suit in respect
hereof, unless properly indemnified to Trustee’s reasonable satisfaction. Trustee, by acceptance of
this Security Instrument, covenants to perform and fulfill the trusts herein created, being liable,
however, only for gross negligence or willful misconduct, and hereby waives any statutory fee and
agrees to accept reasonable compensation, in lieu thereof, for any services rendered by Trustee in
accordance with the terms hereof. Trustee may resign at any time upon giving thirty (30) days
notice to Borrower and to Lender. Lender may remove Trustee at any time or from time to time and
select a successor trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason whatsoever Lender may,
without notice and without specifying any reason therefor and without applying to any court, select
and appoint a successor trustee, by an instrument recorded wherever this Security Instrument is
recorded and all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon
become vested in such successor. Such substitute trustee shall not be required to give bond for the
faithful performance of the duties of Trustee hereunder unless required by Lender. The procedure
provided for in this paragraph for substitution of Trustee shall be in addition to and not in
exclusion of any other provisions for substitution, by law or otherwise.



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     Section 22.2 Trustee’s Fees. Borrower shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee’s agents and counsel in connection with the performance by
Trustee of Trustee’s duties hereunder and all such costs, fees and expenses shall be secured by
this Security Instrument.



     Section 22.3 Certain Rights. With the approval of Lender, Trustee shall have the
right to take any and all of the following actions: (i) to select, employ, and advise with counsel
(Who may be, but need not be, counsel for Lender) upon any matters arising hereunder, including the
preparation, execution, and interpretation of the Note, this Security Instrument or the Other
Security Documents, and shall be fully protected in relying as to legal matters on the advice of
counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder
either directly or through his/her agents or attorneys, (iii) to select and employ, in and about
the execution of his/her duties hereunder, suitable accountants, engineers and other experts,
agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of
Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any
such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable
care, or for any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for Trustee’s gross
negligence or bad faith, and (iv) any and all other lawful action as Lender may instruct Trustee to
take to protect or enforce Lender’s rights hereunder. Trustee shall not be personally liable in
case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee,
upon the Property for debts contracted for or liability or damages incurred in the management or
operation of the Property. Trustee shall have the right to rely on any instrument, document, or
signature authorizing or supporting an action taken or proposed to be taken by Trustee hereunder,
believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for
actual expenses incurred by Trustee in the performance of Trustee’s duties hereunder and to
reasonable compensation for such of Trustee’s services hereunder as shall be rendered.



     Section 22.4 Retention of Money. All moneys received by Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they were received, but
need not be segregated in any manner from any other moneys (except to the extent required by
applicable law) and Trustee shall be under no liability for interest on any moneys received by
Trustee hereunder.



     Section 22.5 Perfection of Appointment. Should any deed, conveyance, or instrument
of any nature be required from Borrower by any Trustee or substitute trustee to more fully and
certainly vest in and confirm to the Trustee or substitute trustee such estates rights, powers, and
duties, then, upon request by the Trustee or substitute trustee, any and all such deeds,
conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be
caused to be recorded and/or filed by Borrower.



     Section 22.6 Succession Instruments. Any substitute trustee appointed pursuant to
any of the provisions hereof shall, without any further act, deed, or conveyance, become vested
with all the estates, properties, rights, powers, and trusts of its or his/her predecessor in the
rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon
the



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written request of Lender or of the substitute trustee, the Trustee ceasing to act shall execute
and deliver any instrument transferring to such substitute trustee, upon the trusts herein
expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to
act, and shall duly assign, transfer and deliver any of the property and moneys held by such
Trustee to the substitute trustee so appointed in the Trustee’s place.




Article 23 — Special Texas Provisions



     Section 23.1 Acceleration; Remedies. Lender shall give notice to Borrower prior to
acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument.
The notice shall specify: (a) the default; (b) the action required to cure the default; (c) the
date by which the default must be cured; and (d) that failure to cure the default on or before the
date specified in the notice will result in acceleration of the sums secured by this Security
Instrument and sale of the Property. If the default is not cured on or before the date specified in
the notice, Lender at its option may require immediate payment in full of all sums secured by this
Security Instrument without further demand and may invoke the power of sale and any other remedies
permitted by applicable law. Lender shall be entitled to collect all expenses incurred in pursuing
the remedies provided in this Section 23.1, including, but not limited to, reasonable attorneys’
fees in the amount allowable under applicable state law and costs of title evidence.



     If Lender invokes the power of sale, Lender or Trustee shall give notice of the time, place
and terms of sale by posting and filing the notice at least 21 days prior to sale as provided by
applicable law. Lender shall mail a copy of the notice of sale to Borrower and to each person who
is obligated to pay the Debt in the manner prescribed by applicable law. The affidavit of any
person having knowledge of the facts to the effect that required notices were posted, filed or
mailed will be prima facie evidence of the facts recited in the affidavit. The sale shall be a
public sale at auction held between the hours of 10 a.m. and 4 p.m. on the first Tuesday of the
month. Borrower authorizes Trustee to sell the Property to the highest bidder for cash in one or
more parcels and in any order Trustee determines. Lender or its designee may purchase the Property
at any sale.



     Trustee shall deliver to the purchaser Trustee’s deed conveying indefeasible title to the
Property with covenants of general warranty. Borrower covenants and agrees to defend generally the
purchaser’s title to the Property against all claims and demands. The recitals in the Trustee’s
deed shall be prima facie evidence of the truth of the statements made therein. At any time before
the sale, Lender may direct Trustee to abandon the sale and may at any time thereafter direct
Trustee to again commence foreclosure. Whether or not foreclosure is commenced by Trustee, Lender
may at any time after an event of Default occurs, institute suit for collection of all or any part
of the Debt or foreclosure of the lien of this Security Instrument or both. If Lender institutes
suit for collection of the Debt and foreclosure of the lien of this Security Instrument, Lender may
at any time before the entry of final judgment dismiss the same and require Trustee to sell the
Property in accordance with the provisions of this Security Instrument. No single sale or series of
sales under this Security Instrument or by judicial foreclosure will extinguish the lien or exhaust
the power of sale under this Deed of Trust except with respect to the items of property sold.
Trustee shall apply the proceeds of the sale in the following order: (a) to all expenses of the
sale,



56









 




including, but not limited to, reasonable Trustee’s and attorneys’ fees in the amount allowable
under applicable state law; (b) to all sums secured by this Security Instrument; and (c) any excess
to the person or persons legally entitled to it. If the Property is sold pursuant to this Section
23.1, Borrower or any person holding possession of the Property through Borrower shall immediately
surrender possession of the Property to the purchaser at that sale. If possession is not
surrendered, Borrower or such person shall be a tenant at sufferance and may be removed by writ of
possession.




     Section 23.2 Waiver of Notice of Intention to Accelerate. Borrower waives the right
to notice of default, notice of intention to accelerate or notice of intention to require immediate
payment in full of all sums secured by this Security Instrument except as provided in Section 23.1.



     Section 23.3 Release. Upon payment of all sums secured by this Security Instrument,
Lender shall release this Security Instrument. Borrower shall pay any recordation costs.



     Section 23.4 NOTICE OF FINAL AGREEMENT. THIS SECURITY INSTRUMENT TOGETHER WITH THE
OTHER LOAN DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



[NO FURTHER TEXT ON THIS PAGE]



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     IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower the day and year
first above written.



	 	 	 	 	 
	 	BORROWER:



AmREIT UPTOWN PARK, LP,

a Texas limited partnership

 	 
	 	By:  	AmREIT Uptown Park GP, Inc., 	 
	 	 	a Texas corporation,

Its general partner 	 



	 	 	 	 	 	 
	 	 	By:  	           /s/ H. Kerr Taylor
 	 
	 	 	 	Name:  	H. Kerr Taylor 	 
	 	 	 	Title:  	President 	 
	 




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