Exhibit 10.14


 


Morgans Hotel Portfolio


 


 




 





BEACH HOTEL ASSOCIATES LLC,


 


as Borrower


 


to


 


WACHOVIA BANK, NATIONAL
ASSOCIATION,


 


as Lender


 


THIRD AMENDED AND RESTATED MORTGAGE,
SECURITY AGREEMENT,

ASSIGNMENT OF RENTS AND FIXTURE FILING


 










 


Dated: 
June 29, 2005


 


PREPARED BY AND UPON RECORDATION RETURN TO:


 


Proskauer Rose LLP


1585 Broadway


New York, New York  10036


 


Attention: 
David J. Weinberger, Esq.




 





 


NOTICE TO RECORDER:  This
amended mortgage secures the “Note” made by Borrower in the principal amount of
$107,410,560.34, which evidences (i) the renewal and refinancing of the
$104,188,414.47 principal balance outstanding under the “Previous Note” made by
Borrower in the original principal amount of $105,000,000.00 secured by the “Second
Restated Mortgage” identified herein; and (ii) a future advance from
Lender to Borrower in the principal amount of $3,222,145.87.  This amended mortgage also secures the
Borrower’s Payment Guaranty of the $366,339,439.66 principal indebtedness of
the “Guaranteed Loan Borrower” evidenced by the “Guaranteed Note” identified
herein, which Payment Guaranty amends and restates the “Previous Guaranty”
identified herein and secured by the Second Restated Mortgage.  The aggregate principal indebtedness secured
by this amended mortgage, including the Note, is $473,750,000, which aggregate
indebtedness is also secured by other mortgages and deeds of trust encumbering
real and personal property located in other jurisdictions.  Florida documentary stamp taxes in the
aggregate amount of $518,000.00 were previously paid on the Second Restated
Mortgage (and


 





















 


certain predecessor mortgages identified therein) with respect to the
Previous Note and the Previous Guaranty, based on the $148,000,000 value of the
Florida mortgaged property covered by the Second Restated Mortgage; and Florida
nonrecurring intangible personal property taxes in the aggregate amount of
$210,000,000 were previously paid thereon based on the $105,000,000 Previous
Note as set forth in the Second Restated Mortgage.  The portion of the Note evidencing the
renewal of the $104,188,414.47 principal balance outstanding under the Previous
Note is therefore exempt from further stamp taxes or intangible taxes under the
provisions of Section 201.09 and 199.145 of the Florida Statutes and
applicable tax regulations thereunder. 
Because this amended mortgage secures the mortgagor’s Payment Guaranty
rather than securing the Guaranteed Note directly, no Florida intangible taxes
are payable on this amended mortgage with respect to the Guaranteed Note.  With respect to Florida documentary stamp
taxes, the amended stamp tax base is the $150,000,000 increased value of the
Florida mortgaged property covered by this amended mortgage, because the value
of the Florida mortgaged property exceeds the apportioned Florida share of the
aggregate secured indebtedness and the Lender has not agreed to limit its
recovery against the Florida mortgaged property (specifically, the value of all
the mortgaged properties, wherever located, is $662,100,456, and the Florida
mortgaged property represents 22.655 percent of all such collateral, and said
percentage of the aggregate secured indebtedness apportioned to Florida for
stamp tax purposes is $107,328,062.50). 
Pursuant to Sections 201.08(5) and 199.145(4) of the Florida
Statutes, said mortgage taxes are payable on this amended mortgage only to the
extent that it increases the Florida tax bases (including said future advance)
over the previous tax bases on which said taxes were previously paid.  Accordingly, Florida documentary stamp taxes
in the amount of $7,000.00 are being paid on the $2,000,000 increase in the
value of the Florida mortgaged property from $148,000,000 to $150,000,000, and
Florida intangible personal property taxes in the amount of $6,444.29 are being
paid on the $3,222,145.87 future advance identified hereinabove.


 


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THIS THIRD
AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND
FIXTURE FILING (the “Security Instrument”) is made as of the 29th
day of June, 2005, by BEACH HOTEL ASSOCIATES LLC, having its chief executive
office c/o Morgans Hotel Group LLC, 475 Tenth Avenue, New York, New York  10018 (hereinafter referred to as “Borrower”),
to WACHOVIA BANK, NATIONAL ASSOCIATION, having an address at Commercial Real
Estate Services, 8739 Research Drive URP 4, NC 1075, Charlotte, North
Carolina  28262 (hereinafter referred to as “Lender”).


 


W I T N E S S E T H:


 


WHEREAS,
Lender has authorized a loan (hereinafter referred to as the “Loan”) to
Borrowers in the maximum principal sum of ONE HUNDRED SEVEN MILLION FOUR HUNDRED
TEN THOUSAND FIVE HUNDRED AND SIXTY AND 34/100 DOLLARS ($107,410,560.34)
(hereinafter referred to as the “Loan Amount”), which Loan is evidenced
by that certain Amended and Restated Renewal and Future Advance Promissory Note
of even date herewith in the principal amount of the Loan Amount given by
Borrower, as maker, and payable to Lender, as payee (together with any
supplements, amendments, modifications or extensions thereof, hereinafter
referred to as the “Note”);


 


WHEREAS, Borrower is the mortgagor named in
that certain Second Amended and Restated Mortgage, Assignment of Leases and
Rents and Security Agreement dated as of August 13, 2004 made in favor of
Greenwich Capital Financial Products, Inc., a Delaware corporation, as
mortgagee, and recorded September 7, 2004 in Official Records Book 22631, Page 14,
Public Records of Miami-Dade County, Florida as assigned to and now held by Lender
(as so amended, the “Second Restated Mortgage”);


 


WHEREAS, the Second Restated Mortgage secured
a certain Amended and Restated Renewal and Future Advance Promissory Note of
even date therewith executed by Borrower in the original principal amount of
ONE HUNDRED FIVE MILLION AND NO/100 DOLLARS ($105,000,000.00) (the “Previous
Note”), and the Second Restated Mortgage also secured Borrower’s Guaranty
of Payment of even date therewith (the “Previous Guaranty”) with respect
to other indebtedness of the Guaranteed Loan Borrowers;


 


WHEREAS, the Second Restated Mortgage, the
Previous Note, the Previous Guaranty, and the indebtedness secured and
evidenced and guaranteed thereby have all been assigned by the previous
mortgagee to, and are now held by Lender, prior to the date hereof, pursuant to
that certain Assignment of Mortgage and that certain assignment of guaranty;


 


WHEREAS, Borrower has requested Lender to
renew and extend the $104,188,414.47 principal amount outstanding under the
Previous Note, to increase that indebtedness by making a “future advance” under
Fla. Stat. §697.04 to Borrower in the amount of $3,222,145.87, and to amend
certain terms and provisions thereof, which indebtedness, as so renewed,
extended, increased, supplemented and amended, is evidenced by the Note;


 


WHEREAS, Borrower
has also executed an amended and restated payment guaranty of even date
herewith in favor of Lender, which guarantees all of the obligations of
Guaranteed


 





















 


Loan Borrower, all of which are Affiliates of
Borrower, under the Guaranteed Loan which is evidenced by the Guaranteed Note
(the “Payment Guaranty”);


 


WHEREAS, as indicated above, Lender has
extended another loan to Guaranteed Loan Borrower in the original principal
amount of THREE HUNDRED SIXTY SIX MILLION THREE HUNDRED THIRTY NINE THOUSAND FOUR
HUNDRED AND THIRTY NINE AND AND 66/100 DOLLARS ($366,339,439.66) (the “Guaranteed
Loan”) evidenced by that certain Amended, Restated and Consolidated
Promissory Note, dated the date hereof, made by Guaranteed Loan Borrowers in
favor of Lender (the “Guaranteed Note”);


 


WHEREAS, as a condition to making the Loan
and the Guaranteed Loan, Lender has required Borrower to amend and restate the
Second Restated Mortgage in its entirety as security for (i) the Loan and (ii) the
Payment Guaranty, and Lender has required Guaranteed Loan Borrower to guarantee
the payment of the Loan and to secure both the Loan and the Guaranteed Loan with
other mortgages or deeds of trust recorded against properties located outside
of the state of Florida which are owned by Guaranteed Loan Borrower in the jurisdictions
more particularly described below;


 


WHEREAS, in
consideration of the Loan and the Guaranteed Loan, Borrower has agreed to make
payments in amounts sufficient to pay and redeem, and provide for the payment
and redemption of the principal of, premium, if any, and interest on the Note and
the Payment Guaranty when due;


 


WHEREAS,
Borrower desires by this Security Instrument to provide for, among other
things, the issuance of the Note and for the deposit, deed and pledge by
Borrower with, and the creation of a security interest in favor of, Lender, as
security for Borrower’s obligations to Lender from time to time pursuant to the
Note, the Payment Guaranty and the other Loan Documents;


 


WHEREAS,
Borrower and Lender intend these recitals to be a material part of this
Security Instrument; and


 


WHEREAS, all
things necessary to make this Security Instrument the valid and legally binding
obligation of Borrower in accordance with its terms, for the uses and purposes
herein set forth, have been done and performed.


 


NOW THEREFORE, in consideration of the foregoing recitals and to secure
the payment of the principal of, prepayment premium (if any) and interest on
the Note and all other obligations, liabilities or sums due or to become due
under this Security Instrument, the Payment Guaranty, the Note or any other
Loan Document, including, without limitation, interest on said obligations,
liabilities or sums (said principal, premium, interest and other sums being
hereinafter referred to as the “Debt”), and to amend, restate, modify
and renew the Second Restated Mortgage is in its entirety, Borrower has
executed and delivered this Security Instrument; and Borrower has irrevocably
granted, and by these presents and by the execution and delivery hereof does
hereby irrevocably grant, bargain, sell, alien, demise, release, convey,
assign, transfer, deed, hypothecate, pledge, set over, warrant, mortgage and
confirm to Lender, forever


 


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with power of sale, all right, title and
interest of Borrower, whether now owned or hereafter acquired, in and to all of
the following property, rights, interests and estates:


 


(a)                                  the plot(s), piece(s)
or parcel(s) of real property described in Exhibit A
attached hereto and made a part hereof (individually and collectively,
hereinafter referred to as the “Premises”);


 


(b)                                 (i) all
buildings, foundations, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements of every kind
or nature now or hereafter located on the Premises (hereinafter collectively
referred to as the “Improvements”); and (ii) to the extent
permitted by law, the name or names, if any, as may now or hereafter be used
for any of the Improvements, and the goodwill associated therewith;


 


(c)                                  all easements,
servitudes, rights-of-way, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and powers, ditches,
ditch rights, reservoirs and reservoir rights, air rights and development
rights, lateral support, drainage, gas, oil and mineral rights, tenements,
hereditaments and appurtenances of any nature whatsoever, in any way belonging,
relating or pertaining to the Premises or the Improvements and the reversion
and reversions, remainder and remainders, whether existing or hereafter
acquired, and all land lying in the bed of any street, road or avenue, opened
or proposed, in front of or adjoining the Premises to the center line thereof
and any and all sidewalks, drives, curbs, passageways, streets, spaces and
alleys adjacent to or used in connection with the Premises and/or Improvements
and all the estates, rights, titles, interests, property, possession, claim and
demand whatsoever, both in law and in equity, of Borrower of, in and to the
Premises and Improvements and every part and parcel thereof, with the
appurtenances thereto;


 


(d)                                 all machinery,
equipment, systems, fittings, apparatus, appliances, furniture, furnishings,
tools, fixtures, Inventory (as hereinafter defined) and articles of personal
property and accessions thereof and renewals, replacements thereof and
substitutions therefor (including, but not limited to, all plumbing, lighting
and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests,
chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes,
draperies, curtains, shades, venetian blinds, wall coverings, screens,
paintings, hangings, pictures, divans, couches, luggage carts, luggage racks,
stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware,
foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other
entry systems, bars, bar fixtures, liquor and other drink dispensers,
icemakers, radios, television sets, intercom and paging equipment, electric and
electronic equipment, dictating equipment, telephone systems, computerized
accounting systems, engineering equipment, vehicles, medical equipment, potted
plants, heating, lighting and plumbing fixtures, fire prevention and
extinguishing apparatus, theft prevention equipment, cooling and
air-conditioning systems, elevators, escalators, fittings, plants, apparatus,
stoves, ranges, refrigerators, laundry machines, tools, machinery, engines,
dynamos, motors, boilers, incinerators, switchboards, conduits, compressors,
vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call
systems, brackets, signs, bulbs, bells, ash and fuel, conveyors, cabinets,
lockers, shelving, spotlighting equipment, dishwashers, garbage disposals,
washers and dryers), other customary hotel equipment and other property of
every kind and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, now


 


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or hereafter located upon, or in, and used in connection with the
Premises or the Improvements, or appurtenant thereto, and all building
equipment, materials and supplies of any nature whatsoever owned by Borrower,
or in which Borrower has or shall have an interest, now or hereafter located
upon, or in, and used in connection with the Premises or the Improvements or
appurtenant thereto, (hereinafter, all of the foregoing items described in this
paragraph (d) are collectively called the “Equipment”), all of
which, and any replacements, modifications, alterations and additions thereto,
to the extent permitted by applicable law, shall be deemed to constitute
fixtures (the “Fixtures”), and are part of the real estate and security
for the payment of the Debt and the performance of Borrower’s obligations.  To the extent any portion of the Equipment is
not real property or fixtures under applicable law, it shall be deemed to be
personal property, and this Security Instrument shall constitute a security agreement
creating a security interest therein in favor of Lender under the UCC;


 


(e)                                  all awards or
payments, including interest thereon, which may hereafter be made with respect
to the Premises, the Improvements, the Fixtures, or the Equipment, 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 said right), or
for a change of grade, or for any other injury to or decrease in the value of
the Premises, the Improvements or the Equipment or refunds with respect to the
payment of property taxes and assessments, and all other proceeds of the
conversion, voluntary or involuntary, of the Premises, Improvements, Equipment,
Fixtures or any other Property or part thereof into cash or liquidated claims;


 


(f)                                    all leases,
tenancies, franchises, licenses and permits, Property Agreements and other
agreements affecting the use, enjoyment or occupancy of the Premises, the
Improvements, the Fixtures, or the Equipment or any portion thereof now or
hereafter entered into, whether before or after the filing by or against
Borrower of any petition for relief under the Bankruptcy Code and all
reciprocal easement agreements, license agreements and other agreements with
Pad Owners (hereinafter collectively referred to as the “Leases”),
together with all receivables, revenues, rentals, credit card receipts,
receipts and all payments received which relate to the rental, lease, franchise
and use of space at the Premises or which relate to the Food and Beverage
Lessee/Operators (it being acknowledged by Lender that the security interest
granted hereunder in receivables, revenues, rentals, credit card receipts,
receipts and all payments received which relate to the Food and Beverage
Lessee/Operators shall not attach to interests of third-party joint venture
partners of Borrower which are not Affiliates of Borrower) and rental and use
of guest rooms or meeting rooms or banquet rooms or recreational facilities or
bars, beverage or food sales, vending machines, mini-bars, room service,
telephone, video and television systems, electronic mail, internet connections,
guest laundry, bars, the provision or sale of other goods and services, and all
other payments received from guests or visitors of the Premises, and other
items of revenue, receipts or income as identified in the Uniform System of
Accounts (as hereinafter defined), all cash or security deposits, lease
termination payments, advance rentals and payments of similar nature and
guarantees or other security held by, or issued in favor of, Borrower in
connection therewith to the extent of Borrower’s right or interest therein and
all remainders, reversions and other rights and estates appurtenant thereto,
and all base, fixed, percentage or additional rents, and other rents, oil and
gas or other mineral royalties, and bonuses, issues, profits and rebates and
refunds or other payments made by any Governmental Authority from or relating
to the Premises, the Improvements, the Fixtures or the Equipment plus all
rents, common


 


4





















 


area charges and other payments now existing or hereafter arising,
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)                                 all proceeds of and
any unearned premiums on any insurance policies covering the Premises, the
Improvements, the Fixtures, the Rents or the Equipment, 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 Premises, the
Improvements, the Fixtures or the Equipment and all refunds or rebates of
Impositions, and interest paid or payable with respect thereto;


 


(h)                                 all deposit accounts,
securities accounts, funds or other accounts maintained or deposited with
Lender, or its assigns, in connection herewith, including, without limitation,
the Security Deposit Account (to the extent permitted by law), the Engineering
Escrow Account, the Central Account, the Basic Carrying Costs Sub-Account, the Basic
Carrying Costs Escrow Account, the Debt Service Payment Sub-Account, the SAOT
Sub-Account, the SAOT Escrow Account, the Recurring Replacement Reserve
Sub-Account, the Recurring Replacement Reserve Escrow Account, the Mez Payment
Sub-Account, the Mez Payment Escrow Account, the Operation and Maintenance
Expense Sub-Account, the Operation and Maintenance Expense Escrow Account, the
Curtailment Reserve Sub-Account, the Curtailment Reserve Escrow Account, the Capex
Trap Sub-Account and the Capex Trap Escrow Account and all monies and
investments deposited or to be deposited in such accounts;


 


(i)                                     all accounts
receivable, contract rights, franchises, interests, estate or other claims,
both at law and in equity, now existing or hereafter arising, and relating to
the Premises, the Improvements, the Fixtures or the Equipment, not included in
Rents;


 


(j)                                     all now existing
or hereafter arising claims against any Person with respect to any damage to
the Premises, the Improvements, the Fixtures or the Equipment, including,
without limitation, damage arising from any defect in or with respect to the
design or construction of the Improvements, the Fixtures or the Equipment and
any damage resulting therefrom;


 


(k)                                  all deposits or other
security or advance payments, including rental payments now or hereafter made
by or on behalf of Borrower to others, with respect to (i) insurance
policies, (ii) utility services, (iii) cleaning, maintenance, repair
or similar services, (iv) refuse removal or sewer service, (v) parking
or similar services or rights and (vi) rental of Equipment, if any, relating
to or otherwise used in the operation of the Premises, the Improvements, the
Fixtures or the Equipment;


 


(l)                                     all intangible
property now or hereafter relating to the Premises, the Improvements, the
Fixtures or the Equipment or its operation, including, without limitation,
software, letter of credit rights, trade names, trademarks (including, without
limitation, any licenses of or agreements to license trade names or trademarks
now or hereafter entered into by Borrower), logos, building names and goodwill;


 


5





















 


(m)                               all now existing or
hereafter arising advertising material, guaranties, warranties, building
permits, other permits, licenses, plans and specifications, shop and working
drawings, soil tests, appraisals and other documents, materials and/or personal
property of any kind now or hereafter existing in or relating to the Premises,
the Improvements, the Fixtures, and the Equipment;


 


(n)                                 all now existing or
hereafter arising drawings, designs, plans and specifications prepared by
architects, engineers, interior designers, landscape designers and any other
consultants or professionals for the design, development, construction, repair
and/or improvement of the Property, as amended from time to time;


 


(o)                                 the right, in the name
of and on behalf of Borrower, to appear in and defend any now existing or
hereafter arising action or proceeding brought with respect to the Premises,
the Improvements, the Fixtures or the Equipment and to commence any action or
proceeding to protect the interest of Lender in the Premises, the Improvements,
the Fixtures or the Equipment;


 


(p)                                 all accounts, chattel
paper, deposit accounts, fixtures, general intangibles, goods, instruments and
securities accounts (each as defined in the Uniform Commercial Code as in
effect from time to time in the State of Florida in which the Premises is
located (the “UCC Collateral”); and


 


(q)                                 all proceeds,
products, substitutions and accessions (including claims and demands therefor)
of each of the foregoing.


 


All of the
foregoing items (a) through (p), together with all of the right, title and
interest of Borrower therein, are collectively referred to as the “Property”.


 


TO HAVE AND TO
HOLD the above granted and described Property unto Lender, and the successors
and assigns of Lender in fee simple, forever.


 


PROVIDED,
ALWAYS, and these presents are upon this express condition, if Borrower shall
well and truly pay and discharge the Debt and perform and observe the terms,
covenants and conditions set forth in the Loan Documents, then these presents
and the estate hereby granted shall cease and be void.


 


AND Borrower
covenants with and warrants to Lender that:


 


ARTICLE I:  DEFINITIONS


 


Section 1.01.  Certain Definitions.


 


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


 


(i)                                     the
capitalized terms defined in this Section have the meanings assigned to
them in this Section, and include the plural as well as the singular;


 


6





















 


(ii)                                  all
accounting terms not otherwise defined herein shall be construed in accordance
with GAAP; and


 


(iii)                               the
words “herein”, “hereof”, and “hereunder” and other words of similar import
refer to this Security Instrument as a whole and not to any particular Section or
other subdivision.


 


“ACH”
shall have the meaning set forth in Section 5.01 hereof.


 


“ACM”
shall have the meaning set forth in Section 16.03 hereof.


 


“Additional
Financing” shall have the meaning set forth in Section 9.02(b) hereof.


 


“Adjusted
Net Cash Flow” shall mean, as of any date of calculation, the Net Operating
Income for all of the Cross-collateralized Properties over the twelve (12)-month period preceding the date of calculation adjusted
to reflect (a) an annual replacement reserve
of 4% of gross revenues and (b) scheduled increases in real estate
taxes over the subsequent twelve (12) month period resulting from, among other
things, increases in tax rates or the assessed value of the Property and/or the
expiration of any applicable tax abatements. 
The Adjusted Net Cash Flow shall be
calculated by Borrower and shall be subject to the reasonable review and
approval of Lender.


 


“Affiliate”
of any specified Person shall mean any other Person directly or indirectly Controlling
or Controlled by or under direct or indirect common Control with such specified
Person.


 


“Allocated Loan Amount” shall mean the
Initial Allocated Loan Amount of each Cross-collateralized Property as such
amount may be adjusted from time to time as hereinafter set forth. Upon each
adjustment of the Principal Amount (each a “Total Adjustment”), whether
as a result of amortization or prepayment or as otherwise expressly provided
herein or in any other Loan Document, each Allocated Loan Amount shall be
increased or decreased, as the case may be, by an amount equal to the product
of (a) the Total Adjustment, and (b) a fraction, the numerator of
which is the applicable Allocated Loan Amount (prior to the adjustment in question)
and the denominator of which is the Principal Amount prior to the adjustment to
the Principal Amount which results in the recalculation of the Allocated Loan
Amount. However, when the Principal Amount is reduced as a result of Lender’s
receipt of (a) a Release Price or, in connection with a Release, funds
sufficient to prepay a portion of the Principal Amount in the amount of the
Release Price, the Allocated Loan Amount for the Cross-collateralized Property
being released and discharged from the encumbrance of the applicable
Cross-collateralized Mortgage and related Loan Documents shall be reduced to
zero (the amount by which such Allocated Loan Amount is reduced being referred
to as the “Released Allocated Amount”), and each other Allocated Loan
Amount shall be decreased by an amount equal to the product of (i) the
excess of (A) the Release Price over (B) the Released Allocated
Amount and (ii) a fraction, the numerator of which is the applicable
Allocated Loan Amount (prior to the adjustment in question) and the denominator
of which is the aggregate of all of the Allocated Loan Amounts other than the
Allocated Loan Amount applicable to the Cross-collateralized Property for which
the Release


 


7





















 


Price was paid, or (b) Net Proceeds, the Allocated Loan Amount for
the Cross-collateralized Property with respect to which the Net Proceeds were
received shall be reduced to zero (the amount by which such Allocated Loan
Amount is reduced being referred to as the “Foreclosed Allocated Amount”)
and each other Allocated Loan Amount shall (A) if the Net Proceeds exceed
the Foreclosed Allocated Amount (such excess being referred to as the “Surplus
Net Proceeds”), be decreased by an amount equal to the product of (i) the
Surplus Net Proceeds and (ii) a fraction, the numerator of which is the
applicable Allocated Loan Amount (prior to the adjustment in question) and the
denominator of which is the aggregate of all of the Allocated Loan Amounts
(prior to the adjustment in question) other than the Allocated Loan Amount
applicable to the Cross-collateralized Property with respect to which the Net
Proceeds were received (such fraction being referred to as the “Net Proceeds
Adjustment Fraction”), (B) if the Foreclosed Allocated Amount exceeds
the Net Proceeds (such excess being referred to as the “Net Proceeds
Deficiency”), be increased by an amount equal to the product of (i) the
Net Proceeds Deficiency and (ii) the Net Proceeds Adjustment Fraction, or (C) if
the Net Proceeds equal the Foreclosed Allocated Amount, remain unadjusted, or (c) Loss
Proceeds or partial prepayments made in accordance with Section 15.01
hereof, the Allocated Loan Amount for the Cross-collateralized Property with
respect to which the Loss Proceeds or partial prepayments were received shall
be decreased by an amount equal to the sum of (i) with respect to Loss
Proceeds, Loss Proceeds which are applied towards the reduction of the
Principal Amount as set forth in Article III hereof, if any, and (ii) with
respect to partial prepayments, the amount of any such partial prepayment which
is applied towards the reduction of the Principal Amount in accordance with the
provisions of the Note, if any, but in no event shall the Allocated Loan Amount
for the Cross-collateralized Property with respect to which the Loss Proceeds
or partial prepayments were received be reduced to an amount less than zero
(the amount by which such Allocated Loan Amount is reduced being referred to as
the “Loss Proceeds or Prepayment Allocated Amount”) and each other
Allocated Loan Amount shall be decreased by an amount equal to the product of (i) the
excess of (A) the Loss Proceeds or such partial prepayments over (B) the
Loss Proceeds or Prepayment Allocated Amount, and (ii) a fraction, the numerator
of which is the applicable Allocated Loan Amount (prior to the adjustment in
question) and the denominator of which is the aggregate of all of the Allocated
Loan Amounts (prior to the adjustment in question) other than the Allocated
Loan Amount applicable to the Cross-collateralized Property to which such Loss
Proceeds or partial prepayments were applied.


 


“Annual
Budget” shall mean an annual budget submitted by Borrower to Lender in
accordance with the terms of Section 2.09 hereof.


 


“Appraisal”
shall mean the appraisal of the Property and all supplemental reports or
updates thereto previously delivered to Lender in connection with the Loan as
set forth in the Receipt and Closing Certificate delivered to Lender by
Borrower on the Closing Date.


 


“Appraiser”
shall mean the Person who prepared the Appraisal.


 


“Approved
Annual Budget” shall mean each Annual Budget approved by Lender in
accordance with the terms hereof.


 


8





















 


“Approved
Manager Standard” shall mean the standard of business operations, practices
and procedures customarily employed by entities having a senior executive with
at least five (5) years’ experience in the management of full service
luxury or full service upscale hotel properties which manage not less than five
(5) full service luxury or full service upscale hotel properties having 2,000
hotel rooms in the aggregate, including, without limitation, certain full
service luxury or full service upscale hotel properties which contain more than
250 hotel rooms.


 


“Architect”
shall have the meaning set forth in Section 3.04(b)(i) hereof.


 


“Assignment”
shall mean the Assignment of Leases and Rents and Security Deposits of even
date herewith relating to the Property given by Borrower to Lender, as the same
may be modified, amended or supplemented from time to time.


 


“Bank”
shall mean the bank, trust company, savings and loan association or savings
bank designated by Lender, in its sole and absolute discretion, in which the
Central Account shall be located.


 


“Bankruptcy
Code” shall mean 11 U.S.C. §101 et seq., as amended from time to time.


 


“Basic
Carrying Costs” shall mean the sum of the following costs associated with
the Property:  (a) Impositions and (b) insurance
premiums.


 


“Basic
Carrying Costs Escrow Account” shall mean the Escrow Account maintained
pursuant to Section 5.06 hereof.


 


“Basic
Carrying Costs Monthly Installment” shall mean Lender’s estimate of
one-twelfth (1/12th) of the annual amount for Basic Carrying Costs or with
respect to insurance premiums financed in accordance with the terms of this
Security Instrument an amount equal to the next installment of the insurance
premiums then due.  “Basic Carrying Costs
Monthly Installment” shall also include, if required by Lender, a sum of money which,
together with such monthly installments, will be sufficient to make the payment
of each such Basic Carrying Cost at least thirty (30) days prior to the date
initially due.  Should such Basic
Carrying Costs not be ascertainable at the time any monthly deposit is required
to be made, the Basic Carrying Costs Monthly Installment shall be determined by
Lender in its reasonable discretion on the basis of the aggregate Basic
Carrying Costs for the prior Fiscal Year or month or the prior payment period
for such cost.  As soon as the Basic
Carrying Costs are fixed for the then current Fiscal Year, month or period, the
next ensuing Basic Carrying Costs Monthly Installment shall be adjusted to
reflect any deficiency or surplus in prior monthly payments.  If at any time during the term of the Loan
Lender determines that there will be insufficient funds in the Basic Carrying
Costs Escrow Account to make payments when they become due and payable, Lender
shall have the right to adjust the Basic Carrying Costs Monthly Installment
such that there will be sufficient funds to make such payments.


 


“Basic
Carrying Costs Sub-Account” shall mean the Sub-Account of the Central
Account established pursuant to Section 5.02 into which the Basic Carrying
Costs Monthly Installments shall be deposited.


 


9





















 


“Borrower”
shall mean Borrower named herein and any successor to the obligations of
Borrower.


 


“Business
Day” shall mean any day other than (a) a Saturday or Sunday, or (b) a
day on which banking and savings and loan institutions in the State of New York
or the State of North Carolina are authorized or obligated by law or executive
order to be closed, or at any time during which the Loan is an asset of a
Securitization, the cities, states and/or commonwealths used in the comparable
definition of “Business Day” in the Securitization documents.


 


“Capex Cash Trap Period” shall mean
each Interest Accrual Period (x) during the first (1st) Loan Year, until an
amount equal to $5,000,000 has been deposited into the Capex Trap Sub-Account
(the “First Loan Year Capex Deposit”), (y) during the second (2nd) Loan
Year sums shall be deposited into the Capex Trap Sub-Account (the “Second
Loan Year Capex Deposit”) such that together with the First Loan Year Capex
Deposit an aggregate $6,000,000 (without deduction for any amounts expended
from the Capex Trap Sub-Account) has been deposited into the Capex Trap
Sub-Account, and (z) during the third (3rd) Loan Year sums shall be deposited
into the Capex Trap Sub-Account (the “Third Loan Year Capex Deposit”)
such that together with the First Loan Year Capex Deposit and the Second Loan
Year Capex Deposit, an aggregate $7,000,000 (without reduction for any amounts
expended from the Capex Trap Sub-Account) has been deposited into the Capex
Trap Sub-Account.  Subsequent to the
commencement of the fourth (4th) Loan Year, there shall be no Capex Cash Trap
Period.


 


“Capex Trap
Escrow Account” shall mean the Escrow Account maintained pursuant to Section 5.15
hereof relating to the payment of approved Replacement Expenditures.


 


“Capex Trap
Sub-Account” shall mean the Sub-Account of the Central Account established
pursuant to Section 5.02 hereof into which excess cash flow shall be
deposited pursuant to Section 5.05 hereof.


 


“Capital
Expenditures” shall mean for any period, the amount expended for items
capitalized under GAAP including expenditures for building improvements or
major repairs, leasing commissions and tenant improvements.


 


“Cash
Expenses” shall mean for any period, the operating expenses for the
Property as set forth in an Approved Annual Budget to the extent that such
expenses are actually incurred by Borrower minus payments into the Basic
Carrying Costs Sub-Account, the Debt Service Payment Sub-Account, the SAOT
Sub-Account and the Recurring Replacement Reserve Sub-Account.


 


“Central
Account” shall mean an Eligible Account, maintained at the Bank, in the
name of Lender or its successors or assigns (as secured party).


 


“Class A
Margin” shall have the meaning set forth in the Note.


 


“Class A
Portion” shall have the meaning set forth in the Note.


 


“Class A
Rate” shall have the meaning set forth in the Note.


 


10





















 


“Class B
Margin” shall have the meaning set forth in the Note.


 


“Class B
Portion” shall have the meaning set forth in the Note.


 


“Class B
Rate” shall have the meaning set forth in the Note.


 


“Closing Date” shall mean the date of
the Note.


 


“Code”
shall mean the Internal Revenue Code of 1986, as amended and as it may be
further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations promulgated thereunder.


 


“Condemnation
Proceeds” shall mean all of the proceeds in respect of any Taking or
purchase in lieu thereof.


 


“Contest”
shall have the meaning set forth in Section 18.32 hereof.


 


“Contractual
Obligation” shall mean, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which
such Person is a party or by which it or any of the property owned by it is
bound.


 


“Control”
means, when used with respect to any specific Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person whether through ownership of voting securities,
beneficial interests, by contract or otherwise. 
The definition is to be construed to apply equally to variations of the
word “Control” including “Controlled,” “Controlling” or “Controlled by.”


 


“Counterparty”
shall have the meaning set forth in Section 5.10 hereof.


 


“CPI”
shall mean “The Consumer Price Index (New Series) (Base Period 1982-84=100)
(all items for all urban consumers)” issued by the Bureau of Labor Statistics
of the United States Department of Labor (the “Bureau”).  If the CPI ceases to use the 1982-84 average
equaling 100 as the basis of calculation, or if a change is made in the term,
components or number of items contained in said index, or if the index is
altered, modified, converted or revised in any other way, then the index shall
be adjusted to the figure that would have been arrived at had the change in the
manner of computing the index in effect at the date of this Security Instrument
not been made.  If at any time during the
term of this Security Instrument the CPI shall no longer be published by the
Bureau, then any comparable index issued by the Bureau or similar agency of the
United States issuing similar indices shall be used in lieu of the CPI.


 


“Credit
Card Company” shall have the meaning set forth in Section 5.01 hereof.


 


“Credit
Card Payment Direction Letter” shall have the meaning set forth in Section 5.01
hereof.


 


“Cross-collateralized Borrowers” shall
mean each Person which has executed the Note.


 


11





















 


“Cross-collateralized Mortgage” shall
mean each mortgage, deed of trust, deed to secure debt, security agreement,
assignment of rents and fixture filing as originally executed or as same may
hereafter from time to time be supplemented, amended, modified or extended by
one or more indentures supplemental thereto granted by a Cross-collateralized
Borrower to Lender as security for the Note.


 


“Cross-collateralized Property” shall
mean each parcel or parcels of real property encumbered by a
Cross-collateralized Mortgage as identified on Exhibit F attached hereto
and made a part hereof; provided, however, at such time, if any, that a
Cross-collateralized Mortgage is released by Lender, the property which was
encumbered by such Cross-collateralized Property shall no longer constitute a
Cross-collateralized Property.


 


“Curtailment
Reserve Escrow Account” shall mean the Escrow Account maintained pursuant
to Section 5.11 hereof into which sums shall be deposited during an
O&M Operative Period.


 


“Curtailment
Reserve Sub-Account” shall mean the Sub-Account of the Central Account
established pursuant to Section 5.02 hereof.


 


“Delano
Hotel” shall mean that certain hotel property located at 1685 Collins
Avenue, Miami Beach, Florida.


 


“Debt”
shall have the meaning set forth in the Recitals hereto.


 


“Debt
Service” shall mean the amount of interest and principal payments due and
payable in accordance with the Note during an applicable period.


 


“Debt
Service Coverage” shall mean the quotient obtained by dividing the Adjusted
Net Cash Flow by the product of (a) the then outstanding balance of (i) the
Loan plus (ii) any subordinate or mezzanine financing, including without
limitation the Mez Loan, then affecting or related to the Property or any interest
therein excluding any financings of any Person who is not a
Cross-collateralized Borrower or a borrower under the Mezzanine Loan but
including (determined as of the applicable date the calculation of Debt Service
Coverage is required or requested hereunder) multiplied by (b) 8.68%.


 


“Debt
Service Payment Sub-Account” shall mean the Sub-Account of the Central
Account established pursuant to Section 5.02 hereof into which the
Required Debt Service Payment shall be deposited.


 


“Debt Yield”
means the Adjusted Net Cash Flow divided by the sum of (a) the unpaid
Principal Amount of the Loan and (b) the outstanding principal balance of
any subordinate or mezzanine financing, including without limitation the Mez
Loan, then affecting or related to the Property or any interest therein excluding
any financings of any Person who is not a Cross-collateralized Borrower or a
borrower under the Mezzanine Loan (determined as of the date of the calculation
of Debt Yield as required or requested hereunder).


 


12





















 


“Default”
shall mean any Event of Default or event which would constitute an Event of
Default if all requirements in connection therewith for the giving of notice,
the lapse of time, and the happening of any further condition, event or act,
had been satisfied.


 


“Default
Rate” shall mean the lesser of (a) the highest rate allowable at law
and (b) (i) five percent (5%) above the Class A Rate with
respect to the Class A Portion and (ii) five percent (5%) above the Class B
Rate with respect to the Class B Portion.


 


“Default
Rate Interest” shall mean, to the extent the Default Rate becomes
applicable, interest in excess of the interest which would have accrued on (a) the
Principal Amount and (b) any accrued but unpaid interest, if the Default
Rate was not applicable.


 


“Development
Laws” shall mean all applicable subdivision, zoning, environmental
protection, wetlands protection, or land use laws or ordinances, and any and
all applicable rules and regulations of any Governmental Authority
promulgated thereunder or related thereto.


 


“Dollar”
and the sign “$” shall mean lawful money of the United States of America.


 


“Eligible
Account” shall mean a segregated account which is either (a) an
account or accounts maintained with a federal or state chartered depository
institution or trust company the long term unsecured debt obligations of which
are rated by each of the Rating Agencies (or, if not rated by Fitch, Inc.
(“Fitch”), otherwise acceptable to Fitch, as confirmed in writing that
such account would not, in and of itself, result in a downgrade, qualification
or withdrawal of the then current ratings assigned to any certificates issued
in connection with a Securitization) in its highest rating category at all
times (or, in the case of the Basic Carrying Costs Escrow Account, the long
term unsecured debt obligations of which are rated at least “AA” (or its
equivalent)) by each of the Rating Agencies (or, if not rated by Fitch,
otherwise acceptable to Fitch, as confirmed in writing that such account would
not, in and of itself, result in a downgrade, qualification or withdrawal of
the then current ratings assigned to any certificates issued in connection with
a Securitization) or, if the funds in such account are to be held in such account
for less than thirty (30) days, the short term obligations of which are rated
by each of the Rating Agencies (or, if not rated by Fitch, otherwise acceptable
to Fitch, as confirmed in writing that such account would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then current
ratings assigned to any certificates issued in connection with a
Securitization) in its highest rating category at all times or (b) a
segregated trust account or accounts maintained with a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution is
subject to regulations substantially similar to 12 C.F.R. § 9.10(b),
having in either case a combined capital and surplus of at least $100,000,000
and subject to supervision or examination by federal and state authority, or
otherwise acceptable (as evidenced by a written confirmation from each Rating
Agency that such account would not, in and of itself, cause a downgrade,
qualification or withdrawal of the then current ratings assigned to any
certificates issued in connection with a Securitization) to each Rating Agency,
which may be an account maintained by Lender or its agents.  Eligible Accounts may bear interest.  The title of each Eligible Account shall
indicate that the funds held therein are held in trust for the uses and
purposes set forth herein.


 


13





















 


“Engineer”
shall have the meaning set forth in Section 3.04(b)(i) hereof.


 


“Engineering
Escrow Account” shall mean an Escrow Account established and maintained
pursuant to Section 5.12 hereof relating to payments for any Required
Engineering Work.


 


“Environmental
Problem” shall mean any of the following:


 


(a)                                  the
presence of any Hazardous Material on, in, under, or above all or any portion
of the Property;


 


(b)                                 the
release or threatened release of any Hazardous Material from or onto the
Property;


 


(c)                                  the
violation or threatened violation of any Environmental Statute with respect to
the Property; or


 


(d)                                 the
failure to obtain or to abide by the terms or conditions of any permit or
approval required under any Environmental Statute with respect to the Property.


 


A condition
described above shall be an Environmental Problem regardless of whether or not
any Governmental Authority has taken any action in connection with the
condition and regardless of whether that condition was in existence on or
before the date hereof.


 


“Environmental
Report” shall mean the environmental audit report for the Property and any
supplements or updates thereto, previously delivered to Lender in connection
with the Loan.


 


“Environmental
Statute” shall mean any federal, state or local statute, ordinance, rule or
regulation, any judicial or administrative order (whether or not on consent) or
judgment applicable to Borrower or the Property including, without limitation,
any judgment or settlement based on common law theories, and any provisions or
condition of any permit, license or other authorization binding on Borrower
relating to (a) the protection of the environment, the safety and health
of persons (including employees) or the public welfare from actual or potential
exposure (or effects of exposure) to any actual or potential release,
discharge, disposal or emission (whether past or present) of any Hazardous
Materials or (b) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous Materials,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (“CERCLA”), as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §9601 et
seq., the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976, as amended by the Solid and Hazardous Waste
Amendments of 1984, 42 U.S.C. §6901 et  seq., the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
§1251 et  seq., the Toxic Substances Control Act of 1976, 15
U.S.C. §2601 et  seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. §1101 et  seq., the Clean Air
Act of 1966, as amended, 42 U.S.C. §7401 et  seq., the National
Environmental Policy Act of 1975, 42 U.S.C. §4321, the Rivers and Harbors Act
of 1899, 33 U.S.C. §401 et  seq., the


 


14





















 


Endangered Species Act of 1973, as amended,
16 U.S.C. §1531 et  seq., the Occupational Safety and Health Act
of 1970, as amended, 29 U.S.C. §651 et  seq., and the Safe
Drinking Water Act of 1974, as amended, 42 U.S.C. §300(f) et  seq.,
and all rules, regulations and guidance documents promulgated or published
thereunder.


 


“Equipment”
shall have the meaning set forth in granting clause (d) of this Security
Instrument.


 


“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended and
as may be further amended from time to time, and any successor statutes
thereto, and the regulations promulgated thereunder.


 


“ERISA
Affiliate” shall mean any corporation or trade or business that is a member
of any group of organizations (a) described in Section 414(b) or
(c) of the Code of which Borrower or Guarantor is a member and (b) solely
for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which
Borrower or Guarantor is a member.


 


“Escrow
Account” shall mean each of the Engineering Escrow Account, the Basic
Carrying Costs Escrow Account, the SAOT Escrow Account, the Recurring
Replacement Reserve Escrow Account, the Mez Payment Escrow Account, the
Operation and Maintenance Expense Escrow Account, the Curtailment Reserve
Escrow Account and the Capex Trap Escrow Account, each of which shall be an
Eligible Account or book entry sub-account of an Eligible Account.


 


“Event of
Default” shall have the meaning set forth in Section 13.01 hereof.


 


“Extraordinary Expense” shall mean (a) a
material extraordinary operating expense or capital expense not set forth in
the Approved Annual Budget or allotted for in the Recurring Replacement Reserve
Sub-Account and (b) the excess of Operating Expenses over those set forth
in the Approved Annual Budget for Interest Accrual Periods prior to the
Interest Accrual Period in which such determination is being made resulting
from revenues which have increased over those set forth in the Approved Annual
Budget for which, with respect to items set forth in this clause (b) no
Lender approval is required.


 


“Exit Fee” shall have the meaning set
forth in Section 15.02 hereof.


 


“First
Interest Accrual Period” shall have the meaning set forth in the Note.


 


“Fiscal
Year” shall mean the twelve (12) month period commencing on January 1
and ending on December 31 during each year of the term of this Security
Instrument, or such other fiscal year of Borrower as Borrower may select from
time to time with the prior written consent of Lender, which consent shall not
be unreasonably withheld.


 


“Fixtures”
shall have the meaning set forth in granting clause (d) of this Security
Instrument.


 


15





















 


“Food and
Beverage Lessee/Operators” shall have the meaning set forth on Exhibit I attached hereto and made a
part hereof.


 


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


 


“General
Partner” shall mean, if Borrower or an SPE Pledgor is a partnership, each
general partner of Borrower or SPE Pledgor, as applicable, and, if Borrower or
an SPE Pledgor is a limited liability company, each managing member of Borrower
or SPE Pledgor and in each case, if applicable, each general partner or
managing member of such general partner or managing member.  In the event that Borrower, an SPE Pledgor or
any General Partner is a single member limited liability company, the term “General
Partner” shall include such single member.


 


“Governmental
Authority” shall mean, with respect to any Person, any federal or State
government or other political subdivision thereof and any entity, including any
regulatory or administrative authority or court, exercising executive,
legislative, judicial, regulatory or administrative or quasi-administrative
functions of or pertaining to government, and any arbitration board or
tribunal, in each case having jurisdiction over such applicable Person or such
Person’s property and any stock exchange on which shares of capital stock of
such Person are listed or admitted for trading.


 


“Guaranteed
Loan Borrowers” shall mean Henry Hudson Holdings LLC, a Delaware limited
liability company, Morgans Holdings LLC, a Delaware limited liability company,
Royalton, LLC, a Delaware limited liability company, and Mondrian Holdings LLC,
a Delaware limited liability company.


 


“Guaranteed
Loan” shall have the meaning set forth in the Recitals hereto.


 


“Guaranteed
Note”shall have the meaning set forth in the Recitals hereto.


 


“Guarantor”
shall mean Morgans Hotel Group LLC, a Delaware limited liability company, and
each SPE Pledgor.


 


“Hazardous
Material” shall mean any flammable, explosive or radioactive materials,
hazardous materials or wastes, hazardous or toxic substances, pollutants or
related materials, asbestos or any material containing asbestos, molds, spores
and fungus which may pose a risk to human health or the environment or any
other substance or material as defined in or regulated by any Environmental
Statutes.


 


“Impositions”
shall mean all taxes (including, without limitation, all real estate, ad
valorem, assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not commenced or completed within the term of this
Security Instrument), ground rents, condominium common charges, excises,
levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each


 


16





















 


case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Property and/or any Rent (including all interest and penalties thereon), which
at any time prior to, during or in respect of the term hereof may be assessed
or imposed on or in respect of or be a lien upon (a) Borrower (including,
without limitation, all franchise, single business or other taxes imposed on
Borrower for the privilege of doing business in the jurisdiction in which the
Property or any other collateral delivered or pledged to Lender in connection
with the Loan is located) or Lender or (b) the Property or any part
thereof or any Rents therefrom or any estate, right, title or interest therein.  Impositions shall not include any taxes
imposed on Lender’s income and franchise taxes imposed on Lender by the law or
regulation of any Governmental Authority.


 


“Improvements”
shall have the meaning set forth in granting clause (b) of this Security
Instrument.


 


“Indemnified
Parties” shall have the meaning set forth in Section 12.01 hereof.


 


“Independent”
shall mean, when used with respect to any Person, a Person who (a) is in
fact independent, (b) does not have any direct financial interest or any
material indirect financial interest in Borrower, or in any Affiliate of
Borrower or any constituent partner, shareholder, member or beneficiary of
Borrower, (c) is not connected with Borrower or any Affiliate of Borrower
or any constituent partner, shareholder, member or beneficiary of Borrower as
an officer, employee, promoter, underwriter, trustee, partner, director or
person performing similar functions and (d) is not a member of the
immediate family of a Person defined in (b) or (c) above.  Whenever it is herein provided that any
Independent Person’s opinion or certificate shall be provided, such opinion or
certificate shall state that the Person executing the same has read this
definition and is Independent within the meaning hereof.


 


“Independent Director” shall have the
meaning set forth in Section 2.02(g)(xvi) hereof.


 


“Initial Allocated Loan Amount” shall
mean the portion of the Loan Amount allocated to each Cross-collateralized
Property as set forth on Exhibit F annexed hereto and made a part hereof.


 


“Initial
Engineering Deposit” shall equal the amount set forth on Exhibit B attached hereto and made a
part hereof.


 


“Institutional
Lender” shall mean any of the following Persons:  (a) any bank, savings and loan
association, savings institution, trust company or national banking
association, acting for its own account or in a fiduciary capacity, (b) any
charitable foundation, (c) any insurance company or pension and/or annuity
company, (d) any fraternal benefit society, (e) any pension,
retirement or profit sharing trust or fund within the meaning of Title I
of ERISA or for which any bank, trust company, national banking association or
investment adviser registered under the Investment Advisers Act of 1940, as
amended, is acting as trustee or agent, (f) any investment company or
business development company, as defined in the Investment Company Act of 1940,
as amended, (g) any small business investment company licensed under the
Small Business Investment Act of 1958, as amended, (h) any broker or
dealer registered under the Securities


 


17





















 


Exchange Act of 1934, as amended, or any
investment adviser registered under the Investment Adviser Act of 1940, as
amended, (i) any government, any public employees’ pension or retirement
system, or any other government agency supervising the investment of public
funds, or (j) any other entity all of the equity owners of which are
Institutional Lenders; provided that each of said Persons shall have net assets
in excess of $1,000,000,000 and a net worth in excess of $500,000,000, be in
the business of making commercial mortgage loans, secured by properties of like
type, size and value as the Property and have a long term credit rating which
is not less than “BBB-” (or its equivalent) from each Rating Agency.


 


“Insurance
Proceeds” shall mean all of the proceeds received under the insurance
policies required to be maintained by Borrower pursuant to Article III
hereof.


 


“Insurance
Requirements” shall mean all terms of any insurance policy required by this
Security Instrument, all requirements of the issuer of any such policy, and all
regulations and then current standards applicable to or affecting the Property
or any use or condition thereof, which may, at any time, be recommended by the
Board of Fire Underwriters, if any, having jurisdiction over the Property, or
such other Person exercising similar functions.


 


“Interest
Accrual Period” shall have the meaning set forth in the Note.


 


“Interest
Shortfall” shall mean any shortfall in the amount of interest required to
be paid with respect to the Loan Amount on any Payment Date.


 


“Inventory”
shall have the meaning as such term is defined in the Uniform Commercial Code
applicable in the State in which the Property is located, including, without
limitation, provisions in storerooms, refrigerators, pantries and kitchens,
beverages in wine cellars and bars, other merchandise for sale, fuel,
mechanical supplies, stationery and other supplies and similar items, as
defined in the Uniform System of Accounts.


 


“IPO”
shall mean a bona fide initial public offering of stock in a corporation (the “Public
Company”) formed under the laws of a state of the United States of America (a) which
is listed on a national stock exchange or quoted on the NASDAQ Stock Market, (b) the
underwriter of which is one or more nationally recognized investment banks, (c) the
assets of which include all of the Cross-collateralized Properties (unless one
of the Cross-collateralized Properties is released pursuant to the terms
hereof), (d) with respect to which (i) no one Person or group of
Affiliated Persons purchases in the initial public offering more than twenty
percent (20%) of the Public Company (whether directly or indirectly or through
an Affiliate and/or family members) and (ii) W. Edward Scheetz or David
Hamamoto remain actively involved in the management of the operations of
Borrower, having the title and responsibilities of a chief executive officer,
president and/or chief financial officer and a seat on the board of directors
of the Public Company and (e) which raises not less than $50,000,000.


 


“Late
Charge” shall have the meaning set forth in Section 13.09 hereof.


 


“Leases”
shall have the meaning set forth in granting clause (f) of this Security
Instrument.


 


18





















 


“Legal
Requirement” shall mean as to any Person, the certificate of incorporation,
by-laws, certificate of limited partnership, agreement of limited partnership
or other organization or governing documents of such Person, and any law,
statute, order, ordinance, judgement, decree, injunction, treaty, rule or
regulation (including, without limitation, Environmental Statutes, Development
Laws and Use Requirements) or determination of an arbitrator or a court or
other Governmental Authority and all covenants, agreements, restrictions and
encumbrances contained in any instruments, in each case applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.


 


“Lender”
shall mean the Lender named herein and its successors or assigns.


 


“LIBOR
Margin” shall mean the Class A Margin with respect to the Class A
Portion and the Class B Margin with respect to the Class B Portion.


 


“LIBOR Rate”
shall have the meaning set forth in the Note.


 


“Loan” shall have the meaning set
forth in the Recitals hereto.


 


“Loan Amount” shall have the meaning
set forth in the Recitals hereto.


 


“Loan
Documents” shall mean this Security Instrument, the Note, the Assignment,
and any and all other agreements, instruments, certificates or documents executed
and delivered by Borrower, any of the Cross-collateralized Borrowers or any
Affiliate of Borrower in connection with the Loan, together with any
supplements, amendments, modifications or extensions thereof.


 


“Loan Year”
shall mean each 365 day period (or 366 day period if the month of February in
a leap year is included) commencing on the first day of the month following the
Closing Date (provided, however, that the first Loan Year shall also include
the period from the Closing Date to the end of the month in which the Closing
Date occurs).


 


“Loss
Proceeds” shall mean, collectively, all Insurance Proceeds and all
Condemnation Proceeds.


 


“Major Contracts”
shall mean all Space Leases in excess of 2,000 square feet, and all Leases,
consulting agreements, joint venture agreements or other contracts between
Borrower and a third party operator (including joint ventures in which Borrower
has an interest) relating to food and beverage operations at the Property.


 


“Major
Space Lease” shall mean any Space Lease of a tenant or Affiliate of such
tenant where such tenant or such Affiliate leases, in the aggregate, five
percent (5%) or more of the Total GLA.


 


“Management
Agreement” shall have the meaning set forth in Section 7.02(e) hereof.


 


“Manager”
shall mean Morgans Hotel Group Management LLC, a Delaware limited liability
company or any other Person which manages the Property on behalf of Borrower.


 


19





















 


“Manager
Certification” shall have the meaning set forth in Section 2.09(d) hereof.


 


“Manager
Control Notice” shall have the meaning set forth in Section 7.02(e) hereof.


 


“Material
Adverse Effect” shall mean any event or condition that has a material
adverse effect on (a) the Property, (b) the business, profits,
management, operations or condition (financial or otherwise) of Borrower, (c) the
enforceability, validity, perfection or priority of the lien of any Loan Document
or (d) the ability of Borrower to perform any obligations under any Loan
Document.


 


“Maturity”,
when used with respect to the Note, shall mean the Maturity Date set forth in
the Note or such other date pursuant to the Note on which the final payment of
principal, and premium, if any, on the Note becomes due and payable as therein
or herein provided, whether at Stated Maturity or by declaration of
acceleration, or otherwise.


 


“Maturity
Date” shall mean the Maturity Date set forth in the Note, as the same may
be extended from time to time pursuant to the terms of the Note.


 


“Mez Loan”
shall mean certain mezzanine loans from Wachovia Bank, National Association to
MMRDH Senior Mezz Holding Company LLC, a Delaware limited liability company,
MMRDH Intermediate Mezz Holding Company LLC, a Delaware limited liability
company, and MMRDH Junior Mezz Holding Company LLC, a Delaware limited
liability company, evidenced by certain promissory notes of even date herewith
in the aggregate original principal sum of $106,250,000.00 which are secured by
first priority pledges of the direct or indirect ownership interest of such
Persons in Borrower.


 


“Mez
Payment Escrow Account” shall mean the Escrow Account maintained pursuant
to Section 5.14 hereof.


 


“Mez
Payment Amount” shall mean, as of any Payment Date, the amount of principal
and interest then due and payable pursuant to the terms of the Mez Loan.


 


“Mez
Payment Sub-Account” shall mean the Sub-Account of the Central Account
established pursuant to Section 5.02 hereof into which the Mez Payment
Amount shall be deposited.


 


“Multiemployer
Plan” shall mean a multiemployer plan defined as such in Section 3(37)
of ERISA to which contributions have been, or were required to have been, made
by Borrower, Guarantor or any ERISA Affiliate.


 


“Net
Capital Expenditures” shall
mean for any period the amount by which Capital Expenditures during such period
exceeds reimbursements for such items during such period from the Engineering
Escrow Account or any other Account established pursuant to the Loan Documents.


 


“Net
Operating Income” shall mean in each Fiscal Year or portion thereof during
the term hereof, Operating Income less Operating Expenses.


 


20





















 


“Net
Proceeds” shall mean the excess of (a)(i) the purchase price (at
foreclosure or otherwise) actually received by Lender with respect to the
Property as a result of the exercise by Lender of its rights, powers,
privileges and other remedies after the occurrence of an Event of Default, or (ii) in
the event that Lender (or Lender’s nominee) is the purchaser at foreclosure by
credit bid, then the amount of such credit bid, in either case, over (b) all
costs and expenses, including, without limitation, all attorneys’ fees and
disbursements and any brokerage fees, if applicable, incurred by Lender in
connection with the exercise of such remedies, including the sale of such
Property after a foreclosure against the Property.


 


“Note”
shall have the meaning set forth in the Recitals hereto.


 


“O&M Deposit”
shall have the meaning set forth in Section 5.11 hereof.


 


“O&M
Operative Period” shall mean the period of time commencing upon the
determination by Lender that the Debt Service Coverage  (tested quarterly except during the
continuance of an O&M Operative Period, in which event the Debt Service
Coverage shall be tested monthly and shall be calculated based upon information
contained in the reports furnished to Lender pursuant to Section 2.09
hereof) is less than the Debt Service Coverage set forth on Exhibit H attached hereto and made a
part hereof and terminating on the Payment Date next succeeding the date upon
which Lender determines that the Debt Service Coverage for two (2) consecutive
calendar quarters is equal to or greater than the Debt Service Coverage set
forth on Exhibit H.  In determining whether an O&M Operative
Period exists, the calculation of Debt Service Coverage shall be made assuming
the Principal Amount was prepaid in an amount equal to the O&M Deposit.


 


“O&M
Program” shall have the meaning set forth in Section 16.03 hereof.


 


“OFAC List”
means the list of specially designated nationals and blocked persons subject to
financial sanctions that is maintained by the U.S. Treasury Department, Office
of Foreign Assets Control and accessible through the internet website www.treas.gov/ofac/t11sdn.pdf.


 


“Officer’s
Certificate” shall mean a certificate delivered to Lender by Borrower which
is signed on behalf of Borrower by an authorized representative of Borrower
which states that the items set forth in such certificate are true, accurate
and complete in all respects.


 


“Operating
Expenses” shall mean, in each Fiscal Year or portion thereof during the
term hereof, all expenses directly attributable to the operation, repair and/or
maintenance of the Property including, without limitation, (a) Impositions,
(b) insurance premiums, (c) management fees, whether or not actually
paid, equal to the greater of the actual management fees and four percent (4%) of
total revenues of the Property, (d) costs attributable to the operation,
repair and maintenance of the systems for heating, ventilating and air
conditioning the Improvements and actually paid for by Borrower and (e) with
respect to the bar premises at the Hudson Hotel only and the food and beverage
premises at the Royalton Hotel only, consulting fees which are to be paid to
third party consultants that are not Affiliates of Borrower, any SPE Pledgor,
Manager or Guarantor and are employed by Manager, 58th Street Bar
Company LLC and/or 43rd Restaurant LLC and which are actually paid
over to such consultants.  Operating
Expenses shall not include


 


21





















 


interest, principal and premium, if any, due
under the Note or otherwise in connection with the Debt, income taxes,
extraordinary capital improvement costs, any non-cash charge or expense such as
depreciation or amortization or any item of expense otherwise includable in
Operating Expenses which is paid directly by any tenant except real estate
taxes paid directly to any taxing authority by any tenant.


 


“Operating
Income” shall mean, in each Fiscal Year or portion thereof during the term
hereof, all revenue derived by Borrower arising from the Property including,
without limitation, room revenues, vending machines revenues, beverage
revenues, food revenues, Borrower’s pro rata share of net profits of Food and
Beverage Lessee/Operators, and packaging revenues, rental revenues (whether
denominated as basic rent, additional rent, escalation payments, electrical
payments or otherwise) and other fees and charges payable pursuant to Leases or
otherwise in connection with the Property, and business interruption, rent or
other similar insurance proceeds. 
Operating Income shall not include (a) Insurance Proceeds (other
than proceeds of rent, business interruption or other similar insurance
allocable to the applicable period) and Condemnation Proceeds (other than
Condemnation Proceeds arising from a temporary taking or the use and occupancy
of all or part of the applicable Property allocable to the applicable period),
or interest accrued on such Condemnation Proceeds, (b) proceeds of any
financing, (c) proceeds of any sale, exchange or transfer of the Property
or any part thereof or interest therein, (d) capital contributions or
loans to Borrower or an Affiliate of Borrower, (e) any item of income
otherwise includable in Operating Income but paid directly by any tenant to a
Person other than Borrower except for real estate taxes paid directly to any
taxing authority by any tenant, (f) any other material extraordinary,
non-recurring revenues which for the purposes hereof shall be deemed not to
include room revenues, (g) Rent paid by or on behalf of any lessee under a
Space Lease which is the subject of any proceeding or action relating to its
bankruptcy, reorganization or other arrangement pursuant to the Bankruptcy Code
or any similar federal or state law or which has been adjudicated a bankrupt or
insolvent unless such Space Lease has been affirmed by the trustee in such
proceeding or action, (h) Rent paid by or on behalf of any lessee under a
Lease the demised premises of which are not occupied either by such lessee or
by a sublessee thereof;  (i) Rent
paid by or on behalf of any lessee under a Lease in whole or partial consideration
for the termination of any Lease, or (j) sales tax rebates from any
Governmental Authority.


 


“Operation
and Maintenance Expense Escrow Account” shall mean the Escrow Account
maintained pursuant to Section 5.09 hereof relating to the payment of
Operating Expenses (exclusive of Basic Carrying Costs).


 


“Operation
and Maintenance Expense Sub-Account” shall mean the Sub-Account of the
Central Account established pursuant to Section 5.02 hereof into which sums
allocated for the payment of Cash Expenses, Net Capital Expenditures and
approved Extraordinary Expenses shall be deposited.


 


“Pad Owners”
shall mean any owner of any fee interest in property contiguous to or
surrounded by the Property who has entered into or is subject to a reciprocal
easement agreement or other agreement or agreements with Borrower either (a) in
connection with an existing or potential improvement on such property or (b) relating
to or affecting the Property.


 


22





















 


“Payment
Date” shall have the meaning set forth in the Note.


 


“Payment
Guaranty” shall have the meaning set forth in the Recitals hereto.


 


“PBGC”
shall mean the Pension Benefit Guaranty Corporation established under ERISA, or
any successor thereto.


 


“Permitted
Encumbrances” shall have the meaning set forth in Section 2.05(a) hereof.


 


“Permitted
Liens” shall mean (a) the liens created by the Loan Documents, (b) liens,
if any, for Impositions or other charges not yet due and payable and not
delinquent, (c) any workers’, mechanics’ or other similar liens on the
Property provided that any such lien is bonded or discharged within thirty (30)
days after Borrower first receives notice of such lien, (d) such other
title and survey exceptions as Lender approves in writing in Lender’s discretion
(e) the liens of any Mez Loan, (f) Space Leases entered into in
accordance with the terms hereof and (g) the Lien created by the Pledge
and Security Agreement dated as of August 4, 2004 made by, inter alia,
NorthStar Hospitality LLC, a Delaware limited liability company in favor of
Allianz Risk Transfer, pursuant to which NorthStar Hospitality LLC pledged a
49.9% membership interest in Morgans Hotel Group LLC (“MHG”).


 


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


 


“Plan”
shall mean an employee benefit or other plan established or maintained by
Borrower, Guarantor or any ERISA Affiliate during the five-year period ended
prior to the date of this Security Instrument or to which Borrower, Guarantor
or any ERISA Affiliate makes, is obligated to make or has, within the five year
period ended prior to the date of this Security Instrument, been required to
make contributions (whether or not covered by Title IV of ERISA or Section 302
of ERISA or Section 401(a) or 412 of the Code), other than a
Multiemployer Plan.


 


“Premises”
shall have the meaning set forth in granting clause (a) of this Security
Instrument.


 


“Previous
Guaranty” shall have the meaning set forth in the Recitals hereto.


 


“Previous
Note” shall have the meaning set forth in the Recitals hereto.


 


“Principal
Amount” shall mean the Loan Amount as such amount may be reduced from time
to time pursuant to the terms of this Security Instrument, the Note or the
other Loan Documents.


 


“Principal
Payments” shall mean all payments of principal made pursuant to the terms
of the Note.


 


23





















 


“Prohibited
Person” means any Person identified on the OFAC List or any other Person or
foreign country or agency thereof with whom a U.S. Person may not conduct
business or transactions by prohibition of Federal law or Executive Order of
the President of the United States of America.


 


“Property”
shall have the meaning set forth in the granting clauses of this Security
Instrument.


 


“Property
Agreements” shall mean all agreements, grants of easements and/or
rights-of-way, reciprocal easement agreements, permits, declarations of
covenants, conditions and restrictions, disposition and development agreements,
planned unit development agreements, parking agreements, party wall agreements
or other instruments affecting the Property, including, without limitation any
agreements with Pad Owners, but not including any brokerage agreements,
management agreements, service contracts, Space Leases or the Loan Documents.


 


“Rate Cap
Agreement” shall mean that certain interest rate protection agreement
(together with the confirmation and schedules relating thereto) with a notional
amount which shall not at any time be less than the Principal Amount and a
LIBOR Rate strike price equal to four and one-quarter percent (4.25%) entered
into by Borrower in accordance with the terms hereof or of the other Loan
Documents and any similar interest rate cap or collar agreements subsequently
entered into in replacement or substitution therefor by Borrower with respect
to the Loan, including, without limitation, the Replacement Rate Cap Agreement.


 


“Rating
Agency” shall mean each of Standard & Poor’s Ratings Services, Inc.,
a division of The McGraw-Hill Company, Inc. (“Standard & Poor’s”),
Fitch, Inc., and Moody’s Investors Service, Inc. (“Moody’s”), collectively,
and any successor to any of them; provided, however, that at any time after a
Securitization, “Rating Agency” shall mean those of the foregoing rating
agencies that from time to time rate the securities issued in connection with
such Securitization.


 


“Realty”
shall have the meaning set forth in Section 2.05(b) hereof.


 


“Recurring
Replacement Expenditures” shall mean Capital Expenditures performed at the
Property from time to time which are set forth in the Approved Annual Budget.


 


“Recurring
Replacement Reserve Monthly Installment” shall mean the amount per month
set forth on Exhibit B
attached hereto and made a part hereof (the “Initial Recurring Installments”)  until the end of the first (1st) Loan Year
and an amount per month in each subsequent Loan Year or portion thereof
occurring prior to the Maturity Date equal to four percent (4%) of the total
revenues of the Property divided by twelve (12).


 


“Recurring
Replacement Reserve Escrow Account” shall mean the Escrow Account
maintained pursuant to Section 5.08 hereof relating to the payment of
Recurring Replacement Expenditures.


 


24





















 


“Recurring
Replacement Reserve Sub-Account” shall mean the Sub-Account of the Central
Account established pursuant to Section 5.02 hereof into which the Recurring
Replacement Reserve Monthly Installment shall be deposited.


 


“Release”
shall have the meaning set forth in Section 15.03 hereof.


 


“Release
Price” shall mean an amount equal to (i) one hundred fifteen percent
(115%) of the Allocated Loan Amount or (ii) with respect to the Delano
Hotel only one hundred ten percent (110%) of the Allocated Loan Amount.


 


“Rent
Account” shall mean one or more Eligible Account(s) maintained in a bank
acceptable to Lender in the joint names of Lender and Borrower.


 


“Rents”
shall have the meaning set forth in granting clause (f) of this Security
Instrument.


 


“Rent Roll”
shall have the meaning set forth in Section 2.05(o) hereof.


 


“Replacement
Expenditures” shall mean Capital Expenditures performed at the Property
from time to time which are not set forth in the Approved Annual Budget.


 


“Replacement
Rate Cap Agreement” shall have the meaning set forth in Section 5.10
hereof.


 


“Required
Debt Service Coverage” shall mean a Debt Service Coverage of not less than
1.2:1.


 


“Required
Debt Service Payment” shall mean, as of any Payment Date, (a) the
amount of interest and principal then due and payable pursuant to the Note,
together with any other sums due thereunder, including, without limitation, any
prepayments required to be made or for which notice has been given under this
Security Instrument, Default Rate Interest and premium, if any, paid in
accordance therewith plus (b) pursuant to Section 5.04, reasonable
out-of-pocket fees incurred by Lender in connection with its administration and
servicing of the Central Account.


 


“Required
Engineering Work” shall mean the immediate engineering and/or environmental
remediation work set forth on Exhibit D
attached hereto and made a part hereof.


 


“Retention
Amount” shall have the meaning set forth in Section 3.04(b)(vii) hereof.


 


“RevPAR”
shall mean the average revenues per available room per day.


 


“RevPAR
Yield Index” shall mean the percentage amount determined by dividing the
RevPAR of the Property by the RevPAR of the Property’s Competitive Set as
determined by Smith Travel Research (“STR”) or if STR is no longer
publishing, a successor reasonably acceptable to Lender.


 


“Sale”
shall have the meaning set forth in Section 9.04 hereof.


 


25





















 


“SAOT
Deposit” shall mean the amount required to be deposited into the SAOT
Sub-Account pursuant to Section 5.05 hereof which is equal to the SAOT
Expenditures for the calendar month immediately preceding the calendar month in
which such deposit is made.


 


“SAOT
Escrow Account” shall mean the Escrow Account maintained pursuant to Section 5.07
hereof.


 


“SAOT
Expenditures” shall mean sales, use or occupancy or other taxes due to any
Governmental Authority imposed on charges for the use of guest rooms at the
Property.


 


“SAOT
Sub-Account” shall mean the Sub-Account of the Central Account established
pursuant to Section 5.02 hereof into which the SAOT Deposit shall be
deposited.


 


“Second
Restated Mortgage” shall have the meaning set forth in the Recitals hereto.


 


“Securities
Act” shall mean the Securities Act of 1933, as the same shall be amended
from time to time.


 


“Securitization”
shall mean a public or private offering of securities by Lender or any of its
Affiliates or their respective successors and assigns which are collateralized,
in whole or in part, by this Security Instrument.


 


“Security
Deposit Account” shall have the meaning set forth in Section 5.01
hereof.


 


“Security
Instrument” shall mean this Security Instrument as originally executed or
as it may hereafter from time to time be supplemented, amended, modified or
extended by one or more indentures supplemental hereto.


 


“Servicer”
shall have the meaning set forth in Section 5.04 hereof.


 


“Single
Purpose Entity” shall mean a corporation, partnership, joint venture,
limited liability company, trust or unincorporated association, which is formed
or organized solely for the purpose of holding, directly, an ownership interest
in the Property or, with respect to SPE Pledgor, holding an ownership interest
in a Food and Beverage Lessee/Operator or, with respect to General Partner,
holding an ownership interest in and managing a Person which holds an ownership
interest in the Property, does not engage in any business unrelated to the
Property, does not have any assets other than those related to its interest in
the Property or any indebtedness other than as permitted by this Security
Instrument or the other Loan Documents, has its own separate books and records
and has its own accounts, in each case which are separate and apart from the
books and records and accounts of any other Person, holds itself out as being a
Person separate and apart from any other Person and which otherwise satisfies
the criteria of the Rating Agency, as in effect on the Closing Date, for a
special-purpose bankruptcy-remote entity.


 


“Solvent”
shall mean, as to any Person, that (a) the sum of the assets of such
Person, at a fair valuation, exceeds its liabilities, including contingent
liabilities, (b) such Person has sufficient capital with which to conduct
its business as presently conducted and as proposed to be


 


26





















 


conducted and (c) such Person has not
incurred debts, and does not intend to incur debts, beyond its ability to pay
such debts as they mature.  For purposes
of this definition, “debt” means any liability on a claim, and “claim”
means (a) a right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, or (b) a right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured.  With respect to any such
contingent liabilities, such liabilities shall be computed in accordance with
GAAP at the amount which, in light of all the facts and circumstances existing
at the time, represents the amount which can reasonably be expected to become
an actual or matured liability.


 


“Space
Leases” shall mean any Lease or sublease thereunder (including, without
limitation, any Major Space Lease) or any other agreement providing for the use
and occupancy of a portion of the Property as the same may be amended, renewed
or supplemented.


 


“SPE
Pledgor” shall have the meaning set forth on Exhibit I attached hereto and made a part hereof.


 


“Spread
Maintenance Premium” shall mean (a) the amount of the prepayment,
multiplied by (b) the LIBOR Margin multiplied by (c) a fraction, the
numerator of which is the number of full and partial months from such
prepayment date through the end of the first (1st) Loan Year and the
denominator of which is 12; provided, however, if the Loan is repaid in whole
or in part as a result of an IPO at any time prior to the Payment Date
occurring in July, 2006, the Spread Maintenance Premium with respect to the Class A
Portion of the Loan that is prepaid shall be calculated based on the above
formula, and the Spread Maintenance Premium with respect to the Class B
Portion being prepaid shall be calculated based on (a) the amount of the
prepayment relating to the Class B Portion multiplied by (b) the Class B
Margin multiplied by (c) a fraction the numerator of which is the number
of full and partial months from said prepayment date through the Payment Date
occurring in January, 2006, and the denominator of which is 12.


 


“State”
shall mean any of the states which are members of the United States of America.


 


“Stated
Maturity” when used with respect to the Note or any installment of interest
and/or principal payment thereunder, shall mean the date specified in the Note
as the fixed date on which a payment of all or any portion of principal and/or
interest is due and payable, as such date may be extended from time to time
pursuant to the terms of the Note.


 


“Sub-Accounts”
shall have the meaning set forth in Section 5.02 hereof.


 


“Substantial
Casualty” shall have the meaning set forth in Section 3.04(a)(iv) hereof.


 


“Taking”
shall mean a condemnation or taking pursuant to the lawful exercise of the
power of eminent domain.


 


 


27





















 


 


“Third
Party Disbursements” shall mean to the extent actually deposited in the
Central Account, (a) that portion of Rents collected by Borrower or
Manager, on behalf of Food and Beverage Lessee/Operators consisting of the sum
of (i) operating revenues and sales taxes (to the extent not otherwise
reserved for in the SAOT Sub-Account or SAOT Escrow Account) of such Food and
Beverage Lessee/Operators plus (ii) distributions by such Food and
Beverage Lessee/Operators to its members other than distributions to members
who are Affiliates of Borrower, (b) Rents and/or deposits with respect to
gift shop, laundry and parking facilities and movie rentals, which Borrower is
contractually obligated to collect on behalf of third parties that are not
Affiliates of Borrower, SPE Pledgor, Manager or Guarantor which are to be, and
actually have been, paid to such third parties, and (c) gratuities or
service charges or other similar receipts which are to be paid to any employees
of Manager and/or the Food and Beverage Lessee/Operators or Persons occupying
similar positions for performing similar duties and which are actually paid to
such Persons.


 


“Total GLA”
shall mean the total gross leasable area of the Property, including all Space
Leases.


 


“Transfer”
shall mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Property; (b) if Borrower
or, if Borrower is a partnership, any General Partner, is a corporation, in the
stock of Borrower or any General Partner; (c) in Borrower (or any trust of
which Borrower is a trustee); or (d) if Borrower is a limited or general
partnership, joint venture, limited liability company, trust, nominee trust,
tenancy in common or other unincorporated form of business association or form
of ownership interest, in any Person having a legal or beneficial ownership in
Borrower, excluding any legal or beneficial interest in any constituent limited
partner, if Borrower is a limited partnership, or in any non-managing member,
if Borrower is a limited liability company, unless such interest would, or
together with all other direct or indirect interests in Borrower which were
previously transferred, aggregate 49% or more of the partnership or membership,
as applicable, interest in Borrower or would result in any Person who, as of
the Closing Date, did not own, directly or indirectly, 49% or more of the
partnership or membership, as applicable, interest in Borrower, owning,
directly or indirectly, 49% or more of the partnership or membership, as
applicable, interest in Borrower and excluding any legal or beneficial interest
in any General Partner unless such interest would, or together with all other
direct or indirect interest in the General Partner which were previously
transferred, aggregate 49% or more of the partnership or membership, as
applicable, interest in the General Partner (or result in a change in control
of the management of the General Partner from the individuals exercising such
control immediately prior to the conveyance or other disposition of such legal
or beneficial interest) and shall also include, without limitation to the
foregoing, the following:  an installment
sales agreement wherein Borrower agrees to sell the Property or any part
thereof or any interest therein for a price to be paid in installments; an
agreement by Borrower leasing all or substantially all of the Property to one
or more Persons pursuant to a single or related transactions, or a sale,
assignment or other transfer of, or the grant of a security interest in,
Borrower’s right, title and interest in and to any Leases or any Rent; any
instrument subjecting the Property to a condominium regime or


 


28





















 


transferring ownership to a cooperative
corporation; and the dissolution or termination of Borrower or the merger or
consolidation of Borrower with any other Person.  Notwithstanding the foregoing or anything to
the contrary contained in any other Loan Document, “Transfer” shall not include
(a) any sale, transfer, conveyance, encumbrance or assignment of any
direct or indirect legal or beneficial ownership interest in Borrower,
provided, in each case, that no Person or group of Affiliated Persons which did
not, as of the Closing Date, own 49% or more of Borrower, obtains a direct or
indirect ownership interest in Borrower of more than 49% or obtains, directly
or indirectly, Control of Borrower (other than a Person to whom Control is
attributed under the Securities Act solely by virtue of being a director of a
public company and other than, in connection with an IPO, to a Person with
respect to which Edward Scheetz or David Hamamoto have the title and
responsibilities of a chief executive officer, president and/or chief financial
officer and a seat on the board of directors of the public company formed in
connection with the IPO so long as Edward Scheetz or David Hamamoto remain
actively involved in the management of the operations of Borrower) unless such
Person or group of Affiliated Persons (the “Sub Owners”) are owned by a
Person or group of Affiliated Persons (the “Parent Owner”), which owned
49% or more of the direct and/or indirect legal or beneficial ownership
interest in Borrower prior to such transfer and either (A) Borrower had
previously delivered an opinion of counsel which discussed the substantive
non-consolidation of such Parent Owner in form and substance and prepared by
counsel reasonably acceptable to Lender or (B) Sub-Owner owns such
interest in Borrower through ownership of a Person or group of Affiliated
Persons with respect to which such a substantive non-consolidation opinion was
previously delivered to Lender or (b) subsequent to an IPO, transfers of
publicly traded stock on a national stock exchange or on the NASDAQ Stock
Market in the normal course of business and not in connection with a tender
offer or a sale of the public Person resulting from the IPO or substantially
all of the assets of such Person.


 


“UCC”
shall mean the Uniform Commercial Code as in effect from time to time in the
State in which the Realty is located.


 


“Uniform
System of Accounts” shall mean the Uniform System of Accounts for the
Lodging Industry, 9th Revised Edition, Educational Institute of the American
Hotel and Motel Association and Hotel Association of New York City (1996), as
from time to time amended.


 


“Unscheduled
Payments” shall mean (a) all Loss Proceeds that Borrower has elected
or is required to apply to the repayment of the Debt pursuant to this Security Instrument,
the Note or any other Loan Documents, (b) any funds representing a
voluntary or involuntary principal prepayment other than scheduled Principal
Payments and (c) any Net Proceeds.


 


“Use
Requirements” shall mean any and all building codes, permits, certificates
of occupancy or compliance, laws, regulations, or ordinances (including,
without limitation, health, pollution, fire protection, medical and day-care
facilities, waste product and sewage disposal regulations), restrictions of
record, easements, reciprocal easements, declarations or other agreements
affecting the use of the Property or any part thereof.


 


29


















 


“Welfare
Plan” shall mean an employee welfare benefit plan as defined in Section 3(1) of
ERISA established or maintained by Borrower, Guarantor or any ERISA Affiliate
or that covers any current or former employee of Borrower, Guarantor or any
ERISA Affiliate.


 


“Work”
shall have the meaning set forth in Section 3.04(a)(i) hereof.


 


ARTICLE II: 
REPRESENTATIONS, WARRANTIES 

AND COVENANTS OF BORROWER


 


Section 2.01.  Payment of Debt.  Borrower will pay the Debt at the time and in
the manner provided in the Note and the other Loan Documents, all in lawful
money of the United States of America in immediately available funds.


 


Section 2.02.  Representations, Warranties and Covenants
of Borrower.  Borrower represents and
warrants to and covenants with Lender:


 


(a)                                  Organization and
Authority.  Borrower (i) is a
limited liability company, general partnership, limited partnership or
corporation, as the case may be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation, (ii) has all
requisite power and authority and all necessary licenses and permits to own and
operate the Property and to carry on its business as now conducted and as
presently proposed to be conducted and (iii) is duly qualified, authorized
to do business and in good standing in the jurisdiction where the Property is
located and in each other jurisdiction where the conduct of its business or the
nature of its activities makes such qualification necessary.  If Borrower is a limited liability company,
limited partnership or general partnership, each general partner or managing
member, as applicable, of Borrower which is a corporation is duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.


 


(b)                                 Power.  Borrower and, if applicable, each General
Partner has full power and authority to execute, deliver and perform, as
applicable, the Loan Documents to which it is a party, to receive the
borrowings thereunder, to execute and deliver the Note and to grant to Lender a
first priority, perfected and continuing lien on and security interest in the
Property, subject only to the Permitted Encumbrances.


 


(c)                                  Authorization of
Borrowing.  The execution, delivery
and performance of the Loan Documents to which Borrower is a party, the making
of the borrowings thereunder, the execution and delivery of the Note, the grant
of the liens on the Property pursuant to the Loan Documents to which Borrower
is a party and the consummation of the Loan are within the powers of Borrower
and have been duly authorized by Borrower and, if applicable, the General
Partners, by all requisite action (and Borrower hereby represents that no
approval or action of any member, limited partner or shareholder, as
applicable, of Borrower, which has not been received or taken, is required to
authorize any of the Loan Documents to which Borrower is a party) and will
constitute the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with their terms, except as enforcement may be
stayed or limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and by general principles of equity
(whether considered in proceedings at law or in equity) and


 


30





















 


will not (i) violate any provision of its partnership agreement or
partnership certificate or certificate of incorporation or by-laws, or
operating agreement, certificate of formation or articles of organization, as
applicable, or, to its knowledge, any law, judgment, order, rule or
regulation of any court, arbitration panel or other Governmental Authority,
domestic or foreign, or other Person affecting or binding upon Borrower or the
Property, or (ii) violate any provision of any indenture, agreement,
mortgage, deed of trust, contract or other instrument to which Borrower or, if
applicable, any General Partner is a party or by which any of their respective
property, assets or revenues are bound, or be in conflict with, result in an
acceleration of any obligation or a breach of or constitute (with notice or
lapse of time or both) a default or require any payment or prepayment under,
any such indenture, agreement, mortgage, deed of trust, contract or other
instrument, or (iii) result in the creation or imposition of any lien,
except those in favor of Lender as provided in the Loan Documents to which it
is a party.


 


(d)                                 Consent.  Neither Borrower nor, if applicable, any
General Partner, is required to obtain any consent, approval or authorization
from, or to file any declaration or statement with, any Governmental Authority
or other agency in connection with or as a condition to the execution, delivery
or performance of this Security Instrument, the Note or the other Loan
Documents which has not been so obtained or filed.


 


(e)                                  Interest Rate.  To Borrower’s knowledge, the rate of interest
paid under the Note and the method and manner of the calculation thereof do not
violate any usury or other law or applicable Legal Requirement.


 


(f)                                    Other Agreements.  Borrower is not a party to nor is otherwise
bound by any agreements or instruments which, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect.  Neither Borrower nor, if applicable, any
General Partner, is in violation of its organizational documents or other
restriction or any agreement or instrument by which it is bound, or any
judgment, decree, writ, injunction, order or award of any arbitrator, court or
Governmental Authority, or any Legal Requirement, in each case, applicable to
Borrower or the Property, except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect.


 


(g)                                 Maintenance of
Existence.  (i) Borrower is
familiar with all of the criteria of the Rating Agency required to qualify as a
special-purpose bankruptcy-remote entity and Borrower, SPE Pledgor and, if
applicable, each General Partner at all times since their formation have been
duly formed and existing and shall preserve and keep in full force and effect
their existence as a Single Purpose Entity.


 


(ii)                                  Borrower, SPE
Pledgor and, if applicable, each General Partner, at all times since their
organization have complied, and will continue to comply, with the provisions of
its certificate and agreement of partnership or certificate of incorporation
and by-laws or articles of organization, certificate of formation and operating
agreement, as applicable, and the laws of its jurisdiction of organization
relating to partnerships, corporations or limited liability companies, as
applicable.


 


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(iii)                               Borrower, SPE
Pledgor and, if applicable, each General Partner have done or caused to be done
and will do all things necessary to observe organizational formalities and
preserve their existence and Borrower, SPE Pledgor and, if applicable, each
General Partner will not amend, modify or otherwise change the certificate and
agreement of partnership or certificate of incorporation and by-laws or
articles of organization, certificate of formation and operating agreement, as
applicable, or other organizational documents of Borrower, SPE Pledgor and, if
applicable, each General Partner except for immaterial amendments which do not
modify the Single Purpose Entity provisions.


 


(iv)                              Borrower, SPE
Pledgor and, if applicable, each General Partner, have at all times accurately
maintained, and will continue to accurately maintain, their respective
financial statements, accounting records and other partnership, company or corporate
documents separate from those of any other Person and Borrower and SPE Pledgor
will file its own tax returns or, if Borrower, SPE Pledgor and/or, if
applicable, General Partner is part of a consolidated group for purposes of
filing tax returns, Borrower, SPE Pledgor and General Partner, as applicable
will be shown as separate members of such group.  Borrower, SPE Pledgor and, if applicable,
each General Partner have not at any time since their formation commingled, and
will not commingle, their respective assets with those of any other Person other
than the other Cross-collateralized Borrowers and will maintain their assets in
such a manner such that it will not be costly or difficult to segregate,
ascertain or identify their individual assets from those of any other
Person.  Borrower, SPE Pledgor and, if
applicable, each General Partner will not permit any Affiliate independent
access to their bank accounts.  Borrower,
SPE Pledgor and, if applicable, each General Partner have at all times since
their formation accurately maintained and utilized, and will continue to
accurately maintain and utilize, their own separate bank accounts, payroll and
separate books of account, stationery, invoices and checks.


 


(v)                                 Borrower, SPE
Pledgor and, if applicable, each General Partner, have at all times paid, and
will continue to pay, their own liabilities from their own separate assets and
shall each allocate and charge fairly and reasonably any overhead which
Borrower, SPE Pledgor and, if applicable, any General Partner, shares with any
other Person, including, without limitation, for office space and services
performed by any employee of another Person.


 


(vi)                              Borrower, SPE
Pledgor and, if applicable, each General Partner, have at all times identified
themselves, and will continue to identify themselves, in all dealings with the
public, under their own names and as separate and distinct entities and shall
correct any known misunderstanding regarding their status as separate and
distinct entities.  Borrower, SPE Pledgor
and, if applicable, each General Partner, have not at any time identified
themselves, and will not identify themselves, as being a division of any other
Person.


 


(vii)                           Borrower, SPE
Pledgor and, if applicable, each General Partner, have been at all times, and
will continue to be, adequately capitalized in light of the nature of their
respective businesses.


 


(viii)                        Borrower, SPE
Pledgor and, if applicable, each General Partner, (A) have not owned, do
not own and will not own any assets or property other than, with respect to
Borrower, the Property and any incidental personal property necessary for the
ownership,


 


32





















 


management
or operation of the Property, with respect to the SPE Pledgor, the ownership of
an interest in a Food and Beverage Lessee/Operator and, with respect to General
Partner, if applicable, its interest in Borrower, (B) have not engaged and
will not engage in any business other than the ownership, management and
operation of the Property or with respect to the SPE Pledgor, the ownership of
an interest in a Food and Beverage Lessee/Operator, or with respect to General
Partner, if applicable, its interest in Borrower, (C) have not incurred
and will not incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than (w) the Loan, (x) unsecured
trade and operational debt which (1) is not evidenced by a note, (2) is
incurred in the ordinary course of the operation of the Property, (3) does
not, together with any equipment financing, incurred pursuant to clause (y)
hereof, exceed in the aggregate one percent (1%) of the Loan Amount or, with
respect to the SPE Pledgor, $100,000, and (4) is, unless being contested
in accordance with the terms of this Security Instrument, paid prior to the
earlier to occur of the sixtieth (60th) day after the date incurred and the
date when due, (y) equipment financing relating to equipment used in connection
with the operation of the Property which (1) is incurred in the ordinary
course of the operation of the Property, (2) does not, together with any
unsecured trade and operational debt incurred pursuant to clause (x) hereof,
exceed one percent (1%) of the Loan Amount or, with respect to the SPE Pledgor,
$100,000, (3) which is secured only by the financed equipment, and (4) is,
unless being contested in accordance with the terms of this Security
Instrument, paid prior to the earlier to occur of the sixtieth (60th) day after
the date incurred and the date when due and (z) with respect to the General Partner,
the Mez Loan, (D) have not pledged and will not pledge their assets for
the benefit of any other Person, other than, with respect to the Mez Loan, the
pledge by each General Partner of its direct or indirect interest in Borrower and
the pledges by the SPE Pledgors and (E) have not made and will not make
any loans or advances to any Person (including any Affiliate).


 


(ix)                                None of
Borrower, SPE Pledgor nor, if applicable, any General Partner will change its
name or principal place of business unless thirty (30) days prior written
notice thereof is provided to Lender.


 


(x)                                   None of Borrower,
SPE Pledgor nor, if applicable, any General Partner has, and neither of such
Persons will have, any subsidiaries other than with respect to Borrower,
General Partner and, with respect to SPE Pledgor, as disclosed in writing to
Lender.


 


(xi)                                Borrower and SPE
Pledgor will preserve and maintain its existence as a Delaware limited
liability company and all material rights, privileges, tradenames, if any, and
franchises.


 


(xii)                             None of Borrower,
SPE Pledgor nor, if applicable, any General Partner, will merge or consolidate
with, or sell all or substantially all of its respective assets to any Person,
or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution).  None of Borrower, SPE
Pledgor nor, if applicable, any General Partner will acquire any business or
assets from, or capital stock or other ownership interest of, or be a party to
any acquisition of, any Person.


 


(xiii)                          Borrower, SPE
Pledgor and, if applicable, each General Partner, has not at any time since
their formation assumed, guaranteed or held themselves out to be responsible
for,


 


33





















 


and
will not assume, guarantee or hold themselves out to be responsible for the
liabilities or the decisions or actions respecting the daily business affairs
of their partners, shareholders or members or any predecessor company,
corporation or partnership, each as applicable, any Affiliates, or any other
Persons other than (i) in connection with the Loan and (ii) obligations
relating to the Cross-collateralized Properties which have been fully satisfied
with proceeds of the Loan.  Neither Borrower
nor SPE Pledgor has at any time since its formation acquired, and will not
acquire, obligations or securities of its partners or shareholders, members or
any predecessor company, corporation or partnership, each as applicable, or any
Affiliates.  Borrower, SPE Pledgor and,
if applicable, each General Partner, have not at any time since their formation
made, and will not make, loans to its partners, members or shareholders or any
predecessor company, corporation or partnership, each as applicable, or any
Affiliates of any of such Persons. 
Borrower, SPE Pledgor and, if applicable, each General Partner, have no
known contingent liabilities nor do they have any material financial
liabilities under any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Person is a party or by which it is
otherwise bound other than under the Loan Documents.


 


(xiv)                         Neither Borrower
nor SPE Pledgor has at any time since its formation entered into and are not a
party to, and, will not enter into or be a party to, any transaction with its
Affiliates, members, partners or shareholders, as applicable, or any Affiliates
thereof except in the ordinary course of business of Borrower or SPE Pledgor,
as applicable, on terms which are no less favorable to Borrower or SPE Pledgor,
as applicable, than would be obtained in a comparable arm’s length transaction
with an unrelated third party.


 


(xv)                            If Borrower or SPE
Pledgor is a limited partnership or a limited liability company, the General
Partner shall be a corporation or limited liability company whose sole asset is
its ownership interests in Borrower and SPE Pledgor, as applicable, and the
General Partner will at all times comply, and will cause Borrower or SPE
Pledgor to comply, with each of the representations, warranties, and covenants
contained in this Section 2.02(g) as if such representation, warranty
or covenant was made directly by such General Partner.


 


(xvi)                         Borrower and SPE
Pledgor shall at all times cause there to be at least two (2) duly
appointed members, with respect to Borrower, and at least one (1) duly
appointed member, with respect to SPE Pledgor, of the board of directors or
board of managers or other governing board or body, as applicable (each an “Independent
Director”), of, if Borrower or SPE Pledgor is a corporation, Borrower and SPE
Pledgor, as applicable, and, if Borrower or SPE Pledgor is a limited
partnership or limited liability company, of the General Partner, reasonably
satisfactory to Lender who shall not have been at the time of such individual’s
appointment, and may not be or have been at any time (A) a shareholder or SPE
Pledgor, officer, director, attorney, counsel, partner, member or employee of
Borrower or any of the foregoing Persons or Affiliates thereof, (B) a
customer or creditor of, or supplier or service provider to, Borrower or SPE
Pledgor or any of its shareholders, partners, members or their Affiliates, (C) a
member of the immediate family of any Person referred to in (A) or (B) above
or (D) a Person Controlling, Controlled by or under common Control with
any Person referred to in (A) through (C) above.  A natural person who otherwise satisfies the
foregoing definition except for being the Independent Director of a Single
Purpose Entity Affiliated with Borrower, SPE Pledgor or General Partner shall
not be disqualified from serving as an Independent Director if such


 


34





















 


individual
is at the time of initial appointment, or at any time while serving as the
Independent Director, an Independent Director of a Single Purpose Entity
Affiliated with Borrower or SPE Pledgor or General Partner if such individual
is an Independent Director provided by a nationally-recognized company that
provides professional independent directors.


 


(xvii)                      Borrower, SPE
Pledgor and, if applicable, each General Partner, shall not cause or permit the
board of directors or board of managers or other governing board or body, as
applicable, of Borrower, SPE Pledgor or, if applicable, each General Partner,
to take any action which, under the terms of any certificate of incorporation,
by-laws, certificate of formation, operating agreement or articles of
organization with respect to any common stock, requires a vote of the board of
directors of Borrower or SPE Pledgor, or, if applicable, the General Partner,
unless at the time of such action there shall be at least two (2) members,
with respect to Borrower, and at least one (1) member, with respect to SPE
Pledgor, who is or are Independent Director(s).


 


(xviii)                   Borrower, SPE Pledgor and,
if applicable, each General Partner shall pay the salaries of their own
employees and maintain a sufficient number of employees in light of their
contemplated business operations.


 


(xix)                           Borrower and SPE
Pledgor shall, and shall cause their Affiliates to, conduct their business so
that the assumptions made with respect to Borrower and SPE Pledgor in that
certain opinion letter relating to substantive non-consolidation dated the date
hereof (the “Insolvency Opinion”) delivered in connection with the Loan
shall be true and correct in all respects. 
Notwithstanding the foregoing, holders of direct or indirect equity
interests in Borrower may deliver to Lender so called “bottom up” guarantees
which do not result in a Material Adverse Effect or result in a change in any
obligation of Borrower or Guarantor to Lender subsequent to the earlier to
occur of (A) a Securitization and (B) an IPO, provided (x) subsequent
to a Securitization, Borrower shall deliver to Lender a letter from each Rating
Agency confirming that any rating issued by the Rating Agency in connection
with a Securitization will not, as a result of the delivery of such guaranty,
be downgraded from the then current ratings thereof, qualified or withdrawn,
and (y) Borrower shall deliver to Lender an update of the Insolvency Opinion addressing
the guaranty and confirming the conclusions thereof which shall be in form and
substance satisfactory to Lender.


 


Notwithstanding anything to the contrary contained in this Section 2.02(g),
provided Borrower and SPE Pledgor are each a Delaware single member limited
liability company which satisfies the single purpose bankruptcy remote entity
requirements of each Rating Agency for a single member limited liability
company, the foregoing provisions of this Section 2.02(g) shall not
apply to the General Partner.


 


(h)                                 No Defaults.  No Default or Event of Default has occurred
and is continuing or would occur as a result of the consummation of the
transactions contemplated by the Loan Documents.  Borrower is not in default in the payment or
performance of any of its Contractual Obligations in any respect.


 


(i)                                     Consents and
Approvals.  Borrower and, if
applicable, each General Partner, have obtained or made all necessary (i) consents,
approvals and authorizations, and registrations and


 


35





















 


filings of or with all Governmental Authorities and (ii) consents,
approvals, waivers and notifications of partners, stockholders, members,
creditors, lessors and other nongovernmental Persons, in each case, which are
required to be obtained or made by Borrower or, if applicable, the General
Partner, in connection with the execution and delivery of, and the performance
by Borrower of its obligations under, the Loan Documents.


 


(j)                                     Investment
Company Act Status, etc.  Borrower is
not (i) an “investment company,” or a company “controlled” by an “investment
company,” as such terms are defined in the Investment Company Act of 1940, as
amended, (ii) a “holding company” or a “subsidiary company” of a “holding
company” or an “affiliate” of either a “holding company” or a “subsidiary
company” within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow money.


 


(k)                                  Compliance with
Law.  Borrower is in compliance in
all material respects with all Legal Requirements to which it or the Property
is subject, including, without limitation, all Environmental Statutes, the
Occupational Safety and Health Act of 1970, the Americans with Disabilities Act
and ERISA.  No portion of the Property
has been or will be purchased, improved, fixtured, equipped or furnished with
proceeds of any illegal activity and, to the best of Borrower’s knowledge, no
illegal activities are being conducted at or from the Property.


 


(l)                                     Financial
Information.  All financial data that
has been delivered by Borrower to Lender (i) is true, complete and correct
in all material respects, (ii) accurately represents the financial
condition and results of operations of the Persons covered thereby as of the
date on which the same shall have been furnished, and (iii) in the case of
audited financial statements, has been prepared in accordance with GAAP and the
Uniform System of Accounts (or such other accounting basis as is reasonably
acceptable to Lender) throughout the periods covered thereby.  As of the date hereof, none of Borrower, SPE
Pledgor nor, if applicable, any General Partner, has any contingent liability,
liability for taxes or other unusual or forward commitment not reflected in
such financial statements delivered to Lender. 
Since the date of the last financial statements delivered by Borrower to
Lender except as otherwise disclosed in such financial statements or notes
thereto, there has been no change in the assets, liabilities or financial
position of Borrower SPE Pledgor nor, if applicable, any General Partner, or in
the results of operations of Borrower which would have a Material Adverse
Effect.  None of Borrower, SPE Pledgor
nor, if applicable, any General Partner, has incurred any obligation or
liability, contingent or otherwise not reflected in such financial statements
which would have a Material Adverse Effect.


 


(m)                               Transaction Brokerage
Fees.  Borrower has not dealt with
any financial advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this Security
Instrument except for the Carlton Group. 
Borrower hereby agrees to indemnify and hold Lender harmless for, from
and against any and all claims, liabilities, costs and expenses of any kind in
any way relating to or arising from (i) a claim by any Person including
without limitation the Carlton Group and any of their Affiliates that such
Person acted on behalf of Borrower in connection with the transactions
contemplated herein or (ii) any breach of the foregoing
representation.  The provisions of this
subsection (m) shall survive the repayment of the Debt.


 


36





















 


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


 


(o)                                 Pending Litigation.  There are no actions, suits or proceedings
pending or, to the best knowledge of Borrower, threatened against or affecting
Borrower or the Property in any court or before any Governmental Authority
which if adversely determined either individually or collectively has or is
reasonably likely to have a Material Adverse Effect.


 


(p)                                 Solvency; No
Bankruptcy.  Each of Borrower, SPE
Pledgor and, if applicable, the General Partner, (i) is and has at all
times been Solvent and will remain Solvent immediately upon the consummation of
the transactions contemplated by the Loan Documents and (ii) is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors and is not contemplating the filing of a petition
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of such Person’s assets or property and Borrower has no
knowledge of any Person contemplating the filing of any such petition against
it or, if applicable, the General Partner. 
None of the transactions contemplated hereby will be or have been made
with an intent to hinder, delay or defraud any present or future creditors of
Borrower or SPE Pledgor and Borrower has received reasonably equivalent value
in exchange for its obligations under the Loan Documents.  Borrower’s assets do not, and immediately
upon consummation of the transaction contemplated in the Loan Documents will
not, constitute unreasonably small capital to carry out its business as
presently conducted or as proposed to be conducted.  Borrower does not intend to, nor believes
that it will, incur debts and liabilities beyond its ability to pay such debts
as they may mature.


 


(q)                                 Use of Proceeds.  The proceeds of the Loan shall be applied by
Borrower to, inter  alia, (i) satisfy certain loans presently
encumbering all or a part of the Property and (ii) pay certain transaction
costs incurred by Borrower in connection with the Loan.  No portion of the proceeds of the Loan will
be used for family, personal, agricultural or household use.


 


(r)                                    Tax Filings.  Borrower, SPE Pledgor and, if applicable,
each General Partner, have filed all federal, state and local tax returns
required to be filed and have paid or made adequate provision for the payment
of all federal, state and local taxes, charges and assessments payable by
Borrower, SPE Pledgor and, if applicable, the General Partners.  Borrower, SPE Pledgor and, if applicable, the
General Partners, believe that their respective tax returns properly reflect
the income and taxes of Borrower, SPE Pledgor and said General Partner, if any,
for the periods covered thereby, subject only to reasonable adjustments
required by the Internal Revenue Service or other applicable tax authority upon
audit.


 


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


 


37





















 


(t)                                    ERISA.  (i) The assets
of Borrower and Guarantor are not and will not become treated as “plan assets”,
whether by operation of law or under regulations promulgated under ERISA.  Each Plan and Welfare Plan, and, to the
knowledge of Borrower, each Multiemployer Plan, is in compliance in all
material respects with, and has been administered in all material respects in
compliance with, its terms and the applicable provisions of ERISA, the Code and
any other applicable Legal Requirement, and no event or condition has occurred
and is continuing as to which Borrower would be under an obligation to furnish
a report to Lender under clause (ii)(A) of this Section.  Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare
Plan under which Borrower, Guarantor or any ERISA Affiliate, directly or
indirectly (through an indemnification agreement or otherwise), could be
subject to any material risk of liability under Section 409 or 502(i) of
ERISA or Section 4975 of the Code. 
No Welfare Plan, other than a Multiemployer Plan, provides or will
provide benefits, including, without limitation, death or medical benefits
(whether or not insured) with respect to any current or former employee of
Borrower, Guarantor or any ERISA Affiliate beyond his or her retirement or
other termination of service other than (A) coverage mandated by
applicable law, (B) death or disability benefits that have been fully
provided for by fully paid up insurance or (C) severance benefits.


 


(ii)                                  Borrower will
furnish to Lender as soon as possible, and in any event within ten (10) days
after Borrower knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan, Welfare Plan or
Multiemployer Plan has occurred or exists, an Officer’s Certificate setting
forth details respecting such event or condition and the action, if any, that
Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to the PBGC (or
any other relevant Governmental Authority)) by Borrower or an ERISA Affiliate
with respect to such event or condition, if such report or notice is required
to be filed with the PBGC or any other relevant Governmental Authority:


 


(A)                              any reportable event, as
defined in Section 4043 of ERISA and the regulations issued thereunder,
with respect to a Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within
thirty (30) days of the occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA, including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code and of Section 302(e) of
ERISA, shall be a reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code), and any request for a
waiver under Section 412(d) of the Code for any Plan;


 


(B)                                the distribution under Section 4041
of ERISA of a notice of intent to terminate any Plan or any action taken by
Borrower or an ERISA Affiliate to terminate any Plan;


 


(C)                                the institution by PBGC
of proceedings under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any


 


38





















 


Plan, or the receipt by Borrower or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by PBGC with respect
to such Multiemployer Plan;


 


(D)                               the complete or partial
withdrawal from a Multiemployer Plan (or other employee benefit plan) by
Borrower or any ERISA Affiliate that results in liability under Section 4201
or 4204 of ERISA (including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA;


 


(E)                                 the institution of a
proceeding by a fiduciary of any Multiemployer Plan against Borrower or any
ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not
dismissed within thirty (30) days;


 


(F)                                 the adoption of an
amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA, would result in the loss of tax-exempt status of the trust of which
such Plan is a part if Borrower or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said Sections; or


 


(G)                                the imposition of a
lien or a security interest in connection with a Plan.


 


(iii)                               No liability
under Title IV of ERISA has been incurred by Borrower, Guarantor or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Borrower, Guarantor or any ERISA Affiliate of
incurring any liability under such Title, other than liability for premiums due
the PBGC, which payments have been or will be made when due.  To the extent this representation applies to
Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only with
respect to the ERISA Plans but also with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which
Borrower, Guarantor or any ERISA Affiliate made, or was required to make,
contributions during the past six years.


 


(iv)                              Borrower shall
not knowingly engage in or permit any transaction in connection with which
Borrower, Guarantor or any ERISA Affiliate could be reasonably subject to
either a material civil penalty or material tax assessed pursuant to Section 502(i) or
502(l) of ERISA or Section 4975 of the Code; Borrower shall not permit any
Welfare Plan, other than a Multiemployer Plan, to provide benefits, including
without limitation, medical benefits (whether or not insured), with respect to
any current or former employee of Borrower, Guarantor or any ERISA Affiliate
beyond his or her retirement or other termination of service other than (A) coverage
mandated by applicable law, (B) death or disability benefits that have
been fully provided for by paid up insurance or otherwise or (C) severance
benefits, permit the assets of Borrower or


 


39





















 


Guarantor
to become “plan assets”, whether by operation of law or under regulations
promulgated under ERISA; and Borrower and Guarantor shall not adopt, amend
(except as may be required by applicable law) or increase the amount of any
benefit or amount payable under, or permit any ERISA Affiliate to adopt, amend
(except as may be required by applicable law) or increase the amount of any
benefit or amount payable under, any employee benefit plan (including, without
limitation, any employee welfare benefit plan that is not a Multiemployer Plan)
or other plan, policy or arrangement, except for normal increases in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits expense to
Borrower, Guarantor or any ERISA Affiliate.


 


(u)                                 Labor Matters.  No organized work stoppage or labor
strike is pending or threatened by employees or other laborers at the Property
and none of Borrower, SPE Pledgor nor Manager (i) is involved in or
threatened with any material labor dispute, grievance or litigation relating to
labor matters involving any employees and other laborers at the Property,
including, without limitation, violation of any federal, state or local labor,
safety or employment laws (domestic or foreign) and/or charges of unfair labor
practices or discrimination complaints; (ii) has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act or the
Railway Labor Act; or (iii) except as otherwise disclosed in writing to
Lender, is a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees and other laborers at the Property and
no such agreement or contract is currently being negotiated by Borrower, SPE
Pledgor, Manager or any of their Affiliates.


 


(v)                                 Borrower’s Legal
Status.  Borrower’s exact legal name
that is indicated on the signature page hereto, organizational
identification number and place of business or, if more than one, its chief
executive office, as well as Borrower’s mailing address, if different, which
were identified by Borrower to Lender and contained in this Security
Instrument, are true, accurate and complete. 
Borrower (i) will not change its name, its place of business or, if
more than one place of business, its chief executive office, or its mailing
address or organizational identification number if it has one without giving
Lender at least thirty (30) days prior written notice of such change, (ii) if
Borrower does not have an organizational identification number and later
obtains one, Borrower shall promptly notify Lender of such organizational
identification number and (iii) Borrower will not change its type of
organization, jurisdiction of organization or other legal structure.


 


(w)                               Compliance with
Anti-Terrorism, Embargo and Anti-Money Laundering Laws.   (i) None of Borrower, SPE Pledgor,
General Partner, any Guarantor, or any Person who owns any equity interest in
or Controls Borrower, SPE Pledgor, General Partner or any Guarantor currently
is identified on the OFAC List or otherwise qualifies as a Prohibited Person,
and Borrower and SPE Pledgor have implemented procedures, approved by General
Partner, to ensure that no Person who now or hereafter owns an equity interest
in Borrower, SPE Pledgor or General Partner is a Prohibited Person or
Controlled by a Prohibited Person, (ii) no proceeds of the Loan will be
used to fund any operations in, finance any investments or activities in or
make any payments to, Prohibited Persons, and (iii) none of Borrower, SPE
Pledgor, General Partner, or any Guarantor are in violation of any Legal
Requirements relating to anti-money laundering or anti-terrorism, including,
without limitation, Legal Requirements related to transacting business


 


40





















 


with Prohibited Persons or the requirements of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related
regulations issued thereunder, including temporary regulations, all as amended
from time to time.  No tenant under a
Space Lease at the Property currently is identified on the OFAC List or
otherwise qualifies as a Prohibited Person, and, to the best of Borrower’s
knowledge, no tenant at the Property is owned or Controlled by a Prohibited
Person.  Borrower has determined that Manager
has implemented procedures, approved by Borrower, to ensure that no tenant under
a Space Lease at the Property is a Prohibited Person or owned or Controlled by
a Prohibited Person.


 


Section 2.03.  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, mortgages or deeds of trust, as
applicable, assignments, notices of assignments, transfers and assurances as
Lender shall, from time to time, reasonably require for the better assuring,
conveying, assigning, transferring, and confirming unto Lender the property and
rights hereby mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, pledged, assigned and hypothecated, or which Borrower may
be or may hereafter become bound to convey or assign to Lender, or for carrying
out or facilitating the performance of the terms of this Security Instrument or
for filing, registering or recording this Security Instrument and, on demand,
will execute and deliver and hereby authorizes Lender to execute in the name of
Borrower or without the signature of Borrower to the extent Lender may lawfully
do so, one or more financing statements, chattel mortgages or comparable security
instruments to evidence more effectively the lien hereof upon the
Property.  Borrower hereby authorizes
Lender to file any financing statements, and amendments to financing
statements, in any jurisdictions and with any filing offices as Lender may
determine, in its sole discretion, are necessary or advisable to perfect the
security interest granted to Lender hereunder. 
Such financing statements may describe the collateral in the same manner
as described in this document or may contain an indication or description of
collateral that describes such property in any other manner Lender so chooses,
including, without limitation, describing such property as “all assets, whether
now owned or hereafter acquired” or “all personal property, whether now owned
or hereafter acquire”.  Borrower grants
to Lender an irrevocable power of attorney coupled with an interest for the
purpose of protecting, perfecting, preserving and realizing upon the interests
granted pursuant to this Security Instrument and to effect the intent hereof,
all as fully and effectually as Borrower might or could do; and Borrower hereby
ratifies all that Lender shall lawfully do or cause to be done by virtue
hereof.  Upon receipt of an affidavit of
an officer of Lender as to the loss, theft, destruction or mutilation of the
Note or any other Loan Document which is not of public record, and, in the case
of any such mutilation, upon surrender and cancellation of such Note or other
applicable Loan Document, Borrower will issue, in lieu thereof, a replacement
Note or other applicable Loan Document, dated the date of such lost, stolen,
destroyed or mutilated Note or other Loan Document in the same principal amount
thereof and otherwise of like tenor.


 


Section 2.04.  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 security instrument creating a lien or
security interest or evidencing the lien hereof upon the Property and each
instrument of further assurance to be filed,


 


41





















 


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
protect the lien or security interest hereof upon, and the interest of Lender
in, the Property.  Borrower will pay all
filing, registration or recording fees, and all expenses incident to the
preparation, execution and acknowledgment of this Security Instrument, any
mortgage or deed of trust, as applicable, supplemental hereto, any security
instrument with respect to the Property and any instrument of further
assurance, and all federal, state, county and municipal, taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Security Instrument, any mortgage or deed of
trust, as applicable, supplemental hereto, any security instrument with respect
to the Property or any instrument of further assurance, except where prohibited
by law to do so, in which event Lender may declare the Debt to be immediately
due and payable.  Borrower shall hold
harmless and indemnify Lender , and its successors and assigns, against any
liability incurred as a result of the imposition of any tax on the making and
recording of this Security Instrument.


 


Section 2.05.  Representations, Warranties and Covenants
Relating to the Property.  Borrower represents
and warrants to and covenants with Lender with respect to the Property as
follows:


 


(a)                                  Lien Priority.  This Security Instrument is a valid and
enforceable first lien on the Property, free and clear of all encumbrances and
liens having priority over the lien of this Security Instrument, except for the
items set forth as exceptions to, subordinate matters in, or otherwise
disclosed in the title insurance policy insuring the lien of this Security
Instrument, none of which, individually or in the aggregate, materially
interfere with the benefits of the security intended to be provided by this
Security Instrument, materially affect the value or marketability of the
Property, impair the use or operation of the Property for the use currently
being made thereof or impair Borrower’s ability to pay its obligations in a
timely manner (such items being the “Permitted Encumbrances”).


 


(b)                                 Title.  Borrower has, subject only to the Permitted
Encumbrances, good, insurable and marketable fee simple title to the Premises,
Improvements and Fixtures (collectively, the “Realty”) and to all
easements and rights benefiting the Realty and has the right, power and
authority to mortgage, encumber, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, pledge, assign, and hypothecate the Property.  Borrower will preserve its interest in and
title to the Property and will forever warrant and defend the same to Lender
against any and all claims made by, through or under Borrower and will forever
warrant and defend the validity and priority of the lien and security interest
created herein against the claims of all Persons whomsoever claiming by,
through or under Borrower.  The foregoing
warranty of title shall survive the foreclosure of this Security Instrument and
shall inure to the benefit of and be enforceable by Lender in the event Lender acquires
title to the Property pursuant to any foreclosure.  In addition, there are no outstanding options
or rights of first refusal to purchase the Property or Borrower’s ownership
thereof.


 


(c)                                  Taxes and
Impositions.  All taxes and other
Impositions and governmental assessments due and payable in respect of, and
affecting, the Property have been paid. 
Borrower has paid all Impositions which constitute special governmental
assessments in full, except for those assessments which are permitted by
applicable Legal Requirements to be paid in


 


42





















 


installments, in which case all installments which are due and payable
have been paid in full.  There are no
pending, or to Borrower’s best knowledge, proposed special or other assessments
for public improvements or otherwise affecting the Property, nor are there any
contemplated improvements to the Property that may result in such special or
other assessments.


 


(d)                                 Casualty; Flood
Zone.  The Realty is in good repair
and free and clear of any damage, destruction or casualty (whether or not
covered by insurance) that would materially affect the value of the Realty or
the use for which the Realty was intended, there exists no structural or other
material defects or damages in or to the Property and Borrower has not received
any written notice from any insurance company or bonding company of any
material defect or inadequacies in the Property, or any part thereof, which
would materially and adversely affect the insurability of the same or cause the
imposition of extraordinary premiums or charges thereon or of any termination
or threatened termination of any policy of insurance or bond.  No portion of the Premises is located in an “area
of special flood hazard,” as that term is defined in the regulations of the
Federal Insurance Administration, Department of Housing and Urban Development,
under the National Flood Insurance Act of 1968, as amended (24 CFR § 1909.1),
other than as disclosed in the surveys of the Property delivered to Lender by
Borrower in connection with the origination of the Loan, or Borrower has
obtained the flood insurance required by Section 3.01(a)(vi) hereof.
The Premises either does not lie in a 100 year flood plain that has been
identified by the Secretary of Housing and Urban Development or any other
Governmental Authority or, if it does, Borrower has obtained the flood
insurance required by Section 3.01(a)(vi) hereof.


 


(e)                                  Completion;
Encroachment.  All Improvements
necessary for the efficient use and operation of the Premises have been
completed and, other than as disclosed in the surveys of the Property delivered
to Lender by Borrower in connection with the origination of the Loan, none of
said Improvements lie outside the boundaries and building restriction lines of
the Premises.  Except as set forth in the
title insurance policy insuring the lien of this Security Instrument, no
improvements on adjoining properties encroach upon the Premises.


 


(f)                                    Separate Lot.  The Premises are taxed separately without regard
to any other real estate and constitute a legally subdivided lot under all
applicable Legal Requirements (or, if not subdivided, no subdivision or
platting of the Premises is required under applicable Legal Requirements), and
for all purposes may be mortgaged, encumbered, conveyed or otherwise dealt with
as an independent parcel.  The Property
does not benefit from any tax abatement or exemption.


 


(g)                                 Use.  The existence of all Improvements, the
present use and operation thereof and the access of the Premises and the
Improvements to all of the utilities and other items referred to in paragraph
(k) below are in compliance in all material respects with all Leases affecting
the Property and all applicable Legal Requirements, including, without limitation,
Environmental Statutes, Development Laws and Use Requirements.  Borrower has not received any notice from any
Governmental Authority alleging any uncured violation relating to the Property
of any applicable Legal Requirements.


 


43





















 


(h)                                 Licenses and
Permits.  Borrower currently holds
and will continue to hold all certificates of occupancy, licenses,
registrations, permits, consents, franchises and approvals of any Governmental
Authority or any other Person which are material for the lawful occupancy and
operation of the Realty or which are material to the ownership or operation of
the Property or the conduct of Borrower’s business.  All such certificates of occupancy, licenses,
registrations, permits, consents, franchises and approvals are current and in
full force and effect.


 


(i)                                     Intentionally
Omitted.


 


(j)                                     Property
Proceedings.  There are no actions,
suits or proceedings pending or threatened in any court or before any
Governmental Authority or arbitration board or tribunal (i) relating to (A) the
zoning of the Premises or any part thereof, (B) any certificates of
occupancy, licenses, registrations, permits, consents or approvals issued with
respect to the Property or any part thereof, (C) the condemnation of the
Property or any part thereof, or (D) the condemnation or relocation of any
roadways abutting the Premises required for access or the denial or limitation
of access to the Premises or any part thereof from any point of access to the
Premises, (ii) asserting that (A) any such zoning, certificates of
occupancy, licenses, registrations, permits, consents and/or approvals do not
permit the operation of any material portion of the Realty as presently being
conducted, (B) any material improvements located on the Property or any
part thereof cannot be located thereon or operated with their intended use or (C) the
operation of the Property or any part thereof is in violation in any material
respect of any Environmental Statutes, Development Laws or other Legal Requirements
or Space Leases or Property Agreements or (iii) which might (A) affect
the validity or priority of any Loan Document or (B) have a Material
Adverse Effect.  Borrower is not aware of
any facts or circumstances which may give rise to any actions, suits or
proceedings described in the preceding sentence.


 


(k)                                  Utilities.  The Premises has all necessary legal access
to water, gas and electrical supply, storm and sanitary sewerage facilities,
other required public utilities (with respect to each of the aforementioned
items, by means of either a direct connection to the source of such utilities
or through connections available on publicly dedicated roadways directly
abutting the Premises or through permanent insurable easements benefiting the
Premises), fire and police protection, parking, and means of direct access
between the Premises and public highways over recognized curb cuts (or such
access to public highways is through private roadways which may be used for
ingress and egress pursuant to permanent insurable easements).


 


(l)                                     Mechanics’
Liens.  The Property is free and
clear of any mechanics’ liens or liens in the nature thereof, and no rights are
outstanding that under law could give rise to any such liens, any of which
liens are or may be prior to, or equal with, the lien of this Security
Instrument, except those which are insured against by the title insurance
policy insuring the lien of this Security Instrument.


 


(m)                               Intentionally Omitted.


 


(n)                                 Insurance.  The Property is insured in accordance with
the requirements set forth in Article III hereof.


 


44





















 


(o)                                 Space Leases.


 


(i)                                     Borrower has
delivered a true, correct and complete schedule of all Space Leases as of
the date hereof, which accurately and completely sets forth in all material
respects, for each such Space Lease, the following (collectively, the “Rent
Roll”):  the name and address of the
tenant with the name, title and telephone number of the contact person of such
tenant; the lease expiration date, extension and renewal provisions; the base
rent and percentage rent payable; all additional rent and pass-through
obligations; and the security deposit held thereunder and the location of such
deposit.


 


(ii)                                  Each Space
Lease constitutes the legal, valid and binding obligation of Borrower and, to
the knowledge of Borrower, is enforceable against the tenant thereof.  No default exists, or with the passing of
time or the giving of notice would exist, (A) under any Major Space Lease
or (B) under any other Space Leases which would, in the aggregate, have a
Material Adverse Effect.


 


(iii)                               No tenant under
any Space Lease has, as of the date hereof, paid Rent more than thirty (30)
days in advance, and the Rents under such Space Leases have not been waived, released,
or otherwise discharged or compromised.


 


(iv)                              All work to be
performed by Borrower under the Space Leases has been substantially performed,
all contributions to be made by Borrower to the tenants thereunder have been
made except for any held-back amounts, and all other conditions precedent to
each such tenant’s obligations thereunder have been satisfied.


 


(v)                                 Except as
previously disclosed to Lender in writing, there are no options to terminate
any Space Lease.


 


(vi)                              Each tenant
under a Major Space Lease has entered into occupancy of the demised premises to
the extent required under the terms of its Major Space Lease, and each such
tenant is open and conducting business with the public in the demised
premises.  To the best knowledge of
Borrower, after due inquiry, each tenant under a Lease other than a Major Space
Lease has entered into occupancy of its demised premises under its Lease to the
extent required under the terms of its Lease and each such tenant is open and
conducting business with the public in the demised premises.


 


(vii)                           Borrower has
delivered to Lender true, correct and complete copies of all Space Leases
described in the Rent Roll.


 


(viii)                        Each Space
Lease is in full force and effect and (except as disclosed on the Rent Roll)
has not been assigned, modified, supplemented or amended in any way.


 


(ix)                                To Borrower’s
best knowledge, no tenant under a Space Lease has filed any bankruptcy,
reorganization or arrangement proceedings or made a general assignment for the
benefit of creditors.


 


45





















 


(x)                                   No Space Lease
provides any party with the right to obtain a lien or encumbrance upon the
Property superior to the lien of this Security Instrument.


 


(p)                                 Property Agreements.


 


(i)                                     Borrower has
delivered to Lender true, correct and complete copies of all Property
Agreements.


 


(ii)                                  No Property
Agreement provides any party with the right to obtain a lien or encumbrance
upon the Property superior to the lien of this Security Instrument.


 


(iii)                               No default exists
or with the passing of time or the giving of notice or both would exist under
any Property Agreement which would, individually or in the aggregate, have a
Material Adverse Effect.


 


(iv)                              Borrower has
not received or given any written communication which alleges that a default
exists or, with the giving of notice or the lapse of time, or both, would exist
under the provisions of any Property Agreement.


 


(v)                                 No condition
exists whereby Borrower or any future owner of the Property may be required to
purchase any other parcel of land which is subject to any Property Agreement or
which gives any Person a right to purchase, or right of first refusal with
respect to, the Property.


 


(vi)                              To the best
knowledge of Borrower, no offset or any right of offset exists respecting
continued contributions to be made by any party to any Property Agreement
except as expressly set forth therein. Except as previously disclosed to Lender
in writing, no material exclusions or restrictions on the utilization, leasing
or improvement of the Property (including non-compete agreements) exists in any
Property Agreement.


 


(vii)                           All “pre-opening”
requirements contained in all Property Agreements (including, but not limited
to, all off-site and on-site construction requirements), if any, have been
fulfilled, and, to the best of Borrower’s knowledge, no condition now exists
whereby any party to any such Property Agreement could refuse to honor its
obligations thereunder.


 


(viii)                        All work, if
any, to be performed by Borrower under each of the Property Agreements has been
substantially performed, all contributions to be made by Borrower to any party
to such Property Agreements have been made, and all other conditions to such
party’s obligations thereunder have been satisfied.


 


(q)                                 Personal Property.  Borrower has delivered to Lender a true,
correct and complete schedule of all material personal property, if any,
owned by Borrower and located upon the Property or used in connection with the
use or operation of the Realty and Borrower represents that it has good and
marketable title to all such material personal property, free and clear of any
liens, except for liens created under the Loan Documents and liens which
describe the equipment and other personal property owned by tenants.


 


46





















 


(r)                                    Leasing
Brokerage and Management Fees. 
Except as disclosed pursuant to the Management Agreements, there are no
brokerage fees or commissions payable by Borrower with respect to the leasing
of space at the Property and there are no management fees payable by Borrower
with respect to the management of the Property.


 


(s)                                  Security Deposits.  All security deposits with respect to the
Property, if any, on the date hereof have been transferred to the Security
Deposit Account on the date hereof, and Borrower is in compliance with all
Legal Requirements relating to such security deposits as to which failure to
comply might, individually or in the aggregate, have a Material Adverse Effect.


 


(t)                                    Appraisal.  Borrower has no knowledge that any of the
facts or assumptions on which the Appraisal was based are false or incomplete
in any material respect and has no information that would reasonably suggest
that the fair market value determined in the Appraisal does not reflect the actual
fair market value of the Property.


 


(u)                                 Representations
Generally.  The representations and
warranties contained in this Security Instrument, and the review and inquiry
made on behalf of Borrower therefor, have all been made by Persons having the
requisite expertise and knowledge to provide such representations and
warranties.  No representation, warranty
or statement of fact made by or on behalf of Borrower in this Security
Instrument or in any certificate, document or schedule furnished to Lender
pursuant hereto, contains any untrue statement of a material fact or omits to
state any material fact necessary to make statements contained therein or
herein not misleading (which may be to Borrower’s best knowledge where so
provided herein).  There are no facts
presently known to Borrower which have not been disclosed to Lender which
would, individually or in the aggregate, have a Material Adverse Effect nor as
far as Borrower can foresee might, individually or in the aggregate, have a
Material Adverse Effect.


 


(v)                                 Liquor License.  All licenses, permits, approvals and consents
which are required for the sale and service of alcoholic beverages on the
Premises have been obtained from the applicable Governmental Authorities.


 


(w)                               Credit Card Companies.  The only Credit Card Companies are Chase
Merchant Services and American Express.


 


Section 2.06.  Removal of Lien.  (a) Borrower shall, at its
expense, maintain this Security Instrument as a first lien on the Property and
shall keep the Property free and clear of all liens and encumbrances of any
kind and nature other than the Permitted Encumbrances.  Borrower shall, within ten (10) days
following the filing thereof, promptly discharge of record, by bond or
otherwise, any such liens and, promptly upon request by Lender, shall deliver
to Lender evidence reasonably satisfactory to Lender of the discharge thereof.


 


(b)                                 Without limitation to
the provisions of Section 2.06(a) hereof, Borrower shall (i) unless
being contested in good faith by appropriate proceedings in accordance with Section 2.06(c) hereof,
pay, from time to time when the same shall become due, all claims and demands
of mechanics, materialmen, laborers, and others which, if unpaid, might result
in, or permit the creation of, a lien on the Property or any part thereof, (ii) cause
to be removed of record (by


 


47





















 


payment or posting of bond or settlement or otherwise) any mechanics’,
materialmens’, laborers’ or other lien on the Property, or any part thereof, or
on the revenues, rents, issues, income or profit arising therefrom, and (iii) in
general, do or cause to be done, without expense to Lender, everything
reasonably necessary to preserve in full the lien of this Security
Instrument.  If Borrower fails to comply
with the requirements of this Section 2.06(b), then, upon five (5) Business
Days’ prior notice to Borrower, Lender may, but shall not be obligated to, pay
any such lien, and Borrower shall, within five (5) Business Days after
Lender’s demand therefor, reimburse Lender for all sums so expended, together
with interest thereon at the Default Rate from the date advanced, all of which
shall be deemed part of the Debt. 
Nothing contained herein shall be deemed a consent or request of Lender,
express or implied, by inference or otherwise, to the performance of any
alteration, repair or other work by any contractor, subcontractor or laborer or
the furnishing of any materials by any materialmen in connection therewith.


 


(c)                                  Notwithstanding the
foregoing, Borrower may contest any lien (other than a lien relating to
non-payment of Impositions, the contest of which shall be governed by Section 4.04
hereof) of the type set forth in subparagraph (b)(ii) of this Section 2.06
provided that, following prior notice to Lender (i) Borrower is contesting
the validity of such lien with due diligence and in good faith and by
appropriate proceedings, without cost or expense to Lender or any of its
agents, employees, officers, or directors, (ii) Borrower shall preclude
the collection of, or other realization upon, any contested amount from the
Property or any revenues from or interest in the Property, (iii) neither
the Property nor any part thereof nor interest therein, shall be in any danger
of being sold, forfeited or lost by reason of such contest by Borrower, (iv) such
contest by Borrower shall not affect the ownership, use or occupancy of the
Property, (v) such contest by Borrower shall not subject Lender or
Borrower to the risk of civil or criminal liability (other than the civil
liability of Borrower for the amount of the lien in question), (vi) such
lien is subordinate to the lien of this Security Instrument, (vii) Borrower
has not consented to such lien, (viii) Borrower has given Lender prompt
notice of the filing of such lien and the bonding thereof by Borrower and, upon
request by Lender from time to time, notice of the status of such contest by
Borrower and/or confirmation of the continuing satisfaction of the conditions
set forth in this Section 2.06(c), (ix) Borrower shall promptly pay
the obligation secured by such lien upon a final determination of Borrower’s
liability therefor, and (x) Borrower shall deliver to Lender cash, a bond or
other security acceptable to Lender equal to 125% of the contested amount
pursuant to collateral arrangements reasonably satisfactory to Lender.


 


Section 2.07.  Cost of Defending and Upholding this
Security Instrument Lien.  If any
action or proceeding is commenced to which Lender is made a party relating to
the Loan Documents and/or the Property or Lender’s interest therein or in which
it becomes necessary to defend or uphold the lien of this Security Instrument
or any other Loan Document, Borrower shall, on demand, reimburse Lender for all
expenses (including, without limitation, reasonable attorneys’ fees and
disbursements) incurred by Lender in connection therewith, and such sum,
together with interest thereon at the Default Rate from and after such demand
until fully paid, shall constitute a part of the Debt.


 


Section 2.08.  Use of the Property.  Borrower will use, or cause to be used, the
Property for such use as is permitted pursuant to applicable Legal Requirements
including, without limitation, under the certificate of occupancy applicable to
the Property, and which is required by


 


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the Loan Documents.  Borrower
shall not suffer or permit the Property or any portion thereof to be used by
the public, any tenant, or any Person not subject to a Lease, in a manner as is
reasonably likely to impair Borrower’s title to the Property, or in such manner
as may give rise to a claim or claims of adverse usage or adverse possession by
the public, or of implied dedication of the Property or any part thereof.


 


Section 2.09.  Financial Reports.  (a) Borrower
will keep and maintain or will cause to be kept and maintained on a Fiscal Year
basis, in accordance with GAAP, the Uniform System of Accounts (or such other
accounting basis reasonably acceptable to Lender) consistently applied, proper
and accurate books, tax returns, records and accounts reflecting (i) all
of the financial affairs of Borrower, Guarantor and (ii) all items of
income and expense in connection with the operation of the Property or in
connection with any services, equipment or furnishings provided in connection
with the operation thereof, whether such income or expense may be realized by
Borrower or by any other Person whatsoever, excepting lessees unrelated to and
unaffiliated with Borrower who have leased from Borrower portions of the
Premises for the purpose of occupying the same. 
Lender shall have the right from time to time at all times during normal
business hours upon reasonable notice to examine such books, tax returns,
records and accounts at the office of Borrower or other Person maintaining such
books, tax returns, records and accounts and to make such copies or extracts
thereof as Lender shall desire.  After
the occurrence of an Event of Default, Borrower shall pay any costs and expenses
incurred by Lender to examine Borrower’s, Guarantor’s accounting records with
respect to the Property, as Lender shall determine to be necessary or
appropriate in the protection of Lender’s interest.


 


(b)                                 Borrower will furnish
Lender (i) annually, within one hundred twenty (120) days following the
end of each Fiscal Year of Borrower and (ii) on a quarterly basis, within
forty-five (45) days following the end of each fiscal quarter of Borrower, with
a complete copy of Borrower’s financial statement consistently applied covering
(i) all of the financial affairs of Borrower and (ii) the operation
of the Property for such Fiscal Year or fiscal quarters, as applicable, and
containing a statement of revenues and expenses, a statement of assets and
liabilities and a statement of Borrower’s equity.  Each annual financial statement shall be
audited by a nationally recognized Independent certified public accountant that
is acceptable to Lender in accordance with GAAP, the Uniform System of Accounts
(or such other accounting basis reasonably acceptable to Lender).  Together with the financial statements
required to be furnished pursuant to this Section 2.09(b), Borrower shall
furnish to Lender an Officer’s Certificate certifying as of the date thereof (1) that
the financial statements accurately represent the results of operations and
financial condition of Borrower and the Property all in accordance with GAAP,
the Uniform System of Accounts (or such other accounting basis reasonably
acceptable to Lender) consistently applied, and (2) whether there exists a
Default under the Note or any other Loan Document executed and delivered by
Borrower, and if such event or circumstance exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy such
event or circumstance.


 


(c)                                  During the continuance
of an O&M Operative Period and when requested by Lender, Borrower will
furnish Lender monthly, within twenty (20) days following the end of each
month, with a true, complete and correct cash flow statement with respect to
the Property in the form attached hereto as Exhibit C
and made a part hereof, showing (i) all cash receipts of


 


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any kind whatsoever and all cash payments and disbursements and (ii) year-to-date
summaries of such cash receipts, payments and disbursements, together with a
certification of Manager stating that such cash flow statement is true,
complete and correct and a list of all litigation and proceedings affecting
Borrower or the Property in which the amount involved is $250,000 or more, if
not covered by insurance (or $1,000,000 or more whether or not covered by
insurance).


 


(d)                                 During the continuance
of an O&M Operative Period and when requested by Lender, Borrower will
furnish Lender monthly, within twenty (20) days following the end of each
month, with a certification of Manager stating that all sums released from the
Operation and Maintenance Expense Escrow Account to Borrower have been used to
pay Operating Expenses or will be used within thirty (30) days of the date
released to Borrower to pay Operating Expenses pursuant to Section 5.09
hereof (any such certification or any certification furnished by a Manager
pursuant to clause (c) above, a “Manager Certification”).


 


(e)                                  Borrower will furnish
Lender annually, within twenty (20) days following the end of each year and
within twenty (20) days following receipt of such request therefor, with a
true, complete and correct rent roll for the Property, including a list of
which tenants are in default under their respective Leases, dated as of the
date of Lender’s request, identifying the items set forth in the Rent Roll and each
tenant that, to Borrower’s knowledge, has filed a bankruptcy, insolvency, or
reorganization proceeding since delivery of the last such rent roll, and the
arrearages, if any, for each tenant, if any, and such rent roll shall be
accompanied by an Officer’s Certificate, dated as of the date of the delivery
of such rent roll, certifying that such rent roll is true, correct and complete
in all material respects as of its date.


 


(f)                                    Borrower shall
furnish to Lender, within thirty (30) days after Lender’s request therefor,
with such further detailed information with respect to the operation of the
Property and the financial affairs of Borrower as may be reasonably requested
by Lender.


 


(g)                                 Borrower shall cause
Manager to furnish to Lender, within one hundred twenty (120) days following
the end of each Fiscal Year of Borrower and upon request of Lender, a schedule of
tenant security deposits showing any activity in the Security Deposit Account
for such month, together with a certification of Manager as to the balance in
such Security Deposit Account and that such tenant security deposits are being
held in accordance with all Legal Requirements.


 


(h)                                 Borrower will furnish
Lender annually, within ninety (90) days after the end of each Fiscal Year,
with a report setting forth (i) the Net Operating Income for such Fiscal
Year, (ii) the average occupancy rate of the Property during such Fiscal
Year, (iii) the Capital Expenditures incurred at the Property during such
Fiscal Year and the aggregate Recurring Replacement Expenditures made in
connection therewith, and (iv) the balance contained in each of the Escrow
Accounts as of the end of such Fiscal Year (which balance Lender shall provide
upon Borrower’s written request therefor).


 


(i)                                     Borrower shall
cause Manager to keep and maintain on a Fiscal Year basis, in accordance with
GAAP and the Uniform System of Accounts (or such other accounting basis
reasonably acceptable to Lender) consistently applied, proper and accurate
books, records and


 


50





















 


accounts on an accrual basis reflecting (i) all of the financial
results of operation and financial conditions of Manager and (ii) all
items of income and expense in connection with the operation of the Property or
in connection with any services, equipment or furnishings provided in
connection with the operation thereof, whether such income or expense may be
realized by Manager or by any other Person whatsoever.  Lender shall have the right from time to time
at all times during normal business hours upon reasonable notice to examine
such books, records and accounts at the office of Manager or other Person
maintaining such books, records and accounts and to make such copies or
extracts thereof as Lender shall desire. 
After the occurrence of an Event of Default, Borrower shall pay any
costs and expenses incurred by Lender to examine Manager’s accounting records
with respect to the Property, as Lender shall determine to be necessary or
appropriate in the protection of Lender’s interest.


 


(j)                                     Borrower will
furnish Lender monthly, within thirty (30) days following the end of each
month, an occupancy summary for the Property setting forth the occupancy rates,
average daily room rates, RevPAR Yield Index, RevPAR and room revenues for each
month of the current calendar year, as well as year-to-date averages, and such
other information as may customarily be reflected thereon or reasonably requested
by Lender, together with all STR Reports received by Borrower during the
preceding month.


 


(k)                                  Borrower shall and
shall cause Guarantor to furnish to Lender annually, within thirty (30) days of
filing its respective tax return, a copy of such tax return and within ninety
(90) days after the end of each Fiscal Year or in lieu thereof deliver annual
financial statements of Guarantor prepared in accordance with GAAP which are
audited by a nationally recognized Independent certified public accountant that
is reasonably acceptable to Lender.


 


(l)                                     Borrower shall
submit to Lender for Lender’s written approval an Annual Budget not later than fifteen
(15) days prior to the commencement of each Fiscal Year, in form reasonably satisfactory
to Lender setting forth in reasonable detail budgeted monthly operating income
and monthly operating capital and other expenses for the Property.  Each Annual Budget shall contain, among other
things, management fees, third party service fees, and other expenses as
Borrower may reasonably determine. 
Lender shall have the right to approve such Annual Budget which approval
shall not be unreasonably withheld, and in the event that Lender objects to the
proposed Annual Budget submitted by Borrower, Lender shall advise Borrower of
such objections within fifteen (15) days after receipt thereof (and deliver to
Borrower a reasonably detailed description of such objections) and Borrower
shall, within ten (10) days after receipt of notice of any such
objections, revise such Annual Budget and resubmit the same to Lender.  Lender shall advise Borrower of any
objections to such revised Annual Budget within ten (10) days after
receipt thereof (and deliver to Borrower a reasonably detailed description of
such objections) and Borrower shall revise the same in accordance with the
process described herein until Lender approves an Annual Budget, provided,
however, that if Lender shall not advise Borrower of its objections to any
proposed Annual Budget within the applicable time period set forth in this
Section, then such proposed Annual Budget shall be deemed approved by
Lender.  Until such time that Lender
approves a proposed Annual Budget, the most recently Approved Annual Budget
shall apply; provided that, such Approved Annual Budget shall be adjusted to
reflect actual increases in Basic Carrying Costs and utilities expenses and to
delete any non-recurring expenses.  In
the event that Borrower must incur an Extraordinary Expense, then


 


51





















 


Borrower shall promptly deliver to Lender a reasonably detailed
explanation of such proposed Extraordinary Expense for Lender’s approval, which
approval may be granted or denied in Lender’s sole and absolute discretion.


 


(m)                               In the event that
Borrower fails to deliver any of the financial statements, reports or other
information required to be delivered to Lender pursuant to this Section 2.09
on or prior to their due dates, if any such failure shall continue for ten (10) days
following notice thereof from Lender, Borrower shall pay to Lender on each
Payment Date for each month or portion thereof that any such financial
statements, reports or other information remains undelivered, an administrative
fee in the amount of Two Thousand Five Hundred Dollars ($2,500) in the
aggregate for all failures occurring in any applicable month.  Borrower agrees that such administrative fee (i) is
a fair and reasonable fee necessary to compensate Lender for its additional
administrative costs and increased costs relating to Borrower’s failure to
deliver the aforementioned statements, reports or other items as and when
required hereunder and (ii) is not a penalty.


 


Section 2.10.  Litigation.  Borrower will give prompt written notice to
Lender of any litigation or governmental proceedings pending or threatened (in
writing) against Borrower which are reasonably likely to have a Material
Adverse Effect.


 


Section 2.11.  Updates of Representations.  Borrower shall deliver to Lender within ten (10) days
of the request of Lender an Officer’s Certificate updating all of the
representations and warranties contained in this Security Instrument and the
other Loan Documents and certifying that all of the representations and
warranties contained in this Security Instrument and the other Loan Documents,
as updated pursuant to such Officer’s Certificate, are true, accurate and
complete as of the date of such Officer’s Certificate.  Notwithstanding the foregoing, provided that
no Event of Default has occurred and is continuing, Borrower shall not be
required to deliver the foregoing Officer’s Certificate more than three (3) times
during the term of the Loan.


 


Section 2.12.  Major Contracts.  Borrower shall not enter into any new Major
Contracts or amend any existing Major Contracts without, in each instance,
first obtaining Lender’s prior consent, which consent shall not be unreasonably
withheld.  Notwithstanding the foregoing,
Lender hereby approves Jeffrey Chodorow or any entity Controlled by Jeffrey
Chodorow as a restaurant and bar operator for the bars and restaurants situated
at the Premises, but reserves the right to approve any economic terms of any
new Major Contracts with Jeffrey Chodorow or any entity Controlled by Jeffrey
Chodorow unless such new Major Contracts are on terms which are substantially
the same or more favorable to the Property than the terms of the applicable
Major Contracts in effect prior to the amendment or renewal thereof, in which
case such new Major Contracts shall be deemed approved by Lender.


 


ARTICLE III:  INSURANCE AND
CASUALTY RESTORATION


 


Section 3.01.  Insurance Coverage.  Borrower shall, at its expense, maintain the
following insurance coverages with respect to the Property during the term of
this Security Instrument:


 


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(a)                                  (i) Insurance
against loss or damage by fire, casualty and other hazards included in an “all-risk”
coverage endorsement or its equivalent, with such endorsements as Lender may
from time to time reasonably require and which are customarily required by
Institutional Lenders of similar properties similarly situated, including,
without limitation, if the Property constitutes a legal non-conforming use, an
ordinance of law coverage endorsement which contains “Demolition Cost”, “Loss
Due to Operation of Law” and “Increased Cost of Construction” coverages,
covering the Property in an amount not less than the greater of (A) 100%
of the insurable replacement value of the Property (exclusive of the Premises
and footings and foundations) and (B) such other amount as is necessary to
prevent any reduction in such policy by reason of and to prevent Borrower,
Lender or any other insured thereunder from being deemed to be a
co-insurer.  Not less frequently than
once every three (3) years, Borrower, at its option, shall either (A) have
the Appraisal updated or obtain a new appraisal of the Property, (B) have
a valuation of the Property made by or for its insurance carrier conducted by
an appraiser experienced in valuing properties of similar type to that of the
Property which are in the geographical area in which the Property is located or
(C) provide such other evidence as will, in Lender’s sole judgment, enable
Lender to determine whether there shall have been an increase in the insurable
value of the Property and Borrower shall deliver such updated Appraisal, new
appraisal, insurance valuation or other evidence acceptable to Lender, as the
case may be, and, if such updated Appraisal, new appraisal, insurance
valuation, or other evidence acceptable to Lender reflects an increase in the
insurable value of the Property, the amount of insurance required hereunder
shall be increased accordingly and Borrower shall deliver evidence satisfactory
to Lender that such policy has been so increased.


 


(ii)                                  Commercial
general liability insurance against claims for personal and bodily injury
and/or death to one or more persons or property damage, occurring on, in or
about the Property (including the adjoining streets, sidewalks and passageways
therein) in such amounts as Lender may from time to time reasonably require
(but in no event shall Lender’s requirements be increased more frequently than
once during each twelve (12) month period) and which are customarily required
by Institutional Lenders for similar properties similarly situated, but not
less than $1,000,000 per occurrence and $2,000,000 general aggregate on a per
location basis and, in addition thereto, not less than $75,000,000 excess
and/or umbrella liability insurance shall be maintained for any and all claims.


 


(iii)                               Business
interruption, rent loss or other similar insurance with an unlimited indemnity
period (A) with loss payable to Lender, (B) covering all risks
required to be covered by the insurance provided for in Section 3.01(a)(i) hereof
and (C) in an amount not less than 100% of the projected total revenues
derived from the Property for the succeeding twenty-four (24) month period
based on an occupancy rate taking into account historical and projected
occupancy.  The amount of such insurance
shall be determined upon the execution of this Security Instrument, and not
more frequently than once each calendar year thereafter based on Borrower’s
reasonable estimate of projected fixed or base rent plus percentage rent, from
the Property for the next succeeding twenty-four (24) months.  In the event the Property shall be damaged or
destroyed, Borrower shall and hereby does assign to Lender all payment of
claims under the policies of such insurance, and all amounts payable
thereunder, and all net amounts, shall be collected by Lender under such
policies and shall be applied in accordance with this


 


53





















 


Security
Instrument; provided, however, that nothing herein contained shall be deemed to
relieve Borrower of its obligations to timely pay all amounts due under the
Loan Documents.


 


(iv)                              War risk
insurance when such insurance is obtainable from the United States of America
or any agency or instrumentality thereof at reasonable rates (for the maximum
amount of insurance obtainable) and if requested by Lender, and such insurance
is then customarily required by Institutional Lenders of similar properties
similarly situated.  As of the Closing
Date, no insurance of the type set forth in this Section 3.01(a)(iv) is
required.


 


(v)                                 Insurance
against loss or damages from (A) leakage of sprinkler systems and (B) explosion
of steam boilers, air conditioning equipment, pressure vessels or similar
apparatus now or hereafter installed at the Property, in such amounts as Lender
may from time to time reasonably require and which are then customarily
required by Institutional Lenders of similar properties similarly situated.


 


(vi)                              Flood insurance
in an amount equal to the full insurable value of the Property or the maximum
amount available, whichever is less, if the Improvements are located in an area
designated by the Secretary of Housing and Urban Development as being “an area
of special flood hazard” under the National Flood Insurance Program (i.e.,
having a one percent or greater chance of flooding), and if flood insurance is
available under the National Flood Insurance Act.


 


(vii)                           Worker’s
compensation insurance or other similar insurance which may be required by
Governmental Authorities or Legal Requirements.


 


(viii)                        Intentionally
omitted.


 


(ix)                                Insurance
against damage resulting from acts of terrorism, or an insurance policy without
an exclusion for damages resulting from terrorism, on terms consistent with the
commercial property insurance policy required under subsections (i), (ii) and
(iii) above; provided, however, Borrower shall not be required to carry
more than the amount of insurance required pursuant to this Section 3.01(a)(ix) as
is available for an annual premium of 150% of the total annual premium of all
insurance required pursuant to this Section 3.01(a) during the last
policy year that such terrorism insurance was included within the “all risk”
property insurance policy obtained pursuant to Section 3.01(a)(i).


 


(x)                                   Such other
insurance as may from time to time be required by Lender and which is then
customarily required by Institutional Lenders for similar properties similarly
situated, against other insurable hazards, including, but not limited to,
malicious mischief, vandalism, loss resulting from mold, spores or fungus on or
about the Premises (which Lender acknowledges, as of the Closing Date is not
required hereunder), sinkhole and mine subsidence, acts of terrorism, windstorm
and/or earthquake, due regard to be given to the size and type of the Premises,
Improvements, Fixtures and Equipment and their location, construction and
use.  Additionally, Borrower shall carry
such insurance coverage as Lender may from time to time require if the failure
to carry such insurance may result in a downgrade, qualification or withdrawal
of any class of securities issued in connection with a Securitization or, if
the Loan is not yet part of a


 


54





















 


Securitization,
would result in an increase in the subordination levels of any class of
securities anticipated to be issued in connection with a proposed
Securitization.


 


(xi)                                If Borrower,
any of its Affiliates or Manager holds a liquor license for the Premises,
liquor liability insurance in the amount of no less than $10,000,000.


 


(xii)                             Automobile
liability insurance covering owned, hired and not owned vehicles in an amount
of not less than $1,000,000 per accident.


 


(b)                                 Borrower shall cause
any Manager of the Property to maintain fidelity insurance in an amount equal
to or greater than the annual Operating Income of the Property for the six (6) month
period immediately preceding the date on which the premium for such insurance
is due and payable or such lesser amount as Lender shall approve.


 


Section 3.02.  Policy Terms.  (a) All insurance required by
this Article III shall be in the form (other than with respect to Sections
3.01(a)(vi) and (vii) above when insurance in those two sub-sections
is placed with a governmental agency or instrumentality on such agency’s forms)
and amount and with deductibles as, from time to time, shall be reasonably
acceptable to Lender, under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State where
the Property is located, with a general policyholder’s service rating of not
less than A and a financial rating of not less than XIII as rated in the most
currently available Best’s Insurance Reports (or the equivalent, if such rating
system shall hereafter be altered or replaced) and shall have a claims paying
ability rating and/or financial strength rating, as applicable, of not less
than “A” (or its equivalent), or such lower claims paying ability rating and/or
financial strength rating, as applicable, as Lender shall, in its reasonable
discretion (taking into account then current Rating Agency guidelines), consent
to, from a Rating Agency (one of which after a Securitization in which Standard &
Poor’s rates any securities issued in connection with such Securitization,
shall be Standard & Poor’s) or by a syndicate of insurers through
which at least 90% of the coverage is with carriers having claims-paying
ability or financial strength ratings of “A” (or its equivalent) from the
Ratings Agencies, provided that all members of the syndicate shall have
claims-paying ability ratings and/or financial strength ratings, as applicable,
of not less than “A-” (or its equivalent) from the Ratings Agencies.  Notwithstanding the foregoing, Lender
approves (i) Continental Casualty Company, (ii) RSUI Indemnity
Company, and (iii) Fidelity National Insurance Company as insurers,
provided that throughout the term of the Loan the claims paying ability rating
and/or financial strength rating, as applicable, from each Rating Agency for
such insurers shall be no less than “A-” (or its equivalent).  Originals or certified copies of all
insurance policies shall be delivered to and held by Lender.  All such policies (except policies for worker’s
compensation) shall name Lender, its successors and/or assigns as an additional
named insured, with respect to the insurance required pursuant to Section 3.01(a)(iii) above,
shall provide for loss payable to Lender, its successors and/or assigns and
shall contain (or have attached):  (i) standard
“non-contributory mortgagee” endorsement or its equivalent relating, inter
alia, to recovery by Lender notwithstanding the negligent or willful
acts or omissions of Borrower; (ii) a waiver of subrogation endorsement as
to Lender; (iii) an endorsement indicating that neither Lender nor
Borrower shall be or be deemed to be a co-insurer with respect to any casualty
risk insured by such policies and shall provide for a deductible per loss of an
amount not more than the lesser of (x) that which is customarily


 


55





















 


maintained by owners of similar properties similarly situated and (y)
$100,000 or, with respect to the deductible under any insurance against losses
resulting from windstorms, 3.5% of the values at risk or, with respect to the
deductible under any insurance against losses resulting from earthquake, 5% of
the values at risk, and (iv) a provision that such policies shall not be
canceled, terminated, denied renewal or amended, including, without limitation,
any amendment reducing the scope or limits of coverage, without at least thirty
(30) days’ prior written notice to Lender in each instance.  Not less than thirty (30) days prior to the
expiration dates of the insurance policies obtained pursuant to this Security
Instrument, originals or certified copies of renewals of such policies (or
certificates evidencing such renewals) bearing notations evidencing the payment
of premiums or accompanied by other reasonable evidence of such payment (which
premiums shall not be paid by Borrower through or by any financing arrangement
which would entitle an insurer to terminate a policy; provided, however,
premiums for the insurance required pursuant to Section 3.01(a)(i) may
be paid quarterly in advance or as otherwise reasonably acceptable to Lender,
it being acknowledged that paying the premium for such policies by financing
the same, paying twenty percent (20%) of the total annual premium (inclusive of
finance charges) at the time of the applicable policy renewal and paying the
remaining eighty percent (80%) of the total annual premium (inclusive of
finance charges) in nine (9) equal monthly installments is acceptable to
Lender) shall be delivered by Borrower to Lender.  Borrower shall not carry separate insurance,
concurrent in kind or form or contributing in the event of loss, with any insurance
required under this Article III.


 


(b)                                 If Borrower fails to
maintain and deliver to Lender the original policies or certificates of
insurance required by this Security Instrument, or if there are insufficient
funds in the Basic Carrying Costs Escrow Account to pay the premiums for same,
Lender may, at its option, procure such insurance, and Borrower shall pay, or
as the case may be, reimburse Lender for, all premiums thereon promptly, upon
demand by Lender, with interest thereon at the Default Rate from the date paid
by Lender to the date of repayment and such sum shall constitute a part of the
Debt.


 


(c)                                  Borrower shall notify
Lender of the renewal premium of each insurance policy and Lender shall be
entitled to pay such amount on behalf of Borrower from the Basic Carrying Costs
Escrow Account in accordance with the financing schedule of the payments
for such premiums, if any, or, if an Event of Default has occurred and is
continuing, in full or such other manner as Lender may elect.  With respect to insurance policies which
require periodic payments (i.e., monthly or quarterly) of premiums, Lender
shall be entitled to pay such amounts ten (10) days (or such lesser number
of days as Lender shall determine) prior to the respective due dates of such
installments.


 


(d)                                 The
insurance required by this Security Instrument may, at the option of Borrower,
be effected by blanket and/or umbrella policies issued to Borrower covering the
Property provided that, in each case, the policies otherwise comply with the
provisions of this Security Instrument and allocate to the Property, from time
to time (but in no event less than once a year), the coverage specified by this
Security Instrument, without possibility of reduction or coinsurance by reason
of damage to any other property (real or personal) named therein.  If the insurance required by this Security
Instrument shall be effected by any such blanket or umbrella policies, Borrower
shall furnish to Lender (i) original policies or certified copies


 


56





















 


thereof, or an original certificate of
insurance together with reasonable access to the original of such policy to
review such policy’s coverage of the Property, with schedules attached thereto
showing the amount of the insurance provided under such policies applicable to
the Property and (ii) an Officer’s Certificate setting forth (A) the
number of properties covered by such policy, (B) the location by city (if
available, otherwise, county) and state of the properties, (C) the average
square footage of the properties, (D) a brief description of the typical
construction type included in the blanket policy and (E) such other
information as Lender may reasonably request.


 


Section 3.03.  Assignment of Policies.  (a) Borrower
hereby assigns to Lender the proceeds of all insurance (other than worker’s
compensation and liability insurance) obtained pursuant to this Security
Instrument, all of which proceeds shall be payable to Lender as collateral and
further security for the payment of the Debt and the performance of the
Cross-collateralized Borrowers’ obligations hereunder and under the other Loan
Documents, and Borrower hereby authorizes and directs the issuer of any such
insurance to make payment of such proceeds directly to Lender.  Except as otherwise expressly provided in Section 3.04
or elsewhere in this Article III, Lender shall have the option, in its
discretion, and without regard to the adequacy of its security, to apply all or
any part of the proceeds it may receive pursuant to this Article in such
manner as Lender may elect to any one or more of the following:  (i) the payment of the Debt, whether or
not then due, in accordance with the provisions of the Note, (ii) the
repair or restoration of the Property, (iii) the cure of any Default or (iv) the
reimbursement of the costs and expenses of Lender incurred pursuant to the
terms hereof in connection with the recovery of the Insurance Proceeds.  Subject to Section 15.03(a), nothing
herein contained shall be deemed to excuse Borrower from repairing or
maintaining the Property as provided in this Security Instrument or restoring
all damage or destruction to the Property, regardless of the sufficiency of the
Insurance Proceeds, and the application or release by Lender of any Insurance
Proceeds shall not cure or waive any Default or notice of Default.


 


(b)                                 In the event of the
foreclosure of this Security Instrument or any other transfer of title or
assignment of all or any part of the Property in extinguishment, in whole or in
part, of the Debt, all right, title and interest of Borrower in and to all
policies of insurance required by this Security Instrument shall inure to the
benefit of the successor in interest to Borrower or the purchaser of the
Property.  If, prior to the receipt by
Lender of any proceeds, the Property or any portion thereof shall have been
sold on foreclosure of this Security Instrument or by deed in lieu thereof or
otherwise, or any claim under such insurance policy arising during the term of
this Security Instrument is not paid until after the extinguishment of the
Debt, and Lender shall not have received the entire amount of the Debt
outstanding at the time of such extinguishment, whether or not a deficiency
judgment on this Security Instrument shall have been sought or recovered or
denied, then, the proceeds of any such insurance to the extent of the amount of
the Debt not so received, shall be paid to and be the property of Lender,
together with interest thereon at the Default Rate, and the reasonable attorney’s
fees, costs and disbursements incurred by Lender in connection with the
collection of the proceeds which shall be paid to Lender and Borrower hereby
assigns, transfers and sets over to Lender all of Borrower’s right, title and
interest in and to such proceeds. 
Notwithstanding any provisions of this Security Instrument to the
contrary, Lender shall not be deemed to be a trustee or other fiduciary with
respect to its receipt of any such proceeds, which may be commingled with any
other monies of Lender; provided, however, that Lender shall use such proceeds
for the purposes and in the manner


 


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permitted by this Security Instrument. 
Any proceeds deposited with Lender shall be held by Lender in an
interest-bearing account, but Lender makes no representation or warranty as to
the rate or amount of interest, if any, which may accrue on such deposit and
shall have no liability in connection therewith.  Interest accrued, if any, on the proceeds
shall be deemed to constitute a part of the proceeds for purposes of this
Security Instrument.  The provisions of
this Section 3.03(b) shall survive the termination of this Security
Instrument by foreclosure, deed in lieu thereof or otherwise as a consequence
of the exercise of the rights and remedies of Lender hereunder after a Default.


 


Section 3.04.  Casualty Restoration.  (a) (i) In
the event of any damage to or destruction of the Property, Borrower shall give
prompt written notice to Lender (which notice shall set forth Borrower’s good
faith estimate of the cost of repairing or restoring such damage or
destruction, or if Borrower cannot reasonably estimate the anticipated cost of
restoration, Borrower shall nonetheless give Lender prompt notice of the
occurrence of such damage or destruction, and will diligently proceed to obtain
estimates to enable Borrower to quantify the anticipated cost and time required
for such restoration, whereupon Borrower shall promptly notify Lender of such
good faith estimate) and, provided that restoration does not violate any Legal
Requirements, Borrower shall promptly commence and diligently prosecute to
completion the repair, restoration or rebuilding of the Property so damaged or
destroyed to a condition such that the Property shall be at least equal in
value to that immediately prior to the damage to the extent practicable, in
full compliance with all Legal Requirements and the provisions of all Leases,
and in accordance with Section 3.04(b) below.  Such repair, restoration or rebuilding of the
Property including, without limitation, preparation of plans and specifications
in connection therewith, are sometimes hereinafter collectively referred to as
the “Work”.


 


(ii)                                  Borrower shall
not adjust, compromise or settle any claim for Insurance Proceeds without the
prior written consent of Lender, which shall not be unreasonably withheld or
delayed and Lender shall have the right, at Borrower’s sole cost and expense,
to participate in any settlement or adjustment of Insurance Proceeds; provided,
however, that, except during the continuance of an Event of Default, Lender’s
consent shall not be required with respect to the adjustment, compromising or
settlement of any claim for Insurance Proceeds in an amount less than $250,000.


 


(iii)                               Subject to Section 3.04(a)(iv),
Lender shall apply any Insurance Proceeds which it may receive towards the Work
in accordance with Section 3.04(b) and the other applicable sections
of this Article III.


 


(iv)                              If (A) a
Default shall have occurred, (B) Lender is not reasonably satisfied that
the Debt Service Coverage, after substantial completion of the Work, will be at
least equal to the Required Debt Service Coverage, (C) more than thirty
percent (30%) of the reasonably estimated fair market value of the Property is
damaged or destroyed, (D) any Leases physically affected by such
destruction shall not continue in full force and effect, (E) Lender is not
reasonably satisfied that the Work can be completed six (6) months prior
to Maturity or (F) Lender is not reasonably satisfied that the Work can be
completed within twelve (12) months of the damage to or destruction of the
Property (each, a “Substantial Casualty”), Lender shall have the option,
in its sole discretion to apply any Insurance Proceeds it may receive pursuant
to this Security


 


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Instrument
(less any cost to Lender of recovering and paying out such proceeds incurred
pursuant to the terms hereof and not otherwise reimbursed to Lender, including,
without limitation, reasonable attorneys’ fees and expenses) to the payment of
the Debt, without any prepayment fee or charge of any kind other than the Exit
Fee, or to allow such proceeds to be used for the Work pursuant to the terms
and subject to the conditions of Section 3.04(b) hereof and the other
applicable sections of this Article III.


 


(v)                                 In the event
that Lender elects or is obligated hereunder to allow Insurance Proceeds to be
used for the Work, any excess proceeds remaining after completion of such Work
shall be applied to the payment of the Debt without any prepayment fee or
charge of any kind other than the Exit Fee.


 


(b)                                 If any Condemnation
Proceeds in accordance with Section 6.01(a), or any Insurance Proceeds in
accordance with Section 3.04(a), are to be applied to the repair,
restoration or rebuilding of the Property, then such Condemnation Proceeds or
Insurance Proceeds shall be deposited into a segregated interest-bearing bank
account at the Bank, which shall be an Eligible Account, held by Lender and
shall be paid out from time to time to Borrower as the Work progresses (less
any cost to Lender of recovering and paying out such proceeds, including,
without limitation, reasonable attorneys’ fees and costs allocable to
inspecting the Work and the plans and specifications therefor) subject to Section 5.13
hereof and to all of the following conditions:


 


(i)                                     An Independent
architect or engineer selected by Borrower and reasonably acceptable to Lender
(an “Architect” or “Engineer”) or a Person otherwise reasonably acceptable
to Lender, shall have delivered to Lender a certificate estimating the cost of
completing the Work, and, if the amount set forth therein is more than the sum
of the amount of Insurance Proceeds then being held by Lender in connection
with a casualty and amounts agreed to be paid as part of a final settlement
under the insurance policy upon or before completion of the Work, Borrower
shall have delivered to Lender (A) cash collateral in an amount equal to
such excess, (B) an unconditional, irrevocable, clean sight draft letter
of credit, in form, substance and issued by a bank reasonably acceptable to
Lender, in the amount of such excess and draws on such letter of credit shall
be made by Lender to make payments pursuant to this Article III following
exhaustion of the Insurance Proceeds or Condemnation Proceeds, as applicable,
therefor or (C) a completion bond in form, substance and issued by a
surety company reasonably acceptable to Lender.


 


(ii)                                  If the cost of
the Work relating to any Cross-collateralized Property is reasonably estimated
by an Architect or Engineer in a certification reasonably acceptable to Lender
to be equal to or exceed five percent (5%) of the Allocated Loan Amount of the
applicable Cross-collateralized Property, such Work shall be performed under
the supervision of an Architect or Engineer, it being understood that the plans
and specifications with respect thereto shall provide for Work so that, upon
completion thereof, the Property shall be at least equal in replacement value and
general utility to the Property prior to the damage or destruction.


 


(iii)                               Each request
for payment shall be made on not less than ten (10) days’ prior notice to
Lender and shall be accompanied by a certificate of an Architect or Engineer,
or, if the


 


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Work
is not required to be supervised by an Architect or Engineer, by an Officer’s
Certificate stating (A) that payment is for Work completed in compliance
with the plans and specifications, if required under clause (ii) above, (B) that
the sum requested is required to reimburse Borrower for payments by Borrower to
date, or is due to the contractors, subcontractors, materialmen, laborers,
engineers, architects or other Persons rendering services or materials for the
Work (giving a brief description of such services and materials), and that when
added to all sums previously paid out by Lender does not exceed the value of
the Work done to the date of such certificate, (C) if the sum requested is
to cover payment relating to repair and restoration of personal property
required or relating to the Property, that title to the personal property items
covered by the request for payment is vested in Borrower (unless Borrower is
lessee of such personal property), and (D) that the Insurance Proceeds and
other amounts deposited by Borrower held by Lender after such payment is more
than the estimated remaining cost to complete such Work; provided, however,
that if such certificate is given by an Architect or Engineer, such Architect
or Engineer shall certify as to clause (A) above, and such Officer’s
Certificate shall certify as to the remaining clauses above, and provided,
further, that Lender shall not be obligated to disburse such funds if Lender
determines, in Lender’s reasonable discretion, that Borrower shall not be in
compliance with this Section 3.04(b). 
Additionally, each request for payment shall contain a statement signed
by Borrower stating that the requested payment is for Work completed to date.


 


(iv)                              Each request
for payment shall be accompanied by waivers of lien, in customary form and
substance, covering that part of the Work for which payment or reimbursement is
being requested and, if required by Lender, a search prepared by a title
company or licensed abstractor, or by other evidence reasonably satisfactory to
Lender that there has not been filed with respect to the Property any mechanic’s
or other lien or instrument for retention of title relating to any part of the
Work not discharged of record.  Additionally,
as to any personal property covered by the request for payment, Lender shall be
furnished with evidence of Borrower having incurred a payment obligation
therefor and such further evidence reasonably satisfactory to assure Lender
that UCC filings therefor provide a valid first lien on the personal property.


 


(v)                                 Lender shall
have the right to inspect the Work at all reasonable times upon reasonable
prior notice and may condition any disbursement of Insurance Proceeds upon
satisfactory compliance by Borrower with the provisions hereof.  Neither the approval by Lender of any
required plans and specifications for the Work nor the inspection by Lender of
the Work shall make Lender responsible for the preparation of such plans and
specifications, or the compliance of such plans and specifications of the Work,
with any applicable law, regulation, ordinance, covenant or agreement.


 


(vi)                              Insurance
Proceeds shall not be disbursed more frequently than once every thirty (30)
days.


 


(vii)                           Until such time
as the Work has been substantially completed, Lender shall not be obligated to
disburse up to ten percent (10%) of the cost of the Work (the “Retention
Amount”) to Borrower.  Upon
substantial completion of the Work, Borrower shall send notice thereof to
Lender and, subject to the conditions of Section 3.04(b)(i)-(iv), Lender
shall disburse one-half of the


 


60


















 


Retention
Amount to Borrower; provided, however, that the remaining one-half of the
Retention Amount shall be disbursed to Borrower when Lender shall have received
copies of any and all certificates of occupancy or other certificates, licenses
and permits required for the ownership, occupancy and operation of the Property
in accordance with all Legal Requirements. 
Borrower hereby covenants to diligently seek to obtain any such
certificates, licenses and permits.


 


(viii)                        Upon failure on
the part of Borrower promptly after a casualty or Taking to commence the Work
or to proceed diligently and continuously to completion of the Work, which
failure shall continue after notice for thirty (30) days, Lender may apply any
Insurance Proceeds or Condemnation Proceeds it then or thereafter holds to the
payment of the Debt in accordance with the provisions of the Note; provided,
however, that Lender shall be entitled to apply at any time all or any portion
of the Insurance Proceeds or Condemnation Proceeds it then holds to the extent
necessary to cure any Event of Default.


 


(c)                                  If Borrower (i) within
one hundred twenty (120) days after the occurrence of any damage to the
Property or any portion thereof (or such shorter period as may be required
under any Major Space Lease) shall fail to submit to Lender for approval plans
and specifications for the Work (approved by the Architect and by all
Governmental Authorities whose approval is required), (ii) after any such
plans and specifications are approved by all Governmental Authorities, the
Architect and Lender, shall fail to promptly commence such Work after a
casualty or Taking or (iii) shall fail to diligently prosecute such Work
to completion, then, in addition to all other rights available hereunder, at
law or in equity, Lender, or any receiver of the Property or any portion
thereof, upon five (5) days’ prior notice to Borrower (except in the event
of emergency in which case no notice shall be required), may (but shall have no
obligation to) perform or cause to be performed such Work, and may take such
other steps as it reasonably deems advisable. 
Borrower hereby waives, for Borrower, any claim, other than for gross
negligence or willful misconduct, against Lender and any receiver arising out
of any act or omission of Lender or such receiver pursuant hereto, and Lender
may apply all or any portion of the Insurance Proceeds (without the need to
fulfill any other requirements of this Section 3.04) to reimburse Lender
and such receiver, for all costs not reimbursed to Lender or such receiver upon
demand together with interest thereon at the Default Rate from the date such
amounts are advanced until the same are paid to Lender or the receiver.


 


(d)                                 Borrower hereby
irrevocably appoints Lender as its attorney-in-fact, coupled with an interest,
to collect and receive any Insurance Proceeds paid with respect to any portion
of the Property or the insurance policies required to be maintained hereunder,
and to endorse any checks, drafts or other instruments representing any
Insurance Proceeds whether payable by reason of loss thereunder or otherwise.


 


Section 3.05.  Compliance with Insurance Requirements.  Borrower promptly shall comply with, and
shall cause the Property to comply with, all Insurance Requirements, even if
such compliance requires structural changes or improvements or would result in
interference with the use or enjoyment of the Property or any portion thereof
provided Borrower shall have a right to contest in good faith and with
diligence such Insurance Requirements provided (a) no Event of Default
shall exist during such contest and such contest shall not subject the Property
or any portion thereof to any lien or affect the priority of the lien of this
Security Instrument, (b)


 


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failure to comply with such Insurance Requirements will not subject
Lender, or any of its agents, employees, officers or directors to any civil or
criminal liability, (c) such contest will not cause any reduction in
insurance coverage, (d) such contest shall not affect the ownership, use
or occupancy of the Property, (e) the Property or any part thereof or any
interest therein shall not be in any danger of being sold, forfeited or lost by
reason of such contest by Borrower, (f) Borrower has given Lender prompt
notice of such contest and, upon request by Lender from time to time, notice of
the status of such contest by Borrower and/or information of the continuing
satisfaction of the conditions set forth in clauses (a) through (e) of
this Section 3.05, (g) upon a final determination of such contest,
Borrower shall promptly comply with the requirements thereof, and (h) prior
to and during such contest, Borrower shall furnish to Lender security
satisfactory to Lender, in its reasonable discretion, against loss or injury by
reason of such contest or the non-compliance with such Insurance Requirement
(and if such security is cash, Lender shall deposit the same in an
interest-bearing account and interest accrued thereon, if any, shall be deemed
to constitute a part of such security for purposes of this Security Instrument,
but Lender (i) makes no representation or warranty as to the rate or
amount of interest, if any, which may accrue thereon and shall have no
liability in connection therewith and (ii) shall not be deemed to be a
trustee or fiduciary with respect to its receipt of any such security and any
such security may be commingled with other monies of Lender).  If Borrower shall use the Property or any
portion thereof in any manner which could permit the insurer to cancel any
insurance required to be provided hereunder, Borrower immediately shall obtain
a substitute policy which shall satisfy the requirements of this Security
Instrument and which shall be effective on or prior to the date on which any
such other insurance policy shall be canceled. 
Borrower shall not by any action or omission invalidate any insurance
policy required to be carried hereunder unless such policy is replaced as
aforesaid, or materially increase the premiums on any such policy above the
normal premium charged for such policy. 
Borrower shall cooperate with Lender in obtaining for Lender the
benefits of any Insurance Proceeds lawfully or equitably payable to Lender in
connection with the transaction contemplated hereby.


 


Section 3.06.  Event of Default During Restoration.   Notwithstanding anything to the contrary
contained in this Security Instrument including, without limitation, the
provisions of this Article III, if, at the time of any casualty affecting
the Property or any part thereof, or at any time during any Work, or at any
time that Lender is holding or is entitled to receive any Insurance Proceeds
pursuant to this Security Instrument, a Default exists and is continuing
(whether or not it constitutes an Event of Default), Lender shall then have no
obligation to make such proceeds available for Work and Lender shall have the
right and option, to be exercised in its sole and absolute discretion and
election, with respect to the Insurance Proceeds, either to retain and apply
such proceeds in reimbursement for the actual costs, fees and expenses incurred
by Lender in accordance with the terms hereof in connection with the adjustment
of the loss and any balance toward payment of the Debt in such priority and
proportions as Lender, in its sole discretion, shall deem proper, or towards
the Work, upon such terms and conditions as Lender shall determine, or to cure an
Event of Default, or to any one or more of the foregoing as Lender, in its sole
and absolute discretion, may determine. 
If Lender shall receive and retain such Insurance Proceeds, the lien of
this Security Instrument shall be reduced only by the amount thereof received,
after reimbursement to Lender of expenses of collection, and actually applied
by Lender in reduction of the principal sum payable under the Note in
accordance with the Note.


 


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Section 3.07.  Application of Proceeds to Debt Reduction.  (a) No damage
to the Property, or any part thereof, by fire or other casualty whatsoever,
whether such damage be partial or total, shall relieve Borrower from its
liability to pay in full the Debt and to perform its obligations under this
Security Instrument and the other Loan Documents.


 


(b)                                 If any Insurance
Proceeds are applied to reduce the Debt, Lender shall apply the same in
accordance with the provisions of the Note.


 


ARTICLE IV:  IMPOSITIONS


 


Section 4.01.  Payment of Impositions, Utilities and
Taxes, etc.  (a) Borrower
shall pay or cause to be paid all Impositions and remit or cause to be remitted
all SAOT Expenditures at least five (5) days prior to the date upon which
any fine, penalty, interest or cost for nonpayment is imposed, and furnish to
Lender, upon request, receipted bills of the appropriate taxing authority or
other documentation reasonably satisfactory to Lender evidencing the payment
thereof.  If Borrower shall fail to pay
any Imposition or remit any SAOT Expenditures in accordance with this Section and
is not contesting or causing a contesting of such Imposition in accordance with
Section 4.04 hereof, or if there are insufficient funds in the Basic
Carrying Costs Escrow Account to pay any Imposition, Lender shall have the
right, but shall not be obligated, to pay that Imposition or remit that SAOT
Expenditure, as applicable, and Borrower shall repay to Lender, on demand, any
amount paid by Lender, with interest thereon at the Default Rate from the date
of the advance thereof to the date of repayment, and such amount shall
constitute a portion of the Debt secured by this Security Instrument and the
other Cross-collateralized Mortgages.


 


(b)                                 Borrower shall, prior
to the date upon which any fine, penalty, interest or cost for the nonpayment
is imposed, pay or cause to be paid all charges for electricity, power, gas,
water and other services and utilities in connection with the Property, and
shall, upon request, deliver to Lender receipts or other documentation
reasonably satisfactory to Lender evidencing payment thereof.  If Borrower shall fail to pay any amount
required to be paid by Borrower pursuant to this Section 4.01 and is not
contesting such charges in accordance with Section 4.04 hereof, Lender
shall have the right, but shall not be obligated, to pay that amount, and
Borrower will repay to Lender, on demand, any amount paid by Lender with
interest thereon at the Default Rate from the date of the advance thereof to
the date of repayment, and such amount shall constitute a portion of the Debt
secured by this Security Instrument and the other Cross-collateralized
Mortgages.


 


(c)                                  Borrower shall pay
all taxes, charges, filing, registration and recording fees, excises and levies
imposed upon Lender by reason of or in connection with its ownership of any
Loan Document or any other instrument related thereto, or resulting from the
execution, delivery and recording of, or the lien created by, or the obligation
evidenced by, any of them, other than income, franchise and other similar taxes
imposed on Lender and shall pay all corporate stamp taxes, if any, and other
taxes, required to be paid on the Loan Documents other than taxes imposed on
Lender’s income and franchise taxes imposed on Lender by the law or regulations
of any Governmental Authority.  If
Borrower shall fail to make any such payment within ten (10) days after
written notice thereof from Lender, Lender shall have the right, but shall not
be obligated, to pay the amount due, and Borrower shall reimburse Lender
therefor, on demand,


 


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with interest thereon at the Default Rate from the date of the advance
thereof to the date of repayment, and such amount shall constitute a portion of
the Debt secured by this Security Instrument and the other Cross-collateralized
Mortgages.


 


Section 4.02.  Deduction from Value.  In the event of the passage after the date of
this Security Instrument of any Legal Requirement deducting from the value of
the Property for the purpose of taxation, any lien thereon or changing in any
way the Legal Requirements now in force for the taxation of this Security
Instrument, the other Cross-collateralized Mortgages and/or the Debt for
federal, state or local purposes, or the manner of the operation of any such
taxes so as to adversely affect the interest of Lender, or imposing any tax or
other charge on any Loan Document, then Borrower will pay such tax, with
interest and penalties thereon, if any, within the statutory period.  In the event the payment of such tax or
interest and penalties by Borrower would be unlawful, or taxable to Lender or
unenforceable or provide the basis for a defense of usury, then in any such
event, Lender shall have the option, by written notice of not less than thirty
(30) days, to declare the Debt immediately due and payable, with no prepayment
fee or charge of any kind.


 


Section 4.03.  No Joint Assessment.  Borrower shall not consent to or initiate the
joint assessment of the Premises or the Improvements (a) with any other
real property constituting a separate tax lot and Borrower represents and
covenants that the Premises and the Improvements are and shall remain a
separate tax lot or (b) with any portion of the Property which may be
deemed to constitute personal property, or any other procedure whereby the lien
of any taxes which may be levied against such personal property shall be
assessed or levied or charged to the Property as a single lien.


 


Section 4.04.  Right to Contest.  Borrower shall have the right, after prior
notice to Lender, at its sole expense, to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Lender or any of its agents, employees, officers or directors, the validity,
amount or application of any Imposition or any charge described in Section 4.01(b),
provided that (a) no Event of Default shall exist during such proceedings
and such contest shall not (unless Borrower shall comply with clause (d) of
this Section 4.04) subject the Property or any portion thereof to any lien
or affect the priority of the lien of this Security Instrument, (b) failure
to pay such Imposition or charge will not subject Lender or any of its agents,
employees, officers or directors to any civil or criminal liability, (c) the
contest suspends enforcement of the Imposition or charge (unless Borrower first
pays the Imposition or charge), (d) prior to and during such contest,
Borrower shall furnish to Lender security satisfactory to Lender, in its
reasonable discretion, against loss or injury by reason of such contest or the
non-payment of such Imposition or charge (and if such security is cash, Lender
may deposit the same in an interest-bearing account and interest accrued
thereon, if any, shall be deemed to constitute a part of such security for
purposes of this Security Instrument, but Lender (i) makes no
representation or warranty as to the rate or amount of interest, if any, which
may accrue thereon and shall have no liability in connection therewith other
than with respect to Lender’s gross negligence or willful misconduct and (ii) shall
not be deemed to be a trustee or fiduciary with respect to its receipt of any
such security and any such security may be commingled with other monies of
Lender), (e) such contest shall not affect the ownership, use or occupancy
of the Property, (f) the Property or any part thereof or any interest
therein shall not be in any danger of


 


64





















 


being sold, forfeited or lost by reason of such contest by Borrower, (g) Borrower
has given Lender notice of the commencement of such contest and upon request by
Lender, from time to time, notice of the status of such contest by Borrower
and/or confirmation of the continuing satisfaction of clauses (a) through (f) of
this Section 4.04, and (h) upon a final determination of such
contest, Borrower shall promptly comply with the requirements thereof.  Upon completion of any contest, Borrower
shall immediately pay the amount due, if any, and deliver to Lender proof of
the completion of the contest and payment of the amount due, if any, following
which Lender shall return the security, if any, deposited with Lender pursuant
to clause (d) of this Section 4.04. 
Borrower shall not pay any Imposition in installments unless permitted
by applicable Legal Requirements or the applicable Governmental Authority, and
shall, upon the request of Lender, deliver copies of all notices and bills
relating to any Imposition or other charge covered by this Article IV to
Lender.


 


Section 4.05.  No Credits on Account of the Debt.  Borrower will not claim or demand or be
entitled to any credit or credits on account of the Debt for any part of the
Impositions assessed against the Property or any part thereof and no deduction
shall otherwise be made or claimed from the taxable value of the Property, or
any part thereof, by reason of this Security Instrument or the Debt.  In the event such claim, credit or deduction
shall be required by Legal Requirements, Lender shall have the option, by
written notice of not less than thirty (30) days, to declare the Debt
immediately due and payable, and Borrower hereby agrees to pay such amounts not
later than thirty (30) days after such notice.


 


Section 4.06.  Documentary Stamps.  If, at any time, the United States of
America, any State or Commonwealth 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 other Loan Document, or impose any other tax or charges on
the same, Borrower will pay the same, with interest and penalties thereon, if
any.


 


ARTICLE V:  CENTRAL CASH MANAGEMENT


 


Section 5.01.  Cash Flow.  Borrower hereby acknowledges and agrees that (a) the
Rents (which for the purposes of this Section 5.01 shall not include
security deposits from tenants under Leases held by Borrower and not applied
towards Rent) derived from the Property, (b) Loss Proceeds and (c) all
proceeds of the Rate Cap Agreement shall be utilized (a) to fund the Basic
Carrying Costs Sub-Account, (b) to pay all amounts to become due and
payable under the Note by funding the Debt Service Payment Sub-Account, (c) to
fund the Recurring Replacement Reserve Sub-Account, (d) to fund the SAOT
Sub-Account, (e) to fund the Mez Payment Sub-Account, (f) to fund the
Operation and Maintenance Expense Sub-Account to the extent required and (g) to
fund the Curtailment Reserve Sub-Account. 
Borrower shall cause Manager to collect all security deposits from
tenants under valid Leases, which shall be held by Manager, as agent for
Borrower, in accordance with applicable law and in a segregated demand deposit
bank account at such commercial or savings bank or banks as may be reasonably
satisfactory to Lender (the “Security Deposit Account”).  Borrower shall notify Lender of any security
deposits held as letters of credit and, upon Lender’s request, such letters of
credit shall be promptly delivered to Lender. 
Borrower shall have no right to withdraw funds from the Security Deposit
Account; provided that, prior to the occurrence of an Event of Default,
Borrower may withdraw


 


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funds from the Security Deposit Account to refund or apply security
deposits as required by the Leases or by applicable Legal Requirements.  After the occurrence of an Event of Default,
all withdrawals from the Security Deposit Account must be approved by
Lender.  All rental payments made by
tenants and other payments constituting Rent, other than direct payments by
credit cards which shall be paid directly into the Rent Account, shall be
delivered to Manager.  Manager shall
collect all of such Rent and shall deposit such funds, within one (1) Business
Day after receipt thereof in the Rent Account, the name and address of the bank
in which such account is located and the account number of which to be
identified in writing by Manager to Lender. 
Borrower shall cause Manager to give to the bank in which the Rent
Account is located an irrevocable written instruction, in form and substance reasonably
acceptable to Lender, that all funds deposited in such account shall be
automatically transferred through automated clearing house funds (“ACH”)
or by Federal wire to the Central Account prior to 5:00 p.m. (New York
City time) on a daily basis.  On the
Closing Date, Borrower shall deliver to Lender a copy of the irrevocable notice
which Borrower delivered to the bank in which the Rent Account is located
pursuant to the provisions of this Section 5.01, the receipt of which is
acknowledged in writing by such bank. 
Additionally, Borrower shall, or shall cause Manager to send to each
respective credit card company or credit card clearing bank with which Borrower
or Manager has entered into merchant’s agreements (each, a “Credit Card
Company”) a direction letter in the form of Exhibit G annexed hereto and made a part hereof (the “Credit
Card Payment Direction Letter”) directing such Credit Card Company to make
all payments due in connection with goods or services furnished at or in
connection with the Property by Federal wire or through ACH directly to the Rent
Account.  Without the prior written
consent of Lender, neither Borrower nor Manager shall (i) terminate,
amend, revoke or modify any Credit Card Payment Direction Letter in any manner
or (ii) direct or cause any Credit Card Company to pay any amount in any
manner other than as specifically provided in the related Credit Card Payment
Direction Letter.  Lender may elect to
change the financial institution in which the Central Account shall be
maintained; however, Lender shall give Borrower and the bank in which
the Rent Account is located not fewer than five (5) Business Days’ prior
notice of such change.  Neither Borrower
nor Manager shall change such bank or the Rent Account without the prior
written consent of Lender.  All fees and
charges of the bank(s) in which the Rent Account and the Central Account are
located shall be paid by Borrower.


 


Section 5.02.  Establishment of Accounts.  Lender has established the Escrow Accounts and
the Central Account in the name of Lender as secured party and Borrower has
established the Rent Account in the joint names of Lender, as secured party,
and Borrower.  The Rent Account, the
Central Account and the Escrow Accounts shall be under the sole dominion and
control of Lender and funds held therein shall not constitute trust funds.  Borrower hereby irrevocably directs and
authorizes Lender to withdraw funds from the Rent Account, the Central Account
and the Escrow Accounts, all in accordance with the terms and conditions of
this Security Instrument.  Borrower shall
have no right of withdrawal in respect of the Rent Account, the Central Account
or the Escrow Accounts.  Each transfer of
funds to be made hereunder shall be made only to the extent that funds are on
deposit in the Rent Account or the Central Account or the affected Sub-Account
or Escrow Account, and Lender shall have no responsibility to make additional
funds available in the event that funds on deposit are insufficient.  The Central Account shall contain the Basic
Carrying Costs Sub-Account, the Debt Service Payment Sub-Account,


 


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the Recurring Replacement Reserve Sub-Account, the SAOT Sub-Account, the
Mez Payment Sub-Account, the Capex Trap Sub-Account, the Operation and
Maintenance Expense Sub-Account and the Curtailment Reserve Sub-Account, each
of which accounts shall be Eligible Accounts or book-entry sub-accounts of an
Eligible Account (each a “Sub-Account” and collectively, the “Sub-Accounts”)
to which certain funds shall be allocated and from which disbursements shall be
made pursuant to the terms of this Security Instrument.  Sums held in the Escrow Accounts may be
commingled with other monies held by Lender.


 


Section 5.03.  Intentionally Omitted.


 


Section 5.04.  Servicing Fees.  At the option of Lender, the Loan may be
serviced by a servicer (the “Servicer”) selected by Lender and Lender
may delegate all or any portion of its responsibilities under this Security
Instrument to the Servicer.  Provided
that no Default has occurred and is continuing, Borrower shall have no obligation
to reimburse Lender for servicing fees incurred in connection with the
ordinary, routine servicing of the Loan; provided, however, that Borrower shall
reimburse Lender for (a) any and all out of pocket costs and expenses
incurred after the occurrence of a Default (but not including special servicing
fees unless Lender forecloses on the lien of this Security Instrument or
exercises any power of sale granted hereunder) and (b) as otherwise
provided for in this Security Instrument.


 


Section 5.05.  Monthly Funding of Sub-Accounts and Escrow
Accounts.  (a) On or before each
Payment Date during the term of the Loan, commencing on the first (1st) Payment
Date occurring after the month in which the Loan is initially funded, Borrower
shall pay or cause to be paid to the Central Account the Basic Carrying Costs
Monthly Installment, the Required Debt Service Payment, the SAOT Deposit, the Recurring
Replacement Reserve Monthly Installment, the Mez Payment Amount and all sums
required to be deposited in the Operation and Maintenance Expense Sub-Account
and the Curtailment Reserve Sub-Account pursuant to clauses (i) through (x)
of this Section 5.05(a) and all funds transferred or deposited into
the Central Account shall be allocated among the Sub-Accounts as follows and in
the following priority:


 


(i)                                     first, to the SAOT
Sub-Account until an amount equal to the SAOT Deposit for the Payment Date
occurring for such Interest Accrual Period has been allocated to the SAOT
Sub-Account;


 


(ii)                                  second, to the
Basic Carrying Costs Sub-Account, until an amount equal to the Basic Carrying
Costs Monthly Installment for such Interest Accrual Period has been allocated
to the Basic Carrying Costs Sub-Account;


 


(iii)                               third, to the
Debt Service Payment Sub-Account, until an amount equal to the Required Debt
Service Payment for the Payment Date occurring for such Interest Accrual Period
has been allocated to the Debt Service Payment Sub-Account, it being
acknowledged that any sums deposited into the Central Account for such Interest
Accrual Period by the Cross-collateralized Borrowers which are allocated to the
Debt Service Payment Sub-Account for such Interest Accrual Period shall be
credited towards sums required to be deposited therein by Borrower;


 


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(iv)                              fourth, to the
Operation and Maintenance Expense Sub-Account in an amount equal to the Cash
Expenses, other than management fees in excess of four percent (4%) of total
revenues of the Property, for such Interest Accrual Period pursuant to the
related Approved Annual Budget;


 


(v)                                 fifth, to the
Operation and Maintenance Expense Sub-Account in an amount equal to the amount,
if any, of the Net Capital Expenditures for such Interest Accrual Period
pursuant to the related Approved Annual Budget;


 


(vi)                              sixth, to the
Operation and Maintenance Expense Sub-Account until an amount equal to the
amount, if any, of the Extraordinary Expenses approved by Lender for such Interest
Accrual Period;


 


(vii)                           seventh, to the
Recurring Replacement Reserve Sub-Account, until an amount equal to the Recurring
Replacement Reserve Monthly Installment for such Interest Accrual Period has
been allocated to the Recurring Replacement Reserve Sub-Account;


 


(viii)                        eighth, but
only if a Default is not then continuing, to the Mez Payment Sub-Account until
an amount equal to the Mez Payment Amount has been allocated to the Mez Payment
Sub-Account;


 


(ix)                                ninth, but only
during an Capex Cash Trap Period, the balance, if any, to the Capex Trap
Sub-Account; and


 


(x)                                   tenth, but only
during an O&M Operative Period, the balance, if any, to the Curtailment
Reserve Sub-Account.


 


Provided that
no Event of Default has occurred and is continuing, Lender agrees that in each Interest
Accrual Period any amounts deposited into or remaining in the Central Account
after the Sub-Accounts have been funded in accordance with clauses (i) through
(x) above with respect to such Interest Accrual Period and any periods prior
thereto, shall be disbursed by Lender to Borrower or, if the Mez Loan is
outstanding, to the holder of the Mez Loan which is most senior in payment
priority, on the Payment Date applicable to such Interest Accrual Period.  The balance of the funds distributed to
Borrower after payment of all Operating Expenses by or on behalf of Borrower
may be retained by Borrower.  After the
occurrence, and during the continuance, of an Event of Default, no such excess funds
held in the Central Account shall be distributed to, or withdrawn by, Borrower,
and Lender shall have the right to apply all or any portion of the funds held
in the Central Account or any Sub-Account or any Escrow Account (excluding the
SAOT Sub-Account) to the Debt in Lender’s sole discretion.


 


(b)                                 On each Payment Date,
or with respect to sums in the Operation and Maintenance Sub-Account and the
SAOT Sub-Account, on Wednesday of each week unless such day is not a Business
Day, in which case on the first Business Day thereafter, (i) sums held in
the Basic Carrying Costs Sub-Account shall be transferred to the Basic Carrying
Costs Escrow Account, (ii) sums held in the Debt Service Payment
Sub-Account, together with any amounts deposited into the Central Account that
are either (x) Loss Proceeds that Lender has elected to apply to


 


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reduce the Debt in accordance with the terms of Article III hereof
or (y) excess Loss Proceeds remaining after the completion of any restoration
required hereunder, shall be transferred to Lender to be applied towards the Required
Debt Service Payment, (iii) sums held in the SAOT Sub-Account shall be
transferred to the SAOT Escrow Account, (iv) sums held in the Recurring
Replacement Reserve Sub-Account shall be transferred to the Recurring
Replacement Escrow Account, (v) sums, if any, held in the Mez Payment
Sub-Account shall be transferred to the Mez Payment Escrow Account, (vi) sums
held in the Operation and Maintenance Expense Sub-Account shall be transferred
to the Operation and Maintenance Expense Escrow Account and (vii) sums
held in the Curtailment Reserve Sub-Account shall be transferred to the
Curtailment Reserve Escrow Account.


 


Section 5.06.  Payment of Basic Carrying Costs.  Borrower hereby agrees to pay all Basic
Carrying Costs (without regard to the amount of money in the Basic Carrying
Costs Sub-Account or the Basic Carrying Costs Escrow Account).  At least ten (10) Business Days prior to
the due date of any Basic Carrying Costs, and not more frequently than once
each month, Borrower may notify Lender in writing and request that Lender pay
such Basic Carrying Costs on behalf of Borrower on or prior to the due date
thereof, and, provided that no Event of Default has occurred and that there are
sufficient funds available in the Basic Carrying Costs Escrow Account, Lender
shall make such payments out of the Basic Carrying Costs Escrow Account before
same shall be delinquent.  Together with
each such request, Borrower shall furnish Lender with bills and all other
documents necessary, as reasonably determined by Lender, for the payment of the
Basic Carrying Costs which are the subject of such request. Borrower’s
obligation to pay (or cause Lender to pay) Basic Carrying Costs pursuant to
this Security Instrument shall include, to the extent permitted by applicable
law, Impositions resulting from future changes in law which impose upon Lender
an obligation to pay any property taxes or other Impositions or which otherwise
adversely affect Lender’s interests. 
Notwithstanding the foregoing, in the event that Lender receives a tax
bill directly from a Governmental Authority relating to any Impositions, Lender
shall pay all sums due thereunder prior to the date such Impositions would
accrue late charges or interest thereon or within ten (10) Business Days
of the receipt of such tax bill, whichever is later.  In making any payment of Impositions, Lender
may rely on any bill, statement or estimate obtained from the applicable
Governmental Authority without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any Imposition or claim with
respect thereto.


 


Provided that
no Event of Default shall have occurred, all funds deposited into the Basic
Carrying Costs Escrow Account shall be held by Lender pursuant to the
provisions of this Security Instrument and shall be applied in payment of Basic
Carrying Costs in accordance with the terms hereof.  Should an Event of Default occur, the sums on
deposit in the Basic Carrying Costs Sub-Account and the Basic Carrying Costs Escrow
Account may be applied by Lender in payment of any Basic Carrying Costs or may
be applied to the payment of the Debt or any other charges affecting all or any
portion of the Cross-collateralized Properties as Lender in its sole discretion
may determine; provided, however, that no such application shall
be deemed to have been made by operation of law or otherwise until actually
made by Lender as herein provided.


 


Section 5.07.  SAOT Escrow Account.  Borrower agrees to pay all SAOT Expenditures
(without regard to the amount of money then available in the SAOT Sub-Account
or the SAOT


 


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Escrow Account).  Lender will, at
Lender’s option, either, (a) apply funds in the SAOT Escrow Account to
payments of SAOT Expenditures required to be made by Borrower to the
appropriate Governmental Authorities, provided that Borrower has promptly
supplied Lender with notices of all SAOT Expenditures due or has certified to
Lender that such funds are required to make payments of SAOT Expenditures
required to be made by Borrower, (b) reimburse Borrower for such amounts
upon presentation of evidence of payment by Borrower of such SAOT Expenditures
or (c) release to Borrower funds in the SAOT Escrow Account for payment of
SAOT Expenditures required to be made by Borrower to the appropriate
Governmental Authorities, provided that Borrower has promptly supplied Lender
with notices of all SAOT Expenditures due or has certified to Lender that such
funds will be used to make payments of SAOT Expenditures required to be made by
Borrower.


 


Provided that
no Event of Default shall have occurred, all funds deposited into the SAOT
Escrow Account shall be held by Lender pursuant to the provisions of this
Security Instrument and shall be disbursed to Borrower for payment of SAOT
Expenditures.  Should an Event of Default
occur, the sums on deposit in the SAOT Sub-Account and the SAOT Escrow Account
may be applied by Lender in payment of any SAOT Expenditures.


 


Section 5.08.  Recurring Replacement Reserve Escrow
Account.  Borrower hereby agrees to
pay all Recurring Replacement Expenditures with respect to the Property
(without regard to the amount of money then available in the Recurring
Replacement Reserve Sub-Account or the Recurring Replacement Reserve Escrow
Account).  Provided that Lender has
received written notice from Borrower and not more frequently than once each
month, and further provided that no Event of Default has occurred, that there
are sufficient funds available in the Recurring Replacement Reserve Escrow
Account and Borrower shall have theretofore furnished Lender with lien waivers,
copies of bills, invoices and other reasonable documentation as may be required
by Lender to establish that the Recurring Replacement Expenditures which are
the subject of such request represent amounts due for completed or partially
completed capital work and improvements performed at the Property, Lender shall
make such payments out of the Recurring Replacement Reserve Escrow Account or
shall reimburse Borrower out of the Recurring Replacement Reserve Escrow
Account if Borrower delivers to Lender evidence satisfactory to Lender
evidencing prior payment for the Recurring Replacement Expenditures which are
the subject of the draw request or an Officer’s Certificate certifying that the
funds will be used to pay for the Recurring Replacement Expenditures which are
the subject of the draw request together with evidence reasonably satisfactory
to Lender evidencing payment in full for all Recurring Replacement Expenditures
which were the subject of prior draw requests with respect to which Borrower
did not deliver such proof.


 


Provided that no Event of Default shall have
occurred, all funds deposited into the Recurring Replacement Reserve Escrow
Account shall be held by Lender pursuant to the provisions of this Security
Instrument and shall be applied in payment of Recurring Replacement
Expenditures.  Should an Event of Default
occur, the sums on deposit in the Recurring Replacement Reserve Sub-Account and
the Recurring Replacement Reserve Escrow Account may be applied by Lender in
payment of any Recurring Replacement Expenditures or may be applied to the
payment of the Debt or any other charges affecting all or any portion of the
Cross-collateralized Properties, as Lender in its sole discretion may
determine; provided, however, that


 


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no such application shall be
deemed to have been made by operation of law or otherwise until actually made
by Lender as herein provided.


 


Section 5.09.  Operation and Maintenance Expense Escrow
Account.  Borrower hereby agrees to
pay all Operating Expenses with respect to the Property (without regard to the
amount of money then available in the Operation and Maintenance Expense
Sub-Account or the Operation and Maintenance Expense Escrow Account).  All funds allocated to the Operation and
Maintenance Expense Escrow Account shall be held by Lender pursuant to the
provisions of this Security Instrument. 
Provided no O&M Operative Period has occurred and is continuing,
either (a) Lender shall disburse to Borrower from the Operation and
Maintenance Expense Escrow Account on each Payment Date an amount equal to (i) the
Operating Expenses set forth in the Approved Annual Budget for such month
provided for in the Approved Annual Budget plus (ii) the Third Party
Disbursements which have been substantiated in a manner reasonably acceptable
to Lender and (iii) any Extraordinary Expenses for which sums have been
deposited into the Operation and Maintenance Expense Escrow Account pursuant to
Section 5.05 hereof ((i), (ii) and (iii) are hereinafter
referred to as an “Operating Expense Disbursement”) or (b) if
requested by Borrower and if sufficient funds have been collected in the
Central Account to make the payments required under clauses (i) - (iv) of
Section 5.05(a) hereof on the next succeeding Payment Date, Borrower
shall be entitled to request disbursements from the Operation and Maintenance
Expense Escrow Account on a weekly basis, for payment of the Operating Expense Disbursement
incurred or to be incurred during the then-current Interest Accrual Period or during
any prior Interest Accrual Period.  During
the continuance of an O&M Operative Period, Lender shall disburse funds
held in the Operation and Maintenance Expense Escrow Account to Borrower on a
weekly basis, within ten (10) days after delivery by Borrower to Lender of
a request therefor, in increments of at least $1,000, provided (a) such
disbursement is for the Operating Expense Disbursement; and (b) such
disbursement is accompanied by (i) an Officer’s Certificate provided
monthly certifying (A) that such funds will be used to pay Operating
Expenses set forth in the Approved Annual Budget and a description thereof, (B) that
all outstanding trade payables (other than those to be paid from the requested
disbursement or those permitted pursuant to Section 2.02(g)(viii)(C) hereof)
have been paid in full, (C) that the same has not been the subject of a
previous disbursement, and (D) that all previous disbursements have been
or will be used to pay the previously identified Operating Expenses set forth
in the Approved Annual Budget, and (B) reasonably detailed documentation
satisfactory to Lender as to the amount, necessity and purpose therefor.  Should an Event of Default occur and be
continuing, the sums on deposit in the Operation and Maintenance Expense Sub-Account
or the Operation and Maintenance Expense Escrow Account may be applied by
Lender in payment of any Operating Expenses for the Cross-collateralized
Properties or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Property as Lender, in its sole discretion,
may determine; provided, however, that no such application shall
be deemed to have been made by operation of law or otherwise until actually
made by Lender as herein provided. 
During any O&M Operative Period, the management fee payable to
Manager shall be limited to 4% per annum of the total revenues of the Property
and shall not include the 2.5% Allocable Chain Expense (as defined in the
Management Agreement).  Failure to pay
such 2.5% Allocable Chain Expense shall not be a default under the Management
Agreement.


 


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Section 5.10.  Rate Cap Agreement.  Borrower shall at all times during the term
of the Loan maintain the Rate Cap Agreement at all times during the term of the
Loan which shall be in form and substance and issued by a bank reasonably
acceptable to Lender, and shall pay all fees, charges and expenses incurred in
connection therewith.  Borrower shall comply
with all of its obligations under the terms of the Rate Cap Agreement.  All amounts paid by the issuer of the Rate
Cap Agreement (the “Counterparty”) to Borrower or Lender shall be
deposited immediately into the Central Account. 
Borrower shall take all actions reasonably requested by Lender to
enforce Lender’s rights under the Rate Cap Agreement in the event of a default
by the Counterparty.  In the event that (a) the
long-term unsecured debt obligations of the Counterparty are downgraded by the
Rating Agency below “A+” or its equivalent or (b) the Counterparty shall
default in any of its obligations under the Rate Cap Agreement, Borrower shall,
at the request of Lender, promptly but in all events within thirty (30) days,
replace the Rate Cap Agreement with an agreement having identical payment terms
and maturity as the Rate Cap Agreement and which is otherwise in form and
substance substantially similar to the Rate Cap Agreement and otherwise
acceptable to Lender with a cap provider, the long-term unsecured debt of which
is rated at least “AA-” (or its equivalent) by each Rating Agency, or which
will allow each Rating Agency to reaffirm their then current ratings of all
rated certificates issued in connection with the Securitization.  In the event that Borrower fails to maintain
the Rate Cap Agreement as provided in this Section 5.10, Lender may
purchase the Rate Cap Agreement and the cost incurred by Lender in connection
therewith shall be paid by Borrower to Lender with interest thereon at the
Default Rate from the date such cost is incurred until such cost is paid by
Borrower to Lender.  On or prior to the
Payment Date in June, 2007, Borrower shall deliver to Lender a replacement Rate
Cap Agreement with a term expiring not earlier than the Maturity Date and
otherwise in form and substance acceptable to Lender which is issued by a
Counterparty having a long-term unsecured debt rating of “AA-” (or its
equivalent) or better from the Rating Agency (the “Replacement Rate Cap
Agreement”).


 


Section 5.11.  Curtailment Reserve Escrow Account.  Funds deposited into the Curtailment Reserve Escrow
Account shall be held by Lender in the Curtailment Reserve Escrow Account as
additional security for the Loan until the Loan has been paid in full.  At such time as the Debt Service Coverage
exceeds the Debt Service Coverage set forth on Exhibit H for two (2) consecutive calendar quarters,
Lender shall, upon written request from Borrower, release all sums contained in
the Curtailment Reserve Escrow Account to Borrower.  Borrower may, at its option, deposit into the
Curtailment Reserve Escrow Account a sum equal to that which, if hypothetically
applied to the prepayment of the Loan, would cause the Debt Service Coverage to
exceed the Debt Service Coverage set forth on Exhibit H
(an “O&M Deposit”) in which case following such O&M Deposit, an
O&M Period shall cease to exist and Borrower shall not be required to make
any further O&M Deposits with respect to the applicable O&M Period.  Subsequent to the first (1st) anniversary of
the Closing Date, provided no Event of Default exists, Borrower may, by giving
to Lender not less than ten (10) days prior written notice, elect to apply
sums in the Curtailment Reserve Escrow Account, in minimum increments of
$100,000, towards the Principal Amount. 
Any such prepayments shall be applied on the Payment Date after such
notice is given.  Notwithstanding the
foregoing, Lender shall, provided no Default has occurred and is continuing, at
the request of Borrower, disburse a portion of the sums on deposit in the
Curtailment Reserve Escrow Account in an amount equal to the total sums on
deposit in


 


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the Curtailment Reserve Escrow Account multiplied by a fraction, the
numerator of which is the amount of the Mez Loan (or if there is more than one
mezzanine loan, the applicable mezzanine loan) and the denominator of which is
the Principal Amount plus the unpaid principal amount of the Mez Loan which
would have otherwise been applied towards the prepayment of the Principal
Amount to the holder of the Mez Loan (or if there is more than one mezzanine
loan which constitutes the Mez Loan, to each such holder), provided that such
holder has agreed in writing with Lender to apply such disbursed sum to the
prepayment of the principal amount of the Mez Loan.  Should an Event of Default occur, the sums on
deposit in the Curtailment Reserve Sub-Account and the Curtailment Reserve
Escrow Account may be applied by Lender to the payment of the Debt or other
charges affecting all or any portion of the Cross-collateralized Properties, as
Lender, in its sole discretion, may determine; provided, however, that no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by Lender as herein provided.


 


Section 5.12.  Performance of Engineering Work.  (a) Borrower
shall promptly commence and diligently thereafter pursue to completion (without
regard to the amount of money then available in the Engineering Escrow Account)
the Required Engineering Work prior to the nine (9) month anniversary of
the Closing Date.  After Borrower
completes an item of Required Engineering Work, Borrower may submit to Lender
an invoice therefor with lien waivers and a statement from the Engineer,
reasonably acceptable to Lender, indicating that the portion of the Required
Engineering Work in question has been completed in compliance with all Legal
Requirements, and Lender shall, within ten (10) days thereafter, although
in no event more frequently than once each month, reimburse such amount to Borrower
from the Engineering Escrow Account; provided, however, that
Borrower shall not be reimbursed more than the amount set forth on Exhibit D hereto as the amount
allocated to the portion of the Required Engineering Work for which
reimbursement is sought.


 


(b)                                 From and after the
date all of the Required Engineering Work is completed, Borrower may submit a
written request, which request shall be delivered together with final lien
waivers and a statement from the Engineer, as the case may be, reasonably acceptable
to Lender, indicating that all of the Required Engineering Work has been
completed in compliance with all Legal Requirements, and Lender shall, within
ten (10) days thereafter, disburse any balance of the Engineering Escrow
Account to Borrower.  Should an Event of
Default occur, the sums on deposit in the Engineering Escrow Account may be
applied by Lender in payment of any Required Engineering Work or may be applied
to the payment of the Debt or any other charges affecting all or any portion of
the Cross-collateralized Properties, as Lender in its sole discretion may
determine; provided, however, that no such application shall be
deemed to have been made by operation of law or otherwise until actually made
by Lender as herein provided.


 


Section 5.13.  Loss Proceeds.  In the event of a casualty to the Property,
unless Lender elects, or is required pursuant to Article III hereof to
make all of the Insurance Proceeds available to Borrower for restoration,
Lender and Borrower shall cause all such Insurance Proceeds to be paid by the
insurer directly to the Central Account, whereupon Lender shall, after
deducting Lender’s costs of recovering and paying out such Insurance Proceeds,
including without limitation, reasonable attorneys’ fees, apply the same to
reduce the Debt in accordance with the terms of the Note; provided, however,
that if Lender elects, or is deemed to have


 


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elected, to make the Insurance Proceeds available for restoration, all
Insurance Proceeds in respect of rent loss, business interruption or similar
coverage shall be maintained in the Central Account, to be applied by Lender in
the same manner as Rent received with respect to the operation of the Property;
provided, further, however, that in the event that the
Insurance Proceeds with respect to such rent loss, business interruption or
similar insurance policy are paid in a lump sum in advance, Lender shall hold
such Insurance Proceeds in a segregated interest-bearing escrow account, which
shall be an Eligible Account, shall estimate, in Lender’s reasonable
discretion, the number of months required for Borrower to restore the damage
caused by the casualty, shall divide the aggregate rent loss, business
interruption or similar Insurance Proceeds by such number of months, and shall
disburse from such bank account into the Central Account each month during the
performance of such restoration such monthly installment of said Insurance
Proceeds.  In the event that Insurance
Proceeds are to be applied toward restoration, Lender shall hold such funds in
a segregated bank account at the Bank, which shall be an Eligible Account, and
shall disburse same in accordance with the provisions of Section 3.04
hereof.  Unless Lender elects, or is
required pursuant to Section 6.01 hereof to make all of the Condemnation
Proceeds available to Borrower for restoration, Lender and Borrower shall cause
all such Condemnation Proceeds to be paid to the Central Account, whereupon
Lender shall, after deducting Lender’s costs of recovering and paying out such
Condemnation Proceeds, including without limitation, reasonable attorneys’
fees, apply same to reduce the Debt in accordance with the terms of the Note; provided,
however, that any Condemnation Proceeds received in connection with a
temporary Taking shall be maintained in the Central Account, to be applied by
Lender in the same manner as Rent received with respect to the operation of the
Property; provided, further, however, that in the event
that the Condemnation Proceeds of any such temporary Taking are paid in a lump
sum in advance, Lender shall hold such Condemnation Proceeds in a segregated
interest-bearing bank account, which shall be an Eligible Account, shall
estimate, in Lender’s reasonable discretion, the number of months that the
Property shall be affected by such temporary Taking, shall divide the aggregate
Condemnation Proceeds in connection with such temporary Taking by such number
of months, and shall disburse from such bank account into the Central Account
each month during the pendency of such temporary Taking such monthly
installment of said Condemnation Proceeds. 
In the event that Condemnation Proceeds are to be applied toward
restoration, Lender shall hold such funds in a segregated bank account at the
Bank, which shall be an Eligible Account, and shall disburse same in accordance
with the provisions of Section 3.04 hereof.  If any Loss Proceeds are received by
Borrower, such Loss Proceeds shall be received in trust for Lender, shall be
segregated from other funds of Borrower, and shall be forthwith paid into the
Central Account, or paid to Lender to hold in a segregated bank account at the
Bank, in each case to be applied or disbursed in accordance with the foregoing.  Any Loss Proceeds made available to Borrower
for restoration in accordance herewith, to the extent not used by Borrower in
connection with, or to the extent they exceed the cost of, such restoration,
shall be deposited into the Central Account, whereupon Lender shall apply the
same to reduce the Debt in accordance with the terms of the Note.


 


Section 5.14.  Mez Payment Escrow Account.  Provided that no Default has occurred and is
continuing, on each Payment Date during which the Mez Loan is outstanding,
Lender shall transfer to the holder of the Mez Loan, as identified in writing
by a joint direction executed by


 


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Borrower and the holder of the Mez Loan, an amount equal to the Mez
Payment Amount (which sum shall be deemed distributions from Borrower to the
borrower under the Mez Loan).  Should an
Event of Default occur, the sums on deposit in the Mez Payment Escrow Account
may be applied by Lender to the payment of the Debt or any other charges
affecting all or any portion of the Cross-collateralized Properties, as Lender
in its sole discretion may determine; provided, however, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.


 


Section 5.15.  Capex Trap Escrow Account.  Lender shall reimburse Borrower for
Replacement Expenditures which were not set forth in the Approved Annual Budget
with respect to which Borrower wishes to withdraw sums from the Capex Trap
Escrow Account, not more frequently than once each month, provided that Lender
has approved such Replacement Expenditures, no Event of Default has occurred,
that there are sufficient funds available in the Capex Trap Escrow Account and
Borrower shall have theretofore furnished Lender with lien waivers, copies of
bills, invoices and other reasonable documentation as may be required by Lender
to establish that the Replacement Expenditures which are the subject of such
request represent amounts due for completed or partially completed capital work
and improvements performed at the Property , in which case Lender shall make
such payments out of the Capex Trap Escrow Account.  In the event that all sums in the Engineering
Escrow Account have been utilized for the Required Engineering Work and no sums
remain on deposit in the Engineering Escrow Account, Lender shall, upon receipt
of written request of Borrower, transfer up to the $500,000 from the Capex Trap
Escrow Account to the Engineering Escrow Account.  In order to request such a reimbursement for
Replacement Expenditures not set forth in the Approved Annual Budget, Borrower
shall submit to Lender for Lender’s written approval a reimbursement request
for such Replacement Expenditures not later than fifteen (15) days prior to the
date for which such reimbursement is requested, in form reasonably satisfactory
to Lender setting forth in reasonable detail the basis for Borrower’s request
and a detailed description of the completed or partially completed capital work
and improvements performed at the Property and the basis for Borrower’s
characterization of such expenses as Replacement Expenditures.  Lender shall have the right to approve such
request, which approval shall not be unreasonably withheld, and in the event
that Lender objects to the proposed request submitted by Borrower, Lender shall
advise Borrower of such objections within fifteen (15) days after receipt
thereof (and deliver to Borrower a reasonably detailed description of such
objections) and Borrower may, within ten (10) days after receipt of notice
of any such objections revise such request and resubmit the same to Lender
whereupon Lender agrees to review such new submission.


 


Provided that
no Event of Default shall have occurred, all funds deposited into the Capex
Trap Escrow Account shall be held by Lender pursuant to the provisions of this
Security Instrument and shall be applied in payment of Replacement
Expenditures.  Should an Event of Default
occur, the sums on deposit in the Capex Trap Sub-Account and the Capex Trap
Escrow Account may be applied by Lender in payment of any Replacement
Expenditures or may be applied to the payment of the Debt or any other charges
affecting all or any portion of the Cross-collateralized Properties, as Lender
in its sole discretion may determine; provided, however, that no
such application shall be deemed to have been made by operation of law or
otherwise until actually made by Lender as herein provided.


 


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ARTICLE VI:  CONDEMNATION


 


Section 6.01.  Condemnation.  (a)  Borrower shall notify Lender
promptly of the commencement or threat of any Taking of the Property or any
portion thereof.  Lender is hereby
irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest,
with exclusive power to collect, receive and retain the proceeds of any such
Taking as to which Borrower is or may be entitled and to make any compromise or
settlement in connection with such proceedings (subject to Borrower’s
reasonable approval, except after the occurrence of an Event of Default, in
which event Borrower’s approval shall not be required), subject to the
provisions of this Security Instrument; provided, however, that
Borrower may participate in any such proceedings (without regard to the extent
of the Taking) and Borrower shall be authorized and entitled to compromise or
settle any such proceeding with respect to Condemnation Proceeds in an amount
less than five percent (5%) of the Allocated Loan Amount.  Borrower shall execute and deliver to Lender
any and all instruments reasonably required in connection with any such
proceeding promptly after request therefor by Lender.  Except as set forth above, Borrower shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior consent of Lender.  All Condemnation Proceeds are hereby assigned
to and shall be paid to Lender to be applied in accordance with the terms
hereof.  With respect to Condemnation
Proceeds in an amount in excess of five percent (5%) of the Allocated Loan
Amount, Borrower hereby authorizes Lender to compromise, settle, collect and
receive such Condemnation Proceeds, and to give proper receipts and acquittance
therefor.  Subject to the provisions of
this Article VI, Lender may apply such Condemnation Proceeds (less any
cost to Lender of recovering and paying out such proceeds, including, without
limitation, reasonable attorneys’ fees and disbursements and costs allocable to
inspecting any repair, restoration or rebuilding work and the plans and
specifications therefor) toward the payment of the Debt or to allow such
proceeds to be used for the Work.


 


(b)                                 “Substantial Taking”
shall mean (i) a Taking of such portion of the Property that would, in
Lender’s reasonable discretion, leave remaining a balance of the Property which
would not under then current economic conditions, applicable Development Laws
and other applicable Legal Requirements, permit the restoration of the Property
so as to constitute a complete, rentable facility of the same type as existed prior
to the Taking, having adequate ingress and egress to the Property, capable of
producing a projected Net Operating Income (as reasonably determined by Lender)
yielding a projected Debt Service Coverage therefrom for the next two (2) years
of not less than the Required Debt Service Coverage or (ii) a Taking which
Lender is not reasonably satisfied could be repaired within twelve (12) months
and at least six (6) months prior to the Maturity Date or (iii) a
Taking of fifteen percent (15%) or more of the Premises.


 


(c)                                  In the case of a
Substantial Taking, Condemnation Proceeds shall be payable to Lender in
reduction of the Debt but without any prepayment fee or charge of any kind and,
if Borrower elects to apply any Condemnation Proceeds it may receive pursuant
to this Security Instrument to the payment of the Debt, Borrower may prepay the
balance of the Debt without any prepayment fee or charge of any kind.


 


(d)                                 In the event of a
Taking which is less than a Substantial Taking, Borrower at its sole cost and
expense (whether or not the award shall have been received or shall be
sufficient


 


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for restoration) shall proceed diligently to restore, or cause the
restoration of, the remaining Improvements not so taken, to maintain a
complete, rentable, self-contained fully operational facility of the same sort
as existed prior to the Taking in as good a condition as is reasonably
possible.  In the event of such a Taking,
Lender shall receive the Condemnation Proceeds and shall pay over the same:


 


(i)                                     first, provided
no Default shall have occurred and be continuing, to Borrower to the extent of
any portion of the award as may be necessary to pay the reasonable cost of
restoration of the Improvements remaining, and


 


(ii)                                  second, to
Lender, in reduction of the Debt without any prepayment premium or charge of
any kind.


 


If one or more Takings in the aggregate create a Substantial Taking,
then, in such event, the sections of this Article VI above applicable to
Substantial Takings shall apply.


 


(e)                                  In the event Lender
is obligated to or elects to make Condemnation Proceeds available for the
restoration or rebuilding of the Property, such proceeds shall be disbursed in
the manner and subject to the conditions set forth in Section 3.04(b) hereof.  If, in accordance with this Article VI,
any Condemnation Proceeds are used to reduce the Debt, they shall be applied in
accordance with the provisions of the Note and, with no prepayment fee or
charge of any kind.  Borrower shall
promptly upon request by Lender execute and deliver all instruments requested
by Lender for the purpose of confirming the assignment of the Condemnation
Proceeds to Lender.  Application of all
or any part of the Condemnation Proceeds to the Debt shall be made in accordance
with the provisions of Sections 3.06 and 3.07 hereof.  No application of the Condemnation Proceeds
to the reduction of the Debt shall have the effect of releasing the lien of
this Security Instrument until the remainder of the Debt has been paid in
full.  In the case of any Taking, Lender,
to the extent that Lender has not been reimbursed by Borrower, shall be
entitled, as a first priority out of any Condemnation Proceeds, to
reimbursement for all costs, fees and expenses reasonably incurred in the
determination and collection of any Condemnation Proceeds.  All Condemnation Proceeds deposited with
Lender pursuant to this Section, until expended or applied as provided herein,
shall be held in accordance with Section 3.04(b) hereof and shall
constitute additional security for the payment of the Debt and the payment and
performance of Borrower’s obligations, but Lender shall not be deemed a trustee
or other fiduciary with respect to its receipt of such Condemnation Proceeds or
any part thereof.  All awards so
deposited with Lender shall be held by Lender in an Eligible Account, but
Lender makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue on any such deposit and shall have no
liability in connection therewith other than with respect to Lender’s gross
negligence or willful misconduct.  For
purposes hereof, any reference to the award shall be deemed to include
interest, if any, which has accrued thereon.


 


ARTICLE VII:  LEASES AND
RENTS


 


Section 7.01.  Assignment.  (a) Borrower does hereby bargain,
sell, assign and set over unto Lender, all of Borrower’s interest in the Leases
and Rents.  The assignment of Leases and
Rents in this Section 7.01 is an absolute, unconditional and present
assignment from Borrower to Lender and not an assignment for security and the
existence or exercise of Borrower’s revocable


 


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license to collect Rent shall not operate to subordinate this
assignment to any subsequent assignment. 
The exercise by Lender of any of its rights or remedies pursuant to this
Section 7.01 shall not be deemed to make Lender a
mortgagee-in-possession.  In addition to
the provisions of this Article VII, Borrower shall comply with all terms,
provisions and conditions of the Assignment.


 


(b)                                 So long as there shall
exist and be continuing no Event of Default, Borrower shall have a revocable
license to take all actions with respect to all Leases and Rents, present and
future, including the right to collect and use the Rents, subject to the terms
of this Security Instrument and the Assignment.


 


(c)                                  In a separate
instrument Borrower shall, as requested from time to time by Lender, assign to
Lender or its nominee by specific or general assignment, any and all Leases, such
assignments to be in form and content reasonably acceptable to Lender, but
subject to the provisions of Section 7.01(b) hereof.  Borrower agrees to deliver to Lender, within
thirty (30) days after Lender’s request, a true and complete copy of every Lease
and, within ten (10) days after Lender’s request, a complete list of the
Leases, certified by Borrower to be true, accurate and complete and stating the
demised premises, the names of the lessees, the Rent payable under the Leases,
the date to which such Rents have been paid, the material terms of the Leases,
including, without limitation, the dates of occupancy, the dates of expiration,
any Rent concessions, work obligations or other inducements granted to the
lessees thereunder, and any renewal options.


 


(d)                                 The rights of Lender
contained in this Article VII, the Assignment or any other assignment of
any Lease shall not result in any obligation or liability of Lender to Borrower
or any lessee under a Lease or any party claiming through any such lessee.


 


(e)                                  At any time after an
Event of Default, the license granted hereinabove may be revoked by Lender, and
Lender or a receiver appointed in accordance with this Security Instrument may
enter upon the Property, and collect, retain and apply the Rents toward payment
of the Debt in such priority and proportions as Lender in its sole discretion
shall deem proper.


 


(f)                                    In addition to the
rights which Lender may have herein, upon the occurrence of any Event of
Default, Lender, at its option, may 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 used and occupied by Borrower and may 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.


 


Section 7.02.  Management of Property.  (a) Borrower shall manage the Property or
cause the Property to be managed in a manner which is consistent with the
Approved Manager Standard.  All Space
Leases shall provide for rental rates comparable to then existing local market
rates and terms and conditions which constitute good and prudent business
practice and are consistent with prevailing market terms and conditions, and
shall be arms-length transactions.  All
Leases shall provide that they are subordinate to this Security Instrument and
that the lessees thereunder attorn to Lender. 
Borrower shall deliver copies of all Leases, amendments,


 


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modifications and renewals thereof to Lender. All proposed Leases for
the Property shall be subject to the prior written approval of Lender,
provided, however that Borrower may enter into new leases with unrelated third
parties without obtaining the prior consent of Lender provided that: (i) the
proposed tenant is unrelated to a tenant under an existing Lease; (ii) the
proposed leases conform with the requirements of this Section 7.02; (iii) the
space to be leased pursuant to such proposed lease does not exceed 5,000 square
feet; and (iv) the term of the proposed lease inclusive of all extensions
and renewals, does not exceed five (5) years.


 


(b)                                 Borrower (i) shall
observe and perform all of its material obligations under the Leases pursuant
to applicable Legal Requirements and shall not do or permit to be done anything
to impair the value of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Borrower shall
receive under the Leases; (iii) shall, consistent with the Approved
Manager Standard, enforce all of the terms, covenants and conditions contained
in the Leases to be observed or performed; (iv) shall not collect any of
the Rents under the Leases more than one (1) month in advance (except that
Borrower may collect in advance such security deposits as are permitted
pursuant to applicable Legal Requirements and are commercially reasonable in
the prevailing market); (v) shall not execute any other assignment of
lessor’s interest in the Leases or the Rents except as otherwise expressly
permitted pursuant to this Security Instrument; (vi) shall not cancel or
terminate any of the Leases or accept a surrender thereof in any manner
inconsistent with the Approved Manager Standard; (vii) shall not convey,
transfer or suffer or permit a conveyance or transfer of all or any part of the
Premises or the Improvements or of any interest therein so as to effect a
merger of the estates and rights of, or a termination or diminution of the
obligations of, lessees thereunder; (viii) shall not alter, modify or
change the terms of any guaranty of any Major Space Lease or cancel or
terminate any such guaranty; (ix) shall, in accordance with the Approved
Manager Standard, make all reasonable efforts to seek lessees for space as it
becomes vacant and enter into Leases in accordance with the terms hereof; (x)
shall not materially modify, alter or amend any Major Space Lease or Property
Agreement without Lender’s consent, which consent will not be unreasonably
withheld or delayed; (xi) shall notify Lender promptly if any Pad Owner shall
cease business operations or of the occurrence of any event of which it becomes
aware affecting a Pad Owner or its property which might have any material
effect on the Property; and (xii) shall, without limitation to any other
provision hereof, execute and deliver at the request of Lender all such further
assurances, confirmations and assignments in connection with the Property as
are required herein and as Lender shall from time to time reasonably require.


 


(c)                                  All security deposits
of lessees, whether held in cash or any other form, shall be treated by
Borrower as trust funds, shall not be commingled with any other funds of
Borrower and, if cash, shall be deposited by Borrower in the Security Deposit
Account.  Any bond or other instrument
which Borrower is permitted to hold in lieu of cash security deposits under
applicable Legal Requirements shall be maintained in full force and effect
unless replaced by cash deposits as hereinabove described, shall be issued by a
Person reasonably satisfactory to Lender, shall, if permitted pursuant to Legal
Requirements, at Lender’s option, name Lender as payee or mortgagee thereunder
or be fully assignable to Lender and shall, in all respects, comply with
applicable Legal Requirements and otherwise be reasonably satisfactory to
Lender.  Borrower shall, upon request,
provide Lender with evidence reasonably satisfactory to Lender of Borrower’s
compliance with the foregoing.  Following
the occurrence and during the


 


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continuance of any Event of Default, Borrower shall, upon Lender’s
request, if permitted by applicable Legal Requirements, turn over the security
deposits (and any interest thereon) to Lender to be held by Lender in
accordance with the terms of the Leases and all Legal Requirements.


 


(d)                                 Intentionally Omitted.


 


(e)                                  Borrower covenants
and agrees with Lender that (i) the Property will be managed at all times
by Manager pursuant to the management agreements approved by Lender (each, a “Management
Agreement”), (ii) after Borrower has knowledge of a fifty percent
(50%) or more change in Control of the ownership of Manager (other than in
connection with an IPO, provided Manager, directly or indirectly, is Controlled
by the same Person that Controls Borrower), Borrower will promptly give Lender
notice thereof (a “Manager Control Notice”) and (iii) the
Management Agreement may be terminated by Lender at any time for cause
(including, but not limited to, Manager’s gross negligence, misappropriation of
funds, willful misconduct or fraud) or at any time following (A) the
occurrence of an Event of Default, or (B) the receipt of a Manager Control
Notice, or (C) the date upon which the Debt Service Coverage is less than
the Debt Service Coverage set forth on Exhibit H
for two (2) consecutive calendar quarters and a substitute managing agent
shall be appointed by Borrower, subject to Lender’s prior written approval,
which may be given or withheld in Lender’s sole discretion and which may be
conditioned on, inter alia, a letter from each Rating Agency confirming that
any rating issued by the Rating Agency in connection with a Securitization will
not, as a result of the proposed change of Manager, be downgraded from the then
current ratings thereof, qualified or withdrawn.  Borrower may from time to time appoint a
successor manager to manage the Property with Lender’s prior written consent
which consent shall not be unreasonably withheld or delayed, provided that any
such successor manager shall be a reputable management company which meets the
Approved Manager Standard and each Rating Agency shall have confirmed in
writing that any rating issued by the Rating Agency in connection with a
Securitization will not, as a result of the proposed change of Manager, be
downgraded from the then current ratings thereof, qualified or withdrawn.  Borrower further covenants and agrees that
Borrower shall require Manager (or any successor managers) to maintain at all
times during the term of the Loan worker’s compensation insurance as required
by Governmental Authorities.


 


(f)                                    There are no franchise
agreements relating to the Property and Borrower shall not enter into any
franchise agreements relating to the Property.


 


(g)                                 Borrower covenants
that it shall not, nor permit Manager, to sell or deliver rooms or suites and
accept payment therefor for more than thirty (30) days in advance of delivery
except in the ordinary course of Borrower’s business and in accordance with the
Approved Manager Standard.


 


(h)                                 Borrower shall fund
and operate, or shall cause Manager to fund and operate, the Property in a
manner consistent with a hotel of the same type and category as the Property.


 


(i)                                     Borrower shall
maintain or cause Manager to maintain Inventory in kind and amount sufficient
to meet hotel industry standards for hotels comparable to the hotel located at


 


80





















 


the Premises and at levels sufficient for the operation of the hotel
located at the Premises at historic occupancy levels.


 


(j)                                     Borrower shall
deliver to Lender all notices of default or termination received by Borrower or
Manager with respect to any licenses and permits, contracts, Property
Agreements, Leases or insurance policies within three (3) Business Days of
receipt of the same.


 


(k)                                  If Borrower or SPE
Pledgor is a party to a Food and Beverage Lease/Operating Agreement, Borrower
and/or SPE Pledgor, as applicable, shall (i) diligently perform and
observe all of the terms, covenants and conditions of the Food and Beverage
Leases/Operating Agreements on the part of Borrower and the SPE Pledgor to be
performed and observed, (ii) promptly notify Lender of any material default
under any Food and Beverage Lease/Operating Agreement of which it is aware and (iii) diligently
enforce all of the obligations of the Food and Beverage Lessees/Operators under
the Food and Beverage Leases/Operating Agreements.  If Borrower or SPE Pledgor shall default in
the performance or observance of any term, covenant or condition of any Food
and Beverage Leases/Operating Agreements on the part of such Borrower or SPE
Pledgor to be performed or observed beyond any applicable grace or cure period,
then, without limiting Lender’s other rights or remedies under this Security
Instrument or any other Loan Documents, and without waiving or releasing
Borrower from any of its obligations hereunder or Borrower or the SPE Pledgor
under the Food and Beverage Leases/Operating Agreements, Lender shall have the
right, but shall be under no obligation, to pay any sums and to perform any act
as may be reasonably appropriate to cause all the terms, covenants and
conditions of the Food and Beverage Leases/Operating Agreements on the part of
Borrower or SPE Pledgor to be performed or observed.


 


(l)                                     Neither Borrower
nor SPE Pledgor shall, and neither Borrower nor SPE Pledgor shall permit any
other Person to (i) modify, renew, terminate or extend any Food and
Beverage Lease/Operating Agreement, transfer its interest in any Food and Beverage
Lease/Operating Agreement or consent to the assignment of any Food and Beverage
Lease/Operating Agreement, (ii) waive or release any of its rights under
any Food and Beverage Lease/Operating Agreement or (iii) consent to any
increase in its obligations under any Food and Beverage Lease/Operating
Agreement, in each case without the express consent of Lender, which consent
shall not be unreasonably withheld.  Any
action taken in violation of the foregoing without the prior express consent of
Lender shall be void and of no force and effect.


 


(m)                               None of Borrower, SPE
Pledgor nor any Affiliate of any Borrower or SPE Pledgor shall direct, solicit
or otherwise collude to cause any Food and Beverage SPE Pledgor Distributions (as
defined in the Pledge Agreement of even date herewith given by SPE Pledgor to
Lender in connection with the origination of the Loan) to be applied, disbursed
or remitted in any manner inconsistent with the terms and provisions of the
Loan Documents and/or the payment instructions provided by Lender to each Food
and Beverage Lessee/Operator.  None of
Borrower, SPE Pledgor nor any Affiliate of Borrower or SPE Pledgor shall
interfere with the application, disbursement or remittance of Food and Beverage
SPE Pledgor Distributions as required under the terms and provisions of the
Loan Documents and/or the payment instructions provided by Lender to each Food
and Beverage Lessee/Operator.  Borrower
and each SPE Pledgor shall take all commercially reasonable steps necessary to
cause all revenues of the Food


 


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and Beverage Lessees/Operators to continue to be collected by
Borrower.  None of Borrower, SPE Pledgor
nor Affiliate of Borrower or SPE Pledgor shall revoke or attempt to revoke the
payment instructions provided by Lender to each Food & Beverage
Lessee/Operator.


 


ARTICLE VIII:  MAINTENANCE
AND REPAIR


 


Section 8.01.  Maintenance and Repair of the Property;
Alterations; Replacement of Equipment. 
Borrower hereby covenants and agrees:


 


(a)                                  Borrower shall not (i) desert
or abandon the Property, (ii) change the use of the Property or cause or
permit the use or occupancy of any part of the Property to be discontinued if
such discontinuance or use change would violate any zoning or other law,
ordinance or regulation; (iii) consent to or seek any lowering of the
zoning classification, or greater zoning restriction affecting the Property; or
(iv) without Lender’s consent, which may be granted or withheld in Lender’s
sole and absolute discretion and may be subject to such conditions as Lender
shall, in its sole and absolute discretion, impose, take any steps whatsoever
to convert the Property, or any portion thereof, to a condominium or cooperative
form of ownership.


 


(b)                                 Borrower shall, at its
expense, (i) take good care of the Property including grounds generally,
and utility systems and sidewalks, roads, alleys, and curbs therein, and shall
keep the same in good, safe and insurable condition and in compliance with all
applicable Legal Requirements, (ii) promptly make all repairs to the
Property, above grade and below grade, interior and exterior, structural and
nonstructural, ordinary and extraordinary, unforeseen and foreseen, and
maintain the Property in a manner appropriate for the facility and (iii) not
commit or suffer to be committed any waste of the Property or do or suffer to
be done anything which will increase the risk of fire or other hazard to the
Property or impair the value thereof. 
Borrower shall keep the sidewalks, vaults, gutters and curbs comprising,
or adjacent to, the Property, clean and free from dirt, snow, ice, rubbish and
obstructions (unless such obstructions are as a result of repairs made in
accordance with the terms hereof or if necessary to preserve safety or if
required by Legal Requirements).  All
repairs made by Borrower shall be made with first-class materials, in a good
and workmanlike manner, shall be equal or better in quality and class to the
original work and shall comply with all applicable Legal Requirements and
Insurance Requirements.  To the extent
any of the above obligations are obligations of tenants under Space Leases or
Pad Owners or other Persons under Property Agreements, Borrower may fulfill its
obligations hereunder by causing such tenants, Pad Owners or other Persons, as
the case may be, to perform their obligations thereunder.  As used herein, the terms “repair” and “repairs”
shall be deemed to include all necessary replacements.


 


(c)                                  Borrower shall not
demolish, remove, construct, or, except as otherwise expressly provided herein,
restore, or alter the Property or any portion thereof nor consent to or permit
any such demolition, removal, construction, restoration, addition or alteration,
in each case in a manner which would diminish the value of the Property without
Lender’s prior written consent in each instance, which consent shall not be
unreasonably withheld or delayed.


 


(d)                                 Borrower represents
and warrants to Lender that (i) there are no fixtures, machinery,
apparatus, tools, equipment or articles of personal property attached or
appurtenant


 


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to, or located on, or used in connection with the management, operation
or maintenance of the Property, except for the Equipment and equipment leased
by Borrower for the management, operation or maintenance of the Property in
accordance with the Loan Documents; (ii) the Equipment and the leased
equipment constitute all of the fixtures, machinery, apparatus, tools,
equipment and articles of personal property necessary to the proper operation
and maintenance of the Property; and (iii) all of the Equipment is free
and clear of all liens, except for the lien of this Security Instrument, the
lien, if any, of equipment financing permitted pursuant to Section 2.02(g)(viii) hereof
and the Permitted Encumbrances.  All
right, title and interest of Borrower in and to all extensions, improvements,
betterments, renewals and appurtenances to the Property hereafter acquired by,
or released to, Borrower or constructed, assembled or placed by Borrower in the
Property, and all changes and substitutions of the security constituted
thereby, shall be and, in each such case, without any further mortgage,
encumbrance, conveyance, assignment or other act by Lender or Borrower, shall
become subject to the lien and security interest of this Security Instrument as
fully and completely, and with the same effect, as though now owned by Borrower
and specifically described in this Security Instrument, but at any and all
times Borrower shall execute and deliver to Lender any documents Lender may
reasonably deem necessary or appropriate for the purpose of specifically
subjecting the same to the lien and security interest of this Security Instrument.


 


(e)                                  Notwithstanding the
provisions of this Security Instrument to the contrary, Borrower shall have the
right, at any time and from time to time, to remove and dispose of Equipment
which may have become obsolete or unfit for use or which is no longer useful in
the management, operation or maintenance of the Property.  Borrower shall promptly replace any such
Equipment so disposed of or removed with other Equipment of equal value and
utility, free of any security interest or superior title, liens or claims other
than Permitted Encumbrances, Permitted Liens or equipment financing permitted
pursuant to Section 2.02(g)(viii) hereof; except that, if by reason
of technological or other developments, replacement of the Equipment so removed
or disposed of is not necessary or desirable for the proper management,
operation or maintenance of the Property, Borrower shall not be required to
replace the same.  All such replacements
or additional equipment shall be deemed to constitute “Equipment” and shall be covered
by the security interest herein granted.


 


ARTICLE IX:  TRANSFER OR
ENCUMBRANCE OF THE PROPERTY


 


Section 9.01.  Other Encumbrances.  Other than with respect to Permitted Liens
and Permitted Encumbrances, Borrower shall not further encumber or permit the
further encumbrance in any manner (whether by grant of a pledge, security
interest or otherwise) of the Property or any part thereof or interest therein,
including, without limitation, of the Rents therefrom.  In addition, Borrower shall not further encumber
and shall not permit the further encumbrance in any manner (whether by grant of
a pledge, security interest or otherwise) of Borrower or any direct or indirect
interest in Borrower except as expressly permitted pursuant to this Security
Instrument.


 


Section 9.02.  No Transfer.  (a) Borrower acknowledges that Lender
has examined and relied on the expertise of Borrower and, if applicable, each
General Partner, in owning and operating properties such as the Property in
agreeing to make the Loan and will continue to rely


 


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on Borrower’s ownership of the Property as a means of maintaining the
value of the Property as security for repayment of the Debt and Borrower
acknowledges that Lender has a valid interest in maintaining the value of the
Property.  Borrower shall not Transfer,
nor permit any Transfer, without the prior written consent of Lender, which
consent Lender may withhold in its sole and absolute discretion.  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 a
Transfer without Lender’s consent.  This
provision shall apply to every Transfer regardless of whether voluntary or not,
or whether or not Lender has consented to any previous Transfer.


 


(b)                                 If any portion of the
Loan is repaid from the proceeds of an IPO, indirect equity holders in Borrower
may obtain additional financing (the “Additional Financing”) and pledge
direct or indirect equity ownership interests in Borrower as collateral for
such additional debt provided that (i) the aggregate Additional Financing
together with the then outstanding Principal Amount and the unpaid principal
amount of the Mez Loan does not exceed the original Principal Amount plus the
original principal amount of the Mez Loan on the Closing Date, (ii) no
Default exists, (iii) the aggregate annual debt service with respect to
the Loan, the Mez Loan and the Additional Financing following the incurrence of
such Additional Financing does not exceed the annual debt service under the
Loan and the Mez Loan prior to the incurrence of such Additional Financing (but
not taking into account any prior paydowns of the Loan or the Mez Loan), (iv) such
Additional Financing has a maturity date no earlier than the Maturity Date, (v) such
Additional Financing and any pledge of collateral in connection therewith is
subordinate in lien and payment to the Loan and the Mez Loan and (vi) Borrower
delivers to Lender a letter from each Rating Agency confirming that any rating
issued by the Rating Agency in connection with a Securitization will not, as a
result of the Additional Financing, be downgraded from the then current ratings
thereof, qualified or withdrawn.


 


(c)                                  Borrower may place a
second mortgage on the Property or any portions thereof provided it (i) complies
with all the conditions set forth in subsection 9.02(b)(i) through (vi) above,
(ii) if the Loan is included in a Securitization, Borrower obtains
approval of the controlling class of the Securitization (and if the Loan is not
included in a Securitization, Borrower obtains the approval of Lender), (iii) the
holder of the subordinate mortgage enters into an intercreditor agreement which
is in form and substance acceptable to Lender and (iv) the Mez Loan has
been paid in full.


 


Section 9.03.  Due on Sale.  Lender may declare the Debt immediately due
and payable upon any Transfer or further encumbrance without Lender’s consent unless
otherwise specifically permitted hereunder without regard to whether any
impairment of its security or any increased risk of default hereunder can be
demonstrated.  This provision shall apply
to every Transfer or further encumbrance of the Property or any part thereof or
interest in the Property or in Borrower regardless of whether voluntary or not,
or whether or not Lender has consented to any previous Transfer or further
encumbrance of the Property or interest in Borrower unless otherwise
specifically permitted hereunder.


 


Section 9.04.  Permitted Transfer.  Notwithstanding the foregoing provisions of
this Article IX, a one time sale (and in the case of an IPO, a transaction
or series of related


 


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transactions occurring on or about the same day in connection with the
IPO), conveyance or Transfer of the Property in its entirety (hereinafter, “Sale”)
shall be permitted hereunder provided that each of the following terms and
conditions are satisfied:


 


(a)                                  no
Event of Default is then continuing hereunder or under any of the other Loan
Documents;


 


(b)                                 If
the proposed Sale is to occur at any time after a Securitization, each Rating
Agency shall have delivered written confirmation that any rating issued by such
Rating Agency in connection with the Securitization will not, as a result of
the proposed Sale, be downgraded from the then current ratings thereof,
qualified or withdrawn; provided, however, no such confirmation shall be
required to be obtained from the Rating Agencies in the event the IPO results
in the outstanding principal amount of the Loan and the Mezz Loan,
collectively, being reduced by $150,000 or more and, provided, further, that,
prior to January 1, 2006, no Sale (other than in connection with an IPO)
will be permitted if the Sale is to occur within sixty (60) days of any
contemplated sale of the Loan by Lender, whether in connection with a
Securitization or otherwise;


 


(c)                                  Borrower
gives Lender written notice of the terms of the proposed Sale not less than
sixty (60) days or with respect to an IPO, fifteen (15) days, before the date
on which such Sale is scheduled to close and, concurrently therewith, gives
Lender (i) all such information concerning the proposed transferee of the
Property (hereinafter, “Buyer”) as Lender would require in evaluating an
initial extension of credit to a borrower and Lender determines, in its sole
discretion that the Buyer is acceptable to Lender in all respects (other than
in connection with an IPO) and (ii) a non-refundable application fee equal
to $15,000;


 


(d)                                 Borrower
pays Lender, concurrently with the closing of such Sale, a non-refundable
assumption fee in an amount equal to one percent (1%) of the then outstanding
Loan Amount together with all out-of-pocket costs and expenses, including,
without limitation, reasonable attorneys’ fees, incurred by Lender in
connection with the Sale; provided, however, that no such assumption fee shall
be required in connection with a Transfer effected in connection with an IPO
(but Borrower shall be required to pay all out-of-pocket costs and expenses of
Lender);


 


(e)                                  In
the event the applicable Transfer will result in Borrower no longer owning the
Property, Buyer assumes all of the obligations under the Loan Documents and,
prior to or concurrently with the closing of such Sale, Buyer executes, without
any cost or expense to Lender, such documents and agreements as Lender shall
reasonably require to evidence and effectuate said assumption and delivers such
legal opinions as Lender may require;


 


(f)                                    In
the event the applicable Transfer will result in Borrower no longer owning the
Property, Borrower and Buyer execute, without any cost or expense to Lender,
new financing statements or financing statement amendments and any additional
documents reasonably requested by Lender;


 


85





















 


(g)                                 In
the event the applicable Transfer will result in Borrower no longer owning the
Property, Borrower delivers to Lender, without any cost or expense to Lender,
such endorsements to Lender’s title insurance policy, hazard insurance policy
endorsements or certificates and other similar materials as Lender may deem
necessary at the time of the Sale, all in form and substance reasonably satisfactory
to Lender, including, without limitation, an endorsement or endorsements to
Lender’s title insurance policy insuring the lien of this Security Instrument,
extending the effective date of such policy to the date of execution and
delivery (or, if later, of recording) of the assumption agreement referenced
above in subparagraph (e) of this Section, with no additional exceptions
added to such policy, and insuring that fee simple title to the Property is
vested in Buyer;


 


(h)                                 In
the event the applicable Transfer will result in Borrower no longer owning the
Property, Borrower executes and delivers to Lender, without any cost or expense
to Lender, a release of Lender, its officers, directors, employees and agents,
from all claims and liability relating to the transactions evidenced by the
Loan Documents, through and including the date of the closing of the Sale,
which agreement shall be in form and substance satisfactory to Lender and shall
be binding upon Buyer;


 


(i)                                     In
the event the applicable Transfer will result in Borrower no longer owning the
Property, subject to the provisions of Section 18.32 hereof, such Sale does
not relieve Borrower of any personal liability under the Note or any of the
other Loan Documents for any acts or events occurring or obligations arising
prior to or simultaneously with the closing of such Sale, and Borrower
executes, without any cost or expense to Lender, such documents and agreements
as Lender shall reasonably require to evidence and effectuate the ratification
of said personal liability;


 


(j)                                     In
the event the applicable Transfer will result in Borrower no longer owning the
Property, such Sale does not relieve any Guarantor of its obligations under any
guaranty or indemnity agreement executed in connection with the Loan and each
such Guarantor executes, without any cost or expense to Lender, such documents
and agreements as Lender shall reasonably require to evidence and effectuate
the ratification of each such guaranty agreement, provided that if Buyer or a
party associated with Buyer approved by Lender in its sole discretion assumes
the obligations of the current Guarantor under its guaranty and Buyer or such
party associated with Buyer, as applicable, executes, without any cost or
expense to Lender, a new guaranty in similar form and substance to the existing
guaranty and otherwise satisfactory to Lender, then Lender shall release the
current Guarantor from all obligations arising under its guaranty after the
closing of such Sale; and


 


(k)                                  In
the event the applicable Transfer will result in Borrower no longer owning the
Property, Buyer is a Single Purpose Entity and Lender receives a
non-consolidation opinion relating to Buyer from Buyer’s counsel, which opinion
is in form and substance acceptable to Lender.


 


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ARTICLE X:  CERTIFICATES


 


Section 10.01.  Estoppel Certificates.  (a) After
request by Lender, Borrower, within fifteen (15) days following Lender’s
request and at Borrower’s expense, will furnish Lender with a statement, duly
acknowledged and certified, setting forth (i) the amount of the original
principal amount of the Note, and the unpaid principal amount of the Note, (ii) the
rate of interest of the Note, (iii) the date payments of interest and/or
principal were last paid, (iv) whether to its knowledge there exists any
offsets or defenses to the payment of the Debt, and if any are alleged, the
nature thereof, (v) that the Note and this Security Instrument have not
been modified or if modified, giving particulars of such modification and (vi) that
there has occurred and is then continuing no Default or if such Default exists,
the nature thereof, the period of time it has existed, and the action being
taken to remedy such Default.


 


(b)                                 Within thirty (30)
days after written request by Borrower, Lender shall furnish to Borrower a
written statement confirming (i) the outstanding amount of the Debt, (ii) the
rate of interest set forth in the Note, (iii) the maturity date of the
Note and (iv) the date to which interest and/or principal has been paid.


 


(c)                                  Borrower shall use
all reasonable efforts to obtain estoppel certificates from tenants in form and
substance reasonably acceptable to Lender, but, provided no Event of Default
has occurred and is continuing, in no event shall Borrower be required to
deliver estoppel certificates more than twice during any Loan Year.


 


ARTICLE XI:  NOTICES


 


Section 11.01.  Notices.  Any notice, demand, statement, request or
consent made hereunder shall be in writing and delivered personally or sent to
the party to whom the notice, demand or request is being made by overnight
delivery by Federal Express or other nationally recognized overnight delivery
service, as follows and shall be deemed given when delivered personally or one (1) Business
Day after being deposited with Federal Express or such other nationally
recognized delivery service:


 


	
  If to Lender:

  	
   

  	
  To Lender, at the address first written above,

  
	
   

  	
   

  	
   

  
	
  with copies

  	
   

  	
  Hypo Real Estate Capital Corporation

  
	
  to:

  	
   

  	
  622 Third Avenue

  
	
   

  	
   

  	
  New York, New York 10017

  
	
   

  	
   

  	
  Attn: Chief Risk Officer

  
	
   

  	
   

  	
  Facsimile No.: (212) 671-6445

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Hypo Real Estate Capital Corporation

  
	
   

  	
   

  	
  622 Third Avenue

  
	
   

  	
   

  	
  New York, New York 10017

  
	
   

  	
   

  	
  Attn: Chief Legal Officer

  
	
   

  	
   

  	
  Facsimile No.: (212) 671-6368

  



 


87





















 


	
   

  	
   

  	
  and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Proskauer Rose LLP

  
	
   

  	
   

  	
  1585 Broadway

  
	
   

  	
   

  	
  New York, New York 10036

  
	
   

  	
   

  	
  Attn: David J. Weinberger, Esq.

  
	
   

  	
   

  	
  Facsimile No.: (212) 969-2900

  
	
   

  	
   

  	
   

  
	
  If to Borrower:

  	
   

  	
  To Borrower, at the address first written above, to the attention of

  Chief Financial Officer, Facsimile No. (212) 277-4268,

  
	
   

  	
   

  	
   

  
	
  with copies

  	
   

  	
  NorthStar
  Capital Investment Corp.

  
	
  to:

  	
   

  	
  527 Madison
  Avenue, 17th Floor

  
	
   

  	
   

  	
  New York,
  New York 10022

  
	
   

  	
   

  	
  Attn: Marc
  S. Gordon

  
	
   

  	
   

  	
  Facsimile
  No.: (212) 319-4557

  
	
   

  	
   

  	
  and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Skadden,
  Arps, Slate, Meagher & Flom LLP

  
	
   

  	
   

  	
  Four Times
  Square

  
	
   

  	
   

  	
  New York,
  New York 10036

  
	
   

  	
   

  	
  Attn: Neil
  L. Rock, Esq.

  
	
   

  	
   

  	
  Facsimile
  No.: (917) 777-3787

  



 


or such other
address as Borrower or Lender shall hereafter specify by not less than ten (10) days
prior written notice as provided herein; provided, however, that
notwithstanding any provision of this Article to the contrary, such notice
of change of address shall be deemed given only upon actual receipt
thereof.  Rejection or other refusal to
accept or the inability to deliver because of changed addresses of which no
notice was given as herein required shall be deemed to be receipt of the
notice, demand, statement, request or consent.


 


ARTICLE XII: 
INDEMNIFICATION


 


Section 12.01.  Indemnification Covering Property.  In addition, and without limitation, to any
other provision of this Security Instrument or any other Loan Document,
Borrower shall protect, indemnify and save harmless Lender and its successors
and assigns, and each of their agents, employees, officers, directors,
stockholders, partners and members (collectively, “Indemnified Parties”)
for, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ fees
and disbursements imposed upon or incurred by or asserted against any of the
Indemnified Parties by reason of (a) ownership of this Security
Instrument, the Assignment, the Property or any part thereof or any interest
therein or receipt of any Rents; (b) any accident, injury to or death of
any person or loss of or damage to property occurring in, on or about the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (c) any use, nonuse or condition in, on or about,
or


 


88





















 


possession, alteration, repair, operation, maintenance or management
of, the Property or any part thereof or on the adjoining sidewalks, curbs,
parking areas, streets or ways; (d) any failure on the part of Borrower to
perform or comply with any of the terms of this Security Instrument or the
Assignment; (e) performance of any labor or services or the furnishing of
any materials or other property in respect of the Property or any part thereof;
(f) any claim by brokers, finders or similar Persons claiming to be
entitled to a commission in connection with any Lease or other transaction
involving the Property or any part thereof; (g) any Imposition including,
without limitation, any Imposition attributable to the execution, delivery,
filing, or recording of any Loan Document, Lease or memorandum thereof; (h) any
lien or claim arising on or against the Property or any part thereof under any
Legal Requirement or any liability asserted against any of the Indemnified
Parties with respect thereto; (i) any claim arising out of or in any way
relating to any tax or other imposition on the making and/or recording of this
Security Instrument, the Note or any of the other Loan Documents; (j) a Default
under Sections 2.02(f), 2.02(g), 2.02(k), 2.02(t) or 2.02(w) hereof, (k) the
failure of any Person to file timely with the Internal Revenue Service an
accurate Form 1099-B, Statement for Recipients of Proceeds from Real
Estate, Broker and Barter Exchange Transactions, which may be required in
connection with the Loan, or to supply a copy thereof in a timely fashion to
the recipient of the proceeds of the Loan; (l) the claims of any lessee or any
Person acting through or under any lessee or otherwise arising under or as a
consequence of any Lease or (m) the failure to pay any insurance premiums.  Notwithstanding the foregoing provisions of
this Section 12.01 to the contrary, Borrower shall have no obligation to
indemnify the Indemnified Parties pursuant to this Section 12.01 for
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses relative to the foregoing which result from Lender’s, and its
successors’ or assigns’, willful misconduct or gross negligence.  Any amounts payable to Lender by reason of
the application of this Section 12.01 shall constitute a part of the Debt
secured by this Security Instrument and the other Loan Documents and shall
become immediately due and payable and shall bear interest at the Default Rate
from the date the liability, obligation, claim, cost or expense is sustained by
Lender, as applicable, until paid.  The
provisions of this Section 12.01 shall survive the termination of this
Security Instrument whether by repayment of the Debt, foreclosure or delivery
of a deed in lieu thereof, assignment or otherwise.  In case any action, suit or proceeding is
brought against any of the Indemnified Parties by reason of any occurrence of
the type set forth in (a) through (m) above, Borrower shall, at Borrower’s
expense, resist and defend such action, suit or proceeding or will cause the
same to be resisted and defended by counsel at Borrower’s expense for the
insurer of the liability or by counsel designated by Borrower (unless
reasonably disapproved by Lender promptly after Lender has been notified of
such counsel); provided, however, that nothing herein shall
compromise the right of Lender (or any other Indemnified Party) to appoint its
own counsel at Borrower’s expense for its defense with respect to any action
which, in the reasonable opinion of Lender or such other Indemnified Party, as
applicable, presents a conflict or potential conflict between Lender or such
other Indemnified Party that would make such separate representation
advisable.  Any Indemnified Party will
give Borrower prompt notice after such Indemnified Party obtains actual
knowledge of any potential claim by such Indemnified Party for indemnification
hereunder.  The Indemnified Parties shall
not settle or compromise any action, proceeding or claim as to which it is
indemnified hereunder without notice to Borrower.  Notwithstanding the foregoing, so long as no
Default has occurred and is continuing and Borrower is resisting and defending
such action, suit or proceeding as provided above in a


 


89





















 


prudent and commercially reasonable manner, in order to obtain the
benefit of this Section 12.01 with respect to such action, suit or
proceeding, Lender and the Indemnified Parties agree that they shall not settle
such action, suit or proceeding without obtaining Borrower’s consent which
Borrower agrees not to unreasonably withhold, condition or delay; provided,
however, (x) if Borrower is not diligently defending such action, suit
or proceeding in a prudent and commercially reasonable manner as provided above
and Lender has provided Borrower with thirty (30) days’ prior written notice,
or shorter period if mandated by the requirements of the applicable law, and
Borrower has failed to correct such failure, or (y) failure to settle could, in
Lender’s reasonable judgment, expose Lender to criminal liability, Lender may
settle such action, suit or proceeding without the consent of but upon notice
to Borrower and be entitled to the benefits of this Section 12.01 with
respect to the settlement of such action, suit or proceeding.


 


ARTICLE XIII:  DEFAULTS


 


Section 13.01.  Events of Default.  The Debt shall become immediately due at the
option of Lender upon any one or more of the following events (“Event of
Default”):


 


(a)                                  if the final payment,
Exit Fee or prepayment premium, if any, due under the Note or hereunder shall
not be paid on Maturity;


 


(b)                                 if any monthly payment
of interest and/or principal due under the Note (other than the sums described
in (a) above) shall not be fully paid on the date upon which the same is
due and payable thereunder;


 


(c)                                  if payment of any sum
(other than the sums described in (a) above or (b) above) required to
be paid pursuant to the Note, this Security Instrument or any other Loan
Document shall not be paid within five (5) days after Lender delivers
written notice to Borrower that same is due and payable thereunder or
hereunder;


 


(d)                                 if Borrower, Guarantor
or, if Borrower or Guarantor is a partnership, any general partner of Borrower
or Guarantor, or, if Borrower or Guarantor is a limited liability company, any
member of Borrower or Guarantor, shall institute or cause to be instituted any
proceeding for the termination or dissolution of Borrower, Guarantor or any
such general partner or member;


 


(e)                                  if the insurance
policies required hereunder are not kept in full force and effect, or if the
insurance policies are not assigned and delivered to Lender as herein provided;


 


(f)                                    if Borrower or
Guarantor attempts to assign its rights under this Security Instrument or any
other Loan Document or any interest herein or therein, or if any Transfer
occurs other than in accordance with the provisions hereof;


 


(g)                                 if any representation
or warranty of Borrower or Guarantor made herein or in any other Loan Document
or in any certificate, report, financial statement or other instrument or
agreement furnished to Lender shall prove false or misleading in any material respect
as of the date made or furnished;


 


90





















 


(h)                                 if Borrower, Guarantor
or any general partner of Borrower, or Guarantor shall make an assignment for
the benefit of creditors or shall admit in writing its inability to pay its
debts generally as they become due;


 


(i)                                     if a receiver,
liquidator or trustee of Borrower, Guarantor or any general partner of
Borrower, or Guarantor shall be appointed or if Borrower, Guarantor or their
respective general partners shall be adjudicated a bankrupt or insolvent, or if
any petition for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by or
against, consented to, or acquiesced in, by Borrower, Guarantor or their
respective general partners or if any proceeding for the dissolution or
liquidation of Borrower, Guarantor or their respective general partners shall
be instituted; however, if such appointment, adjudication, petition or
proceeding was involuntary and not consented to by Borrower, Guarantor or their
respective general partners, as applicable, upon the same not being discharged,
stayed or dismissed within ninety (90) days or if Borrower, Guarantor or their
respective general partners shall generally not be paying its debts as they
become due;


 


(j)                                     if Borrower shall
be in default beyond any notice or grace period, if any, under any other
mortgage or deed of trust or security agreement covering any part of the
Property without regard to its priority relative to this Security Instrument;
provided, however, this provision shall not be deemed a waiver of the
provisions of Article IX prohibiting further encumbrances affecting the
Property or any other provision of this Security Instrument;


 


(k)                                  if the Property
becomes subject (i) to any lien which is superior to the lien of this
Security Instrument, other than a lien for real estate taxes and assessments
not due and payable, or (ii) to any mechanic’s, materialman’s or other
lien which is or is asserted to be superior to the lien of this Security
Instrument, and such lien shall remain undischarged (by payment, bonding, or
otherwise) for ten (10) days unless contested in accordance with the terms
hereof;


 


(l)                                     if Borrower or SPE
Pledgor discontinues operations with respect to a material portion of the
Property for reasons other than repair or restoration arising from a casualty
or condemnation for ten (10) days or more;


 


(m)                               except as permitted in
this Security Instrument, any material alteration, demolition or removal of any
of the Improvements without the prior consent of Lender;


 


(n)                                 if Borrower or SPE
Pledgor consummates a transaction which would cause this Security Instrument or
Lender’s rights under this Security Instrument, the Note or any other Loan
Document to constitute a non-exempt prohibited transaction under ERISA or
result in a violation of a state statute regulating government plans subjecting
Lender to liability for a violation of ERISA or a similar state statute; or


 


(o)                                 if an Event of Default
shall occur under any of the other Cross-collateralized Mortgages; or


 


(p)                                 if a default shall
occur under any of the other terms, covenants or conditions of the Note, this
Security Instrument or any other Loan Document, other than as set forth in (a)


 


91


















 


through (o) above, for ten (10) days after notice from Lender in
the case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after notice from Lender in the case of any other default
or an additional ninety (90) days if Borrower is diligently and continuously
effectuating a cure of a curable non-monetary default, other than as set forth
in (a) through (o) above.  Notwithstanding
the foregoing, Borrower’s failure to promptly commence the Work subsequent to a
casualty or Taking shall not be a default hereunder if (i) a Substantial
Casualty or Substantial Taking has occurred, (ii) Lender has not made
available Loss Proceeds to Borrower for the Work for any reason other than
because a Default exists and (iii) Borrower has given written notice to
Lender that it shall obtain a Release within six (6) months of Lender
applying Loss Proceeds from the Property towards the repayment of the Debt and
Borrower diligently seeks construction financing for the Work during such
period and delivers to Lender evidence thereof.


 


Section 13.02.  Remedies.  (a) Upon the occurrence and
during the continuance of any Event of Default, Lender may, in addition to any
other rights or remedies available to it hereunder or under any other Loan
Document, at law or in equity, take such action, without notice or demand, as
it reasonably deems advisable to protect and enforce its rights against
Borrower or any one or more of the Cross-collateralized Borrowers and in and to
the Property or any one or more of the Cross-collateralized Properties
including, but not limited to, the following actions, each of which may be
pursued singly, concurrently or otherwise, at such time and in such order as
Lender may determine, in its sole discretion, without impairing or otherwise
affecting any other rights and remedies of Lender hereunder, at law or in
equity:  (i) declare all or any
portion of the unpaid Debt to be immediately due and payable; provided,
however, that upon the occurrence of any of the events specified in Section 13.01(i),
the entire Debt will be immediately due and payable without notice or demand or
any other declaration of the amounts due and payable; or (ii) bring an
action to foreclose this Security Instrument and without applying for a
receiver for the Rents, but subject to the rights of the tenants under the
Leases, enter into or upon the Property or any part thereof, either personally
or by its agents, nominees or attorneys, and dispossess Borrower and its agents
and servants therefrom, and thereupon Lender may (A) use, operate, manage,
control, insure, maintain, repair, restore and otherwise deal with all and
every part of the Property and conduct the business thereat, (B) make
alterations, additions, renewals, replacements and improvements to or on the
Property or any part thereof, (C) exercise all rights and powers of
Borrower with respect to the Property or any part thereof, 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 earnings, revenues, rents, issues, profits and
other income of the Property and every part thereof, and (D) apply the
receipts from the Property or any part thereof to the payment of the Debt,
after deducting therefrom all expenses (including, without limitation,
reasonable attorneys’ fees and disbursements) reasonably incurred in connection
with the aforesaid operations and all amounts necessary to pay the Impositions,
insurance and other charges in connection with the Property or any part
thereof, as well as just and reasonable compensation for the services of Lender’s
third party agents; or (iii) have an appraisal or other valuation of the
Property or any part thereof performed by an Appraiser (and Borrower covenants
and agrees it shall cooperate in causing any such valuation or appraisal to be
performed) and any cost or expense incurred by Lender in connection therewith
shall constitute a portion of the Debt and be


 


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secured by this Security Instrument and shall be immediately due and
payable to Lender with interest, at the Default Rate, until the date of receipt
by Lender; or (iv) sell the Property or institute proceedings for the
complete foreclosure of this Security Instrument, or take such other action as
may be allowed pursuant to Legal Requirements, at law or in equity, for the
enforcement of this Security Instrument in which case the Property or any part
thereof may be sold for cash or credit in one or more parcels; or (v) with
or without entry, and to the extent permitted and pursuant to the procedures
provided by applicable Legal Requirements, institute proceedings for the
partial foreclosure of this Security Instrument, or take such other action as
may be allowed pursuant to Legal Requirements, at law or in equity, for the
enforcement of this Security Instrument for the portion of the Debt then due
and payable, subject to the lien of this Security Instrument continuing
unimpaired and without loss of priority so as to secure the balance of the Debt
not then due; or (vi) sell the Property or any part thereof and any or 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 whole or in parcels, in any order or manner, at such time and place,
upon such terms and after such notice thereof as may be required or permitted
by law, at the discretion of Lender, and in the event of a sale, by foreclosure
or otherwise, of less than all of the Property, this Security Instrument shall
continue as a lien on the remaining portion of the Property; or (vii) institute
an action, suit or proceeding in equity for the specific performance of any
covenant, condition or agreement contained in the Loan Documents, or any of
them; or (viii) recover judgment on the Note or any guaranty either
before, during or after (or in lieu of) any proceedings for the enforcement of
this Security Instrument; or (ix) apply, ex parte, for the appointment of
a custodian, trustee, receiver, keeper, liquidator or conservator of the
Property or any part thereof, irrespective of the adequacy of the security for
the Debt and without regard to the solvency of Borrower or of any Person liable
for the payment of the Debt, to which appointment Borrower does hereby consent
and such receiver or other official shall have all rights and powers permitted
by applicable law and such other rights and powers as the court making such
appointment may confer, but the appointment of such receiver or other official
shall not impair or in any manner prejudice the rights of Lender to receive the
Rent with respect to any of the Property pursuant to this Security Instrument
or the Assignment; or (x) require, at Lender’s option, 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 any portion of the
Property occupied by Borrower and may require Borrower to vacate and surrender
possession to Lender of the Property or to such receiver and Borrower may be
evicted by summary proceedings or otherwise; or (xi) without notice to Borrower
(A) apply all or any portion of the cash collateral in any Sub-Account and
Escrow Account, including any interest and/or earnings therein, to carry out
the obligations of Borrower under this Security Instrument and the other Loan
Documents, to protect and preserve the Property and for any other purpose
permitted under this Security Instrument and the other Loan Documents and/or (B) have
all or any portion of such cash collateral immediately paid to Lender to be
applied against the Debt in the order and priority set forth in the Note; or
(xii) pursue any or all such other rights or remedies as Lender may have under
applicable law or in equity; provided, however, that the provisions of this Section 13.02(a) shall
not be construed to extend or modify any of the notice requirements or grace
periods provided for hereunder or under any of the other Loan Documents.  Borrower hereby waives, to the fullest extent
permitted by Legal Requirements, any defense


 


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Borrower might otherwise raise or have by the failure to make any
tenants parties defendant to a foreclosure proceeding and to foreclose their
rights in any proceeding instituted by Lender .


 


(b)                                 Any time after an
Event of Default, Lender shall have the power to sell the Property or any part
thereof at public auction, in such manner, at such time and place, upon such
terms and conditions, and upon such public notice as Lender may deem best for
the interest of Lender, or as may be required or permitted by applicable law,
consisting of advertisement in a newspaper of general circulation in the
jurisdiction and for such period as applicable law may require and at such
other times and by such other methods, if any, as may be required by law to
convey the Property in fee simple by Lender’s deed with special warranty of
title to and at the cost of the purchaser, who shall not be liable to see to
the application of the purchase money. 
The proceeds or avails of any sale made under or by virtue of this Section 13.02,
together with any other sums which then may be held by Lender under this
Security Instrument, whether under the provisions of this Section 13.02 or
otherwise, shall be applied as follows:


 


First:  To the payment of the third-party costs and
expenses reasonably incurred in connection with any such sale and to advances,
fees and expenses, including, without limitation, reasonable fees and expenses
of Lender’s legal counsel as applicable, and of any judicial proceedings
wherein the same may be made, and of all expenses, liabilities and advances
reasonably made or incurred by Lender under this Security Instrument, together
with interest as provided herein on all such advances made by Lender, and all
Impositions, except any Impositions or other charges subject to which the
Property shall have been sold;


 


Second:  To the payment of the whole amount then due,
owing and unpaid under the Note for principal and interest thereon, with
interest on such unpaid principal at the Default Rate from the date of the
occurrence of the earliest Event of Default that formed a basis for such sale
until the same is paid;


 


Third:  To the payment of any other portion of the
Debt required to be paid by Borrower pursuant to any provision of this Security
Instrument, the Note, or any of the other Loan Documents; and


 


Fourth:  The surplus, if any, to Borrower unless
otherwise required by Legal Requirements.


 


Lender and any
receiver or custodian of the Property or any part thereof shall be liable to
account for only those rents, issues, proceeds and profits actually received by
it.


 


(c)                                  Lender may adjourn
from time to time any sale by it to be made under or by virtue of this Security
Instrument by announcement at the time and place appointed for such sale or for
such adjourned sale or sales and, except as otherwise provided by any
applicable provision of Legal Requirements, Lender, without further notice or publication, may make such sale at
the time and place to which the same shall be so adjourned.


 


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(d)                                 Upon the completion of
any sale or sales made by Lender under or by virtue of this Section 13.02,
Lender, or any officer of any court empowered to do so, shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, granting, conveying, assigning
and transferring all estate, right, title and interest in and to the property
and rights sold.  Lender is hereby
irrevocably appointed the true and lawful attorney-in-fact of Borrower (coupled
with an interest), in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the property and rights so sold and
for that purpose Lender may execute all necessary instruments of conveyance,
assignment, transfer and delivery, and may substitute one or more Persons with
like power, Borrower hereby ratifying and confirming all that its said attorney-in-fact
or such substitute or substitutes shall lawfully do by virtue hereof.  Nevertheless, Borrower, if so requested by
Lender, shall ratify and confirm any such sale or sales by executing and
delivering to Lender, or to such purchaser or purchasers all such instruments
as may be advisable, in the sole judgement of Lender, for such purpose, and as
may be designated in such request.  Any
such sale or sales made under or by virtue of this Section 13.02, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale, shall operate to
divest all the estate, right, title, interest, claim and demand whatsoever,
whether at law or in equity, of Borrower in and to the property and rights so
sold, and shall, to the fullest extent permitted under Legal Requirements, be a
perpetual bar, both at law and in equity against Borrower and against any and
all Persons claiming or who may claim the same, or any part thereof, from,
through or under Borrower.


 


(e)                                  In the event of any
sale made under or by virtue of this Section 13.02 (whether made under the
power of sale herein granted or under or by virtue of judicial proceedings or a
judgment or decree of foreclosure and sale), the entire Debt immediately
thereupon shall, anything in the Loan Documents to the contrary
notwithstanding, become due and payable.


 


(f)                                    Upon any sale made
under or by virtue of this Section 13.02 (whether made under the power of
sale herein granted or under or by virtue of judicial proceedings or a judgment
or decree of foreclosure and sale), Lender may bid for and acquire the Property
or any part thereof and in lieu of paying cash therefor may make settlement for
the purchase price by crediting upon the Debt the net sales price after
deducting therefrom the expenses of the sale and the costs of the action.


 


(g)                                 No recovery of any
judgment by Lender and no levy of an execution under any judgment upon the
Property or any part thereof or upon any other property of Borrower shall
release the lien of this Security Instrument upon the Property or any part
thereof, or any liens, rights, powers or remedies of Lender hereunder, but such
liens, rights, powers and remedies of Lender shall continue unimpaired until
all amounts due under the Note, this Security Instrument and the other Loan
Documents are paid in full.


 


(h)                                 Upon the exercise by
Lender of any power, right, privilege, or remedy pursuant to this Security
Instrument which requires any consent, approval, registration, qualification,
or authorization of any Governmental Authority, Borrower agrees to execute and
deliver, or will cause the execution and delivery of, all applications, certificates,
instruments, assignments and other documents and papers that Lender or any
purchaser of the Property may be required to


 


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obtain for such governmental consent, approval, registration, qualification,
or authorization and Lender is hereby irrevocably appointed the true and lawful
attorney-in-fact of Borrower (coupled with an interest), in its name and stead,
to execute all such applications, certificates, instruments, assignments and
other documents and papers.


 


Section 13.03.  Payment of Debt After Default.  If, following the occurrence of any Event of
Default, Borrower shall tender payment of an amount sufficient to satisfy the
Debt in whole or in part at any time prior to a foreclosure sale of the
Property, and if at the time of such tender prepayment of the principal balance
of the Note is not permitted by the Note or this Security Instrument, Borrower
shall, in addition to the entire Debt, also pay to Lender a sum equal to
interest which would have accrued on the principal balance of the Note at an
interest rate equal to the LIBOR Margin for the Note plus the greater of (x)
the then current LIBOR Rate and (y) the then current average yield for “This
Week” as published by the Federal Reserve Board during the most recent full
week preceding the date on which Borrower tenders such payment in Federal
Reserve Statistical Release H.15 (519) for instruments having a ten (10) year
maturity, from the date of such tender to the earlier of (a) the Maturity Date
or (b) the first day of the period during which prepayment of the
principal balance of the Note would have been permitted together with a
prepayment consideration equal to the prepayment consideration which would have
been payable as of the first day of the period during which prepayment would
have been permitted.  If at the time of
such tender, prepayment of the principal balance of the Note is permitted, such
tender by Borrower shall be deemed to be a voluntary prepayment of the
principal balance of the Note and Borrower shall, in addition to the entire
Debt, also pay to Lender the applicable prepayment consideration specified in
the Note and this Security Instrument.


 


Section 13.04.  Possession of the Property.  Upon the occurrence of any Event of Default
and the acceleration of the Debt or any portion thereof, Borrower, if an
occupant of the Property or any part thereof, upon demand of Lender, shall
immediately surrender possession of the Property (or the portion thereof so
occupied) to Lender, and if Borrower is permitted to remain in possession, the
possession shall be as a month-to-month tenant of Lender and, on demand,
Borrower shall pay to Lender monthly, in advance, a reasonable rental for the
space so occupied and in default thereof Borrower may be dispossessed.  The covenants herein contained may be
enforced by a receiver of the Property or any part thereof.  Nothing in this Section 13.04 shall be deemed
to be a waiver of the provisions of this Security Instrument making the
Transfer of the Property or any part thereof without Lender’s prior written
consent an Event of Default.


 


Section 13.05.  Interest After Default.  If any amount due under the Note, this
Security Instrument or any of the other Loan Documents is not paid within any
applicable notice and grace period after same is due, whether such date is the
stated due date, any accelerated due date or any other date or at any other
time specified under any of the terms hereof or thereof, then, in such event,
Borrower shall pay interest on the amount not so paid from and after the date
on which such amount first becomes due at the Default Rate; and such interest
shall be due and payable at such rate until the earlier of the cure of all
Events of Default or the payment of the entire amount due to Lender, whether or
not any action shall have been taken or proceeding commenced to recover the
same or to foreclose this Security Instrument. 
All unpaid and accrued interest shall be secured by this Security Instrument
as part of the Debt.  Nothing in this Section
13.05


 


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or in any other provision of this Security Instrument shall constitute
an extension of the time for payment of the Debt.


 


Section 13.06.  Borrower’s Actions After Default.  After the happening of any Event of Default
and immediately upon the commencement of any action, suit or other legal
proceedings by Lender to obtain judgment for the Debt, or of any other nature
in aid of the enforcement of the Loan Documents, Borrower will (a) after receipt
of notice of the institution of any such action, waive the issuance and service
of process and enter its voluntary appearance in such action, suit or
proceeding, and (b) if required by Lender, consent to the appointment of a
receiver or receivers of the Property or any part thereof and of all the
earnings, revenues, rents, issues, profits and income thereof.


 


Section 13.07.  Control by Lender After Default.  Notwithstanding the appointment of any
custodian, receiver, liquidator or trustee of Borrower, or of any of its
property, or of the Property or any part thereof, to the extent permitted by
Legal Requirements, Lender shall be entitled to obtain possession and control
of all property now and hereafter covered by this Security Instrument and the Assignment
in accordance with the terms hereof.


 


Section 13.08.  Right to Cure Defaults.  (a) Upon the
occurrence of any Event of Default, Lender or its agents 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 and its agents are
authorized to enter upon the Property or any part thereof for such purposes, or
appear in, defend, or bring any action or proceedings to protect Lender’s
interest in the Property or any part thereof or to foreclose this Security
Instrument or collect the Debt, and the cost and expense thereof (including
reasonable attorneys’ fees to the extent permitted by law), with interest as
provided in this Section 13.08, shall constitute a portion of the Debt and
shall be immediately due and payable to Lender upon demand.  All such costs and expenses incurred by
Lender or its agents in remedying such Event of Default or in appearing in,
defending, or bringing any such action or proceeding shall bear interest at the
Default Rate, for the period from the date so demanded to the date of payment
to Lender.  All such costs and expenses
incurred by Lender or its agents together with interest thereon calculated at
the above rate shall be deemed to constitute a portion of the Debt and be
secured by this Security Instrument.


 


(b)                                 If Lender makes any
payment or advance that Lender is authorized by this Security Instrument to
make in the place and stead of Borrower (i) relating to the Impositions or
tax liens asserted against the Property, Lender may do so according to any
bill, statement or estimate procured from the appropriate public office without
inquiry into the accuracy of the bill, statement or estimate or into the
validity of any of the Impositions or the tax liens or claims thereof; (ii) relating
to any apparent or threatened adverse title, lien, claim of lien, encumbrance,
claim or charge, Lender will be the sole judge of the legality or validity of
same; or (iii) relating to any other purpose authorized by this Security
Instrument but not enumerated in this Section 13.08, Lender may do so
whenever, in its judgment and discretion, the payment or advance seems
necessary or desirable to protect the Property and the full security interest
intended to be created by this Security Instrument.  In connection with any payment or advance
made pursuant


 


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to this Section 13.08, Lender has the option and is authorized,
but in no event shall be obligated, to obtain a continuation report of title
prepared by a title insurance company. 
The payments and the advances made by Lender pursuant to this Section 13.08
and the cost and expenses of said title report will be due and payable by
Borrower on demand, together with interest at the Default Rate, and will be
secured by this Security Instrument.


 


Section 13.09.  Late Payment Charge.  If any portion of the Debt is not paid in
full on or before the day on which it is due and payable hereunder (other than
the principal portion of the Debt due on the Maturity Date), Borrower shall pay
to Lender an amount equal to five percent (5%) of such unpaid portion of the Debt
(“Late Charge”) to defray the expense incurred by Lender in handling and
processing such delinquent payment, and such amount shall constitute a part of
the Debt.


 


Section 13.10.  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 and payable hereunder (after the expiration of any grace
period or the giving of any notice herein provided, if any), without regard to
whether or not the balance of the Debt shall be due, and without prejudice to
the right of Lender 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 13.11.  Marshalling and Other Matters.  Borrower hereby waives, to the fullest extent
permitted by law, the benefit of all appraisement, valuation, stay, extension,
reinstatement, redemption (both equitable and statutory) and homestead 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.  Nothing herein or in any other Loan Document
shall be construed as requiring Lender to resort to any particular Cross-collateralized
Property for the satisfaction of the Debt in preference or priority to any
other Cross-collateralized Property but Lender may seek satisfaction out of all
the Cross-collateralized Properties or any part thereof in its absolute discretion.  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, whether equitable or
statutory and on behalf of each and every Person acquiring any interest in or
title to the Property or any part thereof subsequent to the date of this
Security Instrument and on behalf of all Persons to the fullest extent
permitted by applicable law.


 


Section 13.12.  Tax Reduction Proceedings.  After an Event of Default, Borrower shall be
deemed to have appointed Lender as its attorney-in-fact to seek a reduction or
reductions in the assessed valuation of the Property for real property tax
purposes or for any other purpose and to prosecute any action or proceeding in
connection therewith.  This power, being
coupled with an interest, shall be irrevocable for so long as any part of the
Debt remains unpaid and any Event of Default shall be continuing.


 


Section 13.13.  General Provisions Regarding Remedies.


 


(a)                                  Right to Terminate
Proceedings.  Lender may terminate or
rescind any proceeding or other action brought in connection with its exercise
of the remedies provided in Section 13.02


 


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at any time before the conclusion thereof, as determined in Lender’s
sole discretion and without prejudice to Lender.


 


(b)                                 No Waiver or
Release.  The failure of Lender to
exercise any right, remedy or option provided in the Loan Documents shall not
be deemed a waiver of such right, remedy or option or of any covenant or
obligation contained in the Loan Documents. 
No acceptance by Lender of any payment after the occurrence of an Event
of Default and no payment by Lender of any payment or obligation for which
Borrower is liable hereunder shall be deemed to waive or cure any Event of
Default.  No sale of all or any portion
of the Property, no forbearance on the part of Lender, and no extension of time
for the payment of the whole or any portion of the Debt or any other indulgence
given by Lender to Borrower or any other Person, shall operate to release or in
any manner affect the interest of Lender in the Property or the liability of
Borrower to pay the Debt.  No waiver by
Lender shall be effective unless it is in writing and then only to the extent
specifically stated.


 


(c)                                  No Impairment; No
Releases.  The interests and rights
of Lender under the Loan Documents shall not be impaired by any indulgence,
including (i) any renewal, extension or modification which Lender may
grant with respect to any of the Debt; (ii) any surrender, compromise,
release, renewal, extension, exchange or substitution which Lender may grant
with respect to the Property or any portion thereof; or (iii) any release
or indulgence granted to any maker, endorser, guarantor or surety of any of the
Debt.


 


(d)                                 Effect
on Judgment.  No recovery of any
judgment by Lender and no levy of an execution under any judgment upon any
Property or any portion thereof shall affect in any manner or to any extent the
lien of the other Cross-collateralized Mortgages upon the remaining
Cross-collateralized Properties or any portion thereof, or any rights, powers
or remedies of Lender hereunder or thereunder. Such lien, rights, powers and
remedies of Lender shall continue unimpaired as before.


 


ARTICLE XIV:  COMPLIANCE
WITH REQUIREMENTS


 


Section 14.01.  Compliance with Legal Requirements.  (a) Borrower
shall promptly comply with all present and future Legal Requirements, foreseen
and unforeseen, ordinary and extraordinary, whether requiring structural or
nonstructural repairs or alterations including, without limitation, all zoning,
subdivision, building, safety and environmental protection, land use and
development Legal Requirements, all Legal Requirements which may be applicable
to the curbs adjoining the Property or to the use or manner of use thereof, and
all rent control, rent stabilization and all other similar Legal Requirements
relating to rents charged and/or collected in connection with the Leases.  Borrower represents and warrants that the
Property is in compliance in all respects with all Legal Requirements as of the
date hereof, no notes or notices of violations of any Legal Requirements have
been entered or received by Borrower and to its best knowledge there is no
basis for the entering of such notes or notices.


 


(b)                                 Borrower shall have
the right to contest by appropriate legal proceedings diligently conducted in
good faith, without cost or expense to Lender, the validity or application


 


99





















 


of any Legal Requirement and to suspend compliance therewith if
permitted under applicable Legal Requirements, provided (i) failure to
comply therewith may not subject Lender to any civil or criminal liability, (ii) prior
to and during such contest, Borrower shall furnish to Lender security
reasonably satisfactory to Lender, in its discretion, against loss or injury by
reason of such contest or non-compliance with such Legal Requirement, (iii) no
Event of Default shall exist during such proceedings and such contest shall not
otherwise violate any of the provisions of any of the Loan Documents, (iv) such
contest shall not (unless Borrower shall comply with the provisions of clause (ii) of
this Section 14.01(b)) subject the Property to any lien or encumbrance the
enforcement of which is not suspended or otherwise affect the priority of the
lien of this Security Instrument; (v) such contest shall not affect the
ownership, use or occupancy of the Property; (vi) the Property or any part
thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Borrower; (vii) Borrower
shall give Lender prompt notice of the commencement of such proceedings and,
upon request by Lender, notice of the status of such proceedings and/or
confirmation of the continuing satisfaction of the conditions set forth in
clauses (i) - (vi) of this Section 14.01(b); and (viii) upon
a final determination of such proceeding, Borrower shall take all steps
necessary to comply with any requirements arising therefrom.


 


(c)                                  Borrower shall at all
times comply with all applicable Legal Requirements with respect to the
construction, use and maintenance of any vaults adjacent to the Property.  If by reason of the failure to pay taxes,
assessments, charges, permit fees, franchise taxes or levies of any kind or
nature, the continued use of the vaults adjacent to Property or any part
thereof is discontinued, Borrower nevertheless shall, with respect to any
vaults which may be necessary for the continued use of the Property, take such
steps (including the making of any payment) to ensure the continued use of
vaults or replacements.


 


Section 14.02.  Compliance with Recorded Documents; No
Future Grants.  Borrower shall
promptly perform and observe or cause to be performed and observed, all of the
terms, covenants and conditions of all Property Agreements and all things
necessary to preserve intact and unimpaired any and all appurtenances or other
interests or rights affecting the Property.


 


ARTICLE XV:  PREPAYMENT


 


Section 15.01.  Prepayment.  (a) Except as set forth in Section 15.01(b) hereof,
no prepayment of the Debt may be made in whole or in part.


 


(b)                                 Borrower may voluntarily
prepay the Loan, in whole or in part, as of the last day of an Interest Accrual
Period in accordance with the following provisions:


 


(i)                                     Lender shall
have received from Borrower, not less than thirty (30) days’, or with respect
to an IPO, fifteen (15) days, nor more than ninety (90) days’, prior written
notice specifying the date proposed for such prepayment and the amount which is
to be prepaid.


 


(ii)                                  Borrower shall
also pay to Lender all interest due through and including the last day of the
Interest Accrual Period in which such prepayment is being made,


 


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together with any and all
other amounts due and owing pursuant to the terms of the Note, this Security
Instrument or the other Loan Documents.


 


(iii)                               Any partial
prepayment shall be in a minimum amount of not less than $25,000 and shall be
in whole multiples of $1,000 in excess thereof.


 


(iv)                              Intentionally
omitted.


 


(v)                                 Any partial
prepayment of the Principal Amount, including, without limitation, Unscheduled
Payments, shall be applied to the installments of principal last due hereunder
and shall not release or relieve Borrower from the obligation to pay the Minimum
Amortization Payments (as defined in the Note) becoming due under the Note.


 


(vi)                              In the event
that the Loan is prepaid in whole or in part prior to the first (1st)
anniversary of the date hereof, Borrower shall pay to Lender, together with
such prepayment and all other amounts due in connection therewith, a
non-refundable amount which shall be deemed earned by Lender upon the funding
of the Loan and shall not count to or be credited to payment of the Principal
Amount, any interest thereon or any other amounts payable under the Note, the
Security Instrument or any of the Loan Documents, equal to the Spread
Maintenance Premium.


 


(vii)                           Other than in
connection with a Release, the Mez Loan shall have been paid in full on or
before the date of any prepayment of the Loan.


 


Section 15.02.  Repayment.  Upon any repayment or prepayment of the Loan,
excluding any application of all or any portion of the funds in the Curtailment
Reserve Escrow Account and any application of any Loss Proceeds, Borrower shall
be required to pay to Lender a non-refundable sum (the “Exit Fee”) on
the date of such repayment or prepayment equal to one-quarter percent (.25%) of
the Principal Amount being repaid or prepaid. 
All Exit Fees shall be deemed to be earned by Lender upon the funding of
the Loan.  Notwithstanding the foregoing,
no Exit Fee shall be due with respect to repayments of the Loan made (a) in
connection with an IPO, (b) from sales proceeds from the conversion of the
Property to a condominium form of ownership with respect to which Borrower
shall sell residential condominium units to the public, which conversion the
parties hereto acknowledge may only be done with the consent of Lender and
subject to such conditions as Lender shall, in its sole and absolute
discretion, impose, or (c) in connection with a prepayment resulting from (i) regularly
scheduled amortization payments made pursuant to the Note, (ii) proceeds
of asset sales to bona fide third parties which are not Affiliates of Borrower,
(iii) equity contributions from members of Borrower or (iv) unsecured
financing including, without limitation, Additional Financing, so long as any
such equity contributions, unsecured financings or Additional Financings are
not refinanced through mortgage financing within 180 days following the date of
such equity contribution or the incurrence of Additional Financings, as
applicable.


 


Section 15.03.  Release of Property.  If Borrower prepays all or a portion of the
Loan pursuant to Section 15.01(b) hereof or at any time within six (6) months
of Lender applying Loss Proceeds from the Property towards the repayment of the
Debt, Lender shall, promptly upon


 


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satisfaction of all the following terms and conditions execute,
acknowledge and deliver to Borrower a release of this Security Instrument (a “Release”)
in recordable form with respect to the Property:


 


(a)                                  If such prepayment is
a prepayment in part, but not in whole, Lender shall have received on the date
proposed for such prepayment an amount equal to the greater of (i) the
Release Price and (ii) an amount such that the Debt Yield immediately
following the Release is at least equal to no less than (A) the Debt Yield
immediately prior to effecting such Release and (B)(1) 11%, or (2) 11.5%
if such release occurs during the second (2nd) Extension Term (as defined in
the Note) but prior to the commencement of the third (3rd) Extension
Term, or (3) 12% if such release occurs subsequent thereto, accompanied by
evidence in form and substance satisfactory to Lender with respect thereto and
an Officer’s Certificate stating that the statements, calculations and
information comprising such evidence are true, correct and complete in all
respects; provided, however, in the event that such prepayment is
made within six (6) months of a casualty or Taking with respect to which
Loss Proceeds from the Property are applied by Lender towards the repayment of
the Debt, Lender shall have received on the date proposed for such prepayment
the Allocated Loan Amount (inclusive of any Loss Proceeds applied by Lender towards
the payment of the Debt).


 


(b)                                 Borrower shall, at its
sole expense, prepare any and all documents and instruments necessary to effect
the Release, all of which shall be subject to the reasonable approval of
Lender, and Borrower shall pay all costs reasonably incurred by Lender
(including, but not limited to, reasonable attorneys’ fees and disbursements,
title search costs or endorsement premiums) in connection with the review,
execution and delivery of the Release.


 


(c)                                  No Event of Default
has occurred and is continuing.


 


ARTICLE XVI:  ENVIRONMENTAL
COMPLIANCE


 


Section 16.01.  Covenants, Representations and Warranties.
 (a) Borrower
has not, at any time, and, to Borrower’s best knowledge after due inquiry and
investigation, except as set forth in the Environmental Report, no other Person
has at any time, handled, buried, stored, retained, refined, transported,
processed, manufactured, generated, produced, spilled, allowed to seep, leak,
escape or leach, or pumped, poured, emitted, emptied, discharged, injected,
dumped, transferred or otherwise disposed of or dealt with Hazardous Materials
on, to or from the Premises or any other real property owned and/or occupied by
Borrower, and Borrower does not intend to and shall not use the Property or any
part thereof or any such other real property for the purpose of handling,
burying, storing, retaining, refining, transporting, processing, manufacturing,
generating, producing, spilling, seeping, leaking, escaping, leaching, pumping,
pouring, emitting, emptying, discharging, injecting, dumping, transferring or
otherwise disposing of or dealing with Hazardous Materials, except for use and
storage for use of heating oil, cleaning fluids, pesticides and other
substances customarily used in the operation of properties that are being used
for the same purposes as the Property is presently being used, provided such
use and/or storage for use is in compliance with the requirements hereof and
the other Loan Documents and does not give rise to liability under applicable
Legal Requirements or Environmental Statutes or be the basis for a lien against
the Property or any part thereof.  In


 


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addition, without limitation to the foregoing provisions, Borrower
represents and warrants that, to the best of its knowledge, after due inquiry
and investigation, except as previously disclosed in writing to Lender, there
is no asbestos in, on, over, or under all or any portion of the fire-proofing
or any other portion of the Property.


 


(b)                                 Borrower, after due
inquiry and investigation, knows of no seepage, leak, escape, leach, discharge,
injection, release, emission, spill, pumping, pouring, emptying or dumping of
Hazardous Materials into waters on, under or adjacent to the Property or any
part thereof or any other real property owned and/or occupied by Borrower, or
onto lands from which such Hazardous Materials might seep, flow or drain into
such waters, except as disclosed in the Environmental Report.


 


(c)                                  Borrower shall not
permit any Hazardous Materials to be handled, buried, stored, retained,
refined, transported, processed, manufactured, generated, produced, spilled,
allowed to seep, leak, escape or leach, or to be pumped, poured, emitted,
emptied, discharged, injected, dumped, transferred or otherwise disposed of or
dealt with on, under, to or from the Property or any portion thereof at any time,
except for use and storage for use of heating oil, ordinary cleaning fluids,
pesticides and other substances customarily used in the operation of properties
that are being used for the same purposes as the Property is presently being
used, provided such use and/or storage for use is in compliance with the
requirements hereof and the other Loan Documents and does not give rise to
liability under applicable Legal Requirements or be the basis for a lien
against the Property or any part thereof.


 


(d)                                 Borrower represents
and warrants that no actions, suits, or proceedings have been commenced, or are
pending, or to the best knowledge of Borrower, are threatened with respect to
any Legal Requirement governing the use, manufacture, storage, treatment,
transportation, or processing of Hazardous Materials with respect to the
Property or any part thereof.  Borrower
has received no notice of, and, except as disclosed in the Environmental
Report, after due inquiry, has no knowledge of any fact, condition, occurrence
or circumstance which with notice or passage of time or both would give rise to
a claim under or pursuant to any Environmental Statute pertaining to Hazardous
Materials on, in, under or originating from the Property or any part thereof or
any other real property owned or occupied by Borrower or arising out of the
conduct of Borrower, including, without limitation, pursuant to any
Environmental Statute.


 


(e)                                  Borrower has not
waived any Person’s liability with regard to Hazardous Materials in, on, under
or around the Property, nor has Borrower retained or assumed, contractually or
by operation of law, any other Person’s liability relative to Hazardous
Materials or any claim, action or proceeding relating thereto.


 


(f)                                    In the event that
there shall be filed a lien against the Property or any part thereof pursuant
to any Environmental Statute pertaining to Hazardous Materials, Borrower shall,
within sixty (60) days or, in the event that the applicable Governmental
Authority has commenced steps to cause the Premises or any part thereof to be
sold pursuant to the lien, within fifteen (15) days, from the date that
Borrower receives notice of such lien, either (i) pay the claim and remove
the lien from the Property, or (ii) furnish (A) a bond satisfactory
to Lender in the amount of the claim out of which the lien arises, (B) a
cash deposit in the amount of the claim out of which the


 


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lien arises, or (C) other security reasonably satisfactory to
Lender in an amount sufficient to discharge the claim out of which the lien
arises.


 


(g)                                 Borrower represents
and warrants that (i) except as disclosed in the Environmental Report,
Borrower has no knowledge of any violation of any Environmental Statute or any
Environmental Problem in connection with the Property, nor has Borrower been
requested or required by any Governmental Authority to perform any remedial
activity or other responsive action in connection with any Environmental
Problem and (ii) neither the Property nor any other property owned by
Borrower is included or, to Borrower’s best knowledge, after due inquiry and
investigation, proposed for inclusion on the National Priorities List issued
pursuant to CERCLA by the United States Environmental Protection Agency (the “EPA”)
or on the inventory of other potential “Problem” sites issued by the EPA or has
been identified by the EPA as a potential CERCLA site or included or, to
Borrower’s knowledge, after due inquiry and investigation, proposed for
inclusion on any list or inventory issued pursuant to any other Environmental
Statute, if any, or issued by any other Governmental Authority.  Borrower covenants that Borrower will comply
with all Environmental Statutes affecting or imposed upon Borrower or the
Property.


 


(h)                                 Borrower covenants
that it shall promptly notify Lender of the presence and/or release of any
Hazardous Materials and of any request for information or any inspection of the
Property or any part thereof by any Governmental Authority with respect to any
Hazardous Materials and provide Lender with copies of such request and any
response to any such request or inspection. 
Borrower covenants that it shall, in compliance with applicable Legal
Requirements, conduct and complete all investigations, studies, sampling and testing
(and promptly shall provide Lender with copies of any such studies and the
results of any such test) and all remedial, removal and other actions necessary
to clean up and remove all Hazardous Materials in, on, over, under, from or
affecting the Property or any part thereof in accordance with all such Legal
Requirements applicable to the Property or any part thereof to the satisfaction
of Lender.


 


(i)                                     Following the
occurrence of an Event of Default hereunder, and without regard to whether
Lender shall have taken possession of the Property or a receiver has been
requested or appointed or any other right or remedy of Lender has or may be
exercised hereunder or under any other Loan Document, Lender shall have the
right (but no obligation) to conduct such investigations, studies, sampling
and/or testing of the Property or any part thereof as Lender may, in its
discretion, determine to conduct, relative to Hazardous Materials.  All costs and expenses incurred in connection
therewith including, without limitation, consultants’ fees and disbursements
and laboratory fees, shall constitute a part of the Debt and shall, upon demand
by Lender, be immediately due and payable and shall bear interest at the
Default Rate from the date so demanded by Lender until reimbursed.  Borrower shall, at its sole cost and expense,
fully and expeditiously cooperate in all such investigations, studies,
samplings and/or testings including, without limitation, providing all relevant
information and making knowledgeable people available for interviews.


 


(j)                                     Borrower
represents and warrants that all paint and painted surfaces existing within the
interior or on the exterior of the Improvements are not flaking, peeling,
cracking,


 


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blistering, or chipping in a manner which could reasonably be expected
to have a Material Adverse Effect, and do not contain lead or are maintained in
a condition that prevents exposure of young children to lead-based paint, as of
the date hereof, and that the current inspections, operation, and maintenance
program at the Property with respect to lead-based paint sufficient to ensure
that all painted surfaces within the Property shall be maintained in a
condition that prevents exposure of tenants to lead-based paint.  To Borrower’s knowledge, there have been no
claims for adverse health effects from exposure on the Property to lead-based
paint or requests for the investigation, assessment or removal of lead-based
paint at the Property.


 


(k)                                  Borrower represents
and warrants that except in accordance with all applicable Environmental
Statutes and as disclosed in the Environmental Report, (i) no underground
treatment or storage tanks or pumps or water, gas, or oil wells are or have
been located about the Property, (ii) no PCBs or transformers, capacitors,
ballasts or other equipment that contain dielectric fluid containing PCBs are
located about the Property, (iii) no insulating material containing urea
formaldehyde is located about the Property and (iv) no asbestos-containing
material is located about the Property, in a manner which could reasonably be
expected to have a Material Adverse Effect.


 


Section 16.02.  Environmental Indemnification.  Borrower shall defend, indemnify and hold
harmless the Indemnified Parties for, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature, known or unknown, contingent or otherwise, whether
incurred or imposed within or outside the judicial process, including, without
limitation, reasonable attorneys’ and consultants’ fees and disbursements and
investigations and laboratory fees arising out of, or in any way related to any
Environmental Problem, including without limitation:


 


(a)                                  the presence,
disposal, escape, seepage, leakage, spillage, discharge, emission, release or
threat of release of any Hazardous Materials in, on, over, under, from or
affecting the Property or any part thereof whether or not disclosed by the
Environmental Report;


 


(b)                                 any personal injury
(including wrongful death, disease or other health condition related to or
caused by, in whole or in part, any Hazardous Materials) or property damage
(real or personal) arising out of or related to any Hazardous Materials in, on,
over, under, from or affecting the Property or any part thereof whether or not
disclosed by the Environmental Report;


 


(c)                                  any action, suit or
proceeding brought or threatened, settlement reached, or order of any
Governmental Authority relating to such Hazardous Material whether or not
disclosed by the Environmental Report; and/or


 


(d)                                 any violation of the
provisions, covenants, representations or warranties of Section 16.01
hereof or of any Legal Requirement which is based on or in any way related to
any Hazardous Materials in, on, over, under, from or affecting the Property or
any part thereof including, without limitation, the cost of any work performed
and materials furnished in order to comply therewith whether or not disclosed
by the Environmental Report.


 


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Notwithstanding
the foregoing provisions of this Section 16.02 to the contrary, Borrower
shall have no obligation to indemnify Lender for liabilities, claims, damages,
penalties, causes of action, costs and expenses relative to the foregoing which
result directly from Lender’s willful misconduct or gross negligence.  Any amounts payable to Lender by reason of
the application of this Section 16.02 shall be secured by this Security
Instrument and shall, upon demand by Lender, become immediately due and payable
and shall bear interest at the Default Rate from the date so demanded by Lender
until paid.


 


This
indemnification shall survive the termination of this Security Instrument
whether by repayment of the Debt, foreclosure or deed in lieu thereof,
assignment, or otherwise.  The indemnity
provided for in this Section 16.02 shall not be included in any
exculpation of Borrower or its principals from personal liability provided for
in this Security Instrument or in any of the other Loan Documents.  Nothing in this Section 16.02 shall be
deemed to deprive Lender of any rights or remedies otherwise available to
Lender, including, without limitation, those rights and remedies provided
elsewhere in this Security Instrument or the other Loan Documents.


 


ARTICLE XVII:  ASSIGNMENTS


 


Section 17.01.  Participations and Assignments.  Lender shall, at no cost to Borrower except
as otherwise provided in Sections 18.29, 18.30 and 18.31 hereof have the right
to assign this Security Instrument and/or any of the Loan Documents, and to
transfer, assign or sell participations and subparticipations (including blind
or undisclosed participations and subparticipations) in the Loan Documents and
the obligations hereunder to any Person; provided, however, that no such
participation shall increase, decrease or otherwise affect either Borrower’s or
Lender’s rights or obligations under this Security Instrument or the other Loan
Documents.


 


ARTICLE XVIII: 
MISCELLANEOUS


 


Section 18.01.  Right of Entry.  Lender and its agents shall have the right to
enter and inspect the Property or any part thereof at all reasonable times,
and, except in the event of an emergency, upon reasonable notice and to inspect
Borrower’s books and records and to make abstracts and reproductions thereof.


 


Section 18.02.  Cumulative Rights.  The rights of Lender 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 shall be construed as an election to proceed under any
one provision herein to the exclusion of any other provision.  Lender shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled, subject to the
terms of this Security Instrument, to every right and remedy now or hereafter
afforded by law.


 


Section 18.03.  Liability.  If Borrower consists of more than one Person,
the obligations and liabilities of each such Person hereunder shall be joint
and several.


 


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Section 18.04.  Exhibits Incorporated.  The information set forth on the cover
hereof, and the Exhibits annexed hereto, are hereby incorporated herein as a
part of this Security Instrument with the same effect as if set forth in the body
hereof.


 


Section 18.05.  Severable Provisions.  If any term, covenant or condition of the
Loan Documents including, without limitation, the Note or this Security
Instrument, is held to be invalid, illegal or unenforceable in any respect,
such Loan Document shall be construed without such provision.


 


Section 18.06.  Duplicate Originals.  This Security Instrument may be executed in
any number of duplicate originals and each such duplicate original shall be
deemed to constitute but one and the same instrument.


 


Section 18.07.  No Oral Change.  The terms of this Security Instrument,
together with the terms of the Note and the other Loan Documents, constitute
the entire understanding and agreement of the parties hereto and supersede all
prior agreements, understandings and negotiations between Borrower and Lender
with respect to the Loan.  This Security
Instrument, and any provisions hereof, may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any 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 18.08.  Waiver of Counterclaim, Etc.  BORROWER HEREBY WAIVES THE RIGHT TO ASSERT A
COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING
BROUGHT AGAINST IT BY LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY
COUNTERCLAIM BORROWER MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE
ASSERTED BY LENDER OR ITS AGENTS, AGAINST BORROWER, OR IN ANY MATTERS
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT
OR THE DEBT.


 


Section 18.09.  Headings; Construction of Documents; etc.  The table of contents, headings and captions
of various paragraphs 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. 
Borrower acknowledges that it was represented by competent counsel in
connection with the negotiation and drafting of this Security Instrument and
the other Loan Documents and that neither this Security Instrument nor the
other Loan Documents shall be subject to the principle of construing the
meaning against the Person who drafted same.


 


Section 18.10.  Sole Discretion of Lender.  Whenever Lender exercises any right given to
it to approve or disapprove, or any arrangement or term is to be satisfactory
to Lender, the decision of Lender to approve or disapprove or to decide that
arrangements or terms are satisfactory or not satisfactory shall be in the sole
discretion of Lender and shall be final and conclusive, except as may be
otherwise specifically provided herein.


 


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Section 18.11.  Waiver of Notice.  Borrower shall not be entitled to any notices
of any nature whatsoever from Lender except with respect to matters for which
this Security Instrument specifically and expressly provides for the giving of
notice by Lender to Borrower and except with respect to matters for which
Borrower is not, pursuant to applicable Legal Requirements, permitted to waive
the giving of notice.


 


Section 18.12.  Covenants Run with the Land.  All of the grants, covenants, terms,
provisions and conditions herein shall run with the Premises, shall be binding
upon Borrower and shall inure to the benefit of Lender, subsequent holders of
this Security Instrument and their successors and assigns.  Without limitation to any provision hereof,
the term “Borrower” shall include and refer to the borrower named herein, any
subsequent owner of the Property, and its respective heirs, executors, legal
representatives, successors and assigns. 
The representations, warranties and agreements contained in this
Security Instrument and the other Loan Documents are intended solely for the
benefit of the parties hereto, shall confer no rights hereunder, whether legal or
equitable, in any other Person and no other Person shall be entitled to rely
thereon.


 


Section 18.13.  Applicable Law.  THIS SECURITY INSTRUMENT WAS NEGOTIATED IN
NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK,
AND THE PROCEEDS OF THE NOTE WERE DISBURSED FROM NEW YORK, WHICH STATE THE
PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.  THIS SECURITY INSTRUMENT
AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION,
PRIORITY, ENFORCEMENT AND FORECLOSURE OF THE LIENS AND SECURITY INTERESTS
CREATED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF
THE STATE IN WHICH THE PREMISES ARE LOCATED, IT BEING UNDERSTOOD THAT, TO THE
FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW
YORK SHALL GOVERN THE VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS, AND
THE DEBT OR OBLIGATIONS ARISING HEREUNDER.


 


Section 18.14.  Security Agreement.  (a) (i) This
Security Instrument is both a real property mortgage, deed to secure debt or
deed of trust, as applicable, and a “security agreement” within the meaning of
the UCC.  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.  This Security Instrument is filed as a
fixture filing and covers goods which are or are to become fixtures on the
Property.  Borrower by executing and
delivering this Security Instrument has granted to Lender, as security for the
Debt, a security interest in the Property to the full extent that the Property
may be subject to the UCC (said portion of the Property so subject to the UCC
being called in this Section 18.14 the “Collateral”).  If an Event of Default shall occur, Lender,
in


 


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addition to any other rights and remedies which it may have, shall have
and may exercise immediately and without demand, any and all rights and
remedies granted to a secured party upon default under the UCC, including,
without limiting the generality of the foregoing, the right to take possession
of the Collateral or any part thereof, and to take such other measures as
Lender may deem necessary for the care, protection and preservation of the
Collateral.  Upon request or demand of
Lender following an Event of Default, Borrower shall, at its expense, assemble
the Collateral and make it available to Lender at a convenient place acceptable
to Lender.  Borrower shall pay to Lender
on demand any and all expenses, including reasonable legal expenses and
attorneys’ fees, incurred or paid by Lender in protecting its interest in the
Collateral and in enforcing its rights hereunder with respect to the
Collateral.  Any disposition pursuant to
the UCC of so much of the Collateral as may constitute personal property shall
be considered commercially reasonable if made pursuant to a public sale which
is advertised at least twice in a newspaper in which sheriff’s sales are
advertised in the county where the Premises is located.  Any notice of sale, disposition or other
intended action by Lender with respect to the Collateral given to Borrower in
accordance with the provisions hereof at least ten (10) days prior to such
action, shall constitute reasonable notice to Borrower.  The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Lender to the payment of the
Debt in such priority and proportions as Lender in its discretion shall deem
proper.  It is not necessary that the
Collateral be present at any disposition thereof.  Lender shall have no obligation to clean-up
or otherwise prepare the Collateral for disposition.


 


(ii)                                  The mention in
a financing statement filed in the records normally pertaining to personal
property of any portion of the Property shall not derogate from or impair in
any manner the intention of this Security Instrument.  Lender hereby declares that all items of
Collateral are part of the real property encumbered hereby to the fullest
extent permitted by law, regardless of whether any such item is physically
attached to the Improvements or whether serial numbers are used for the better
identification of certain items. 
Specifically, the mention in any such financing statement of any items
included in the Property shall not be construed to alter, impair or impugn any
rights of Lender as determined by this Security Instrument or the priority of
Lender’s lien upon and security interest in the Property in the event that
notice of Lender’s priority of interest as to any portion of the Property is
required to be filed in accordance with the UCC to be effective against or take
priority over the interest of any particular class of persons, including the
federal government or any subdivision or instrumentality thereof.  No portion of the Collateral constitutes or
is the proceeds of “Farm Products”, as defined in the UCC.


 


(iii)                               If Borrower is
at any time a beneficiary under a letter of credit now or hereafter issued in
favor of Borrower, Borrower shall promptly notify Lender thereof and, at the
request and option of Lender, Borrower shall, pursuant to an agreement in form
and substance reasonably satisfactory to Lender, either (A) arrange for
the issuer and any confirmer of such letter of credit to consent to an
assignment to Lender of the proceeds of any drawing under the letter of credit
or (B) arrange for Lender to become the transferee beneficiary of the
letter of credit, with Lender agreeing, in each case, that the proceeds of any
drawing under the letter to credit are to be applied as provided in this
Security Instrument.


 


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(iv)                              Borrower and
Lender acknowledge that for the purposes of Article 9 of the UCC, the law
of the State of New York shall be the law of the jurisdiction of the bank in
which the Central Account is located.


 


(v)                                 Lender may
comply with any applicable Legal Requirements in connection with the
disposition of the Collateral, and Lender’s compliance therewith will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.


 


(vi)                              Lender may sell
the Collateral without giving any warranties as to the Collateral. Lender may
specifically disclaim any warranties of title, possession, quiet enjoyment or
the like.  This procedure will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.


 


(vii)                           If Lender sells
any of the Collateral upon credit, Borrower will be credited only with payments
actually made by the purchaser, received by Lender and applied to the
indebtedness of Borrower.  In the event
the purchaser of the Collateral fails to fully pay for the Collateral, Lender
may resell the Collateral and Borrower will be credited with the proceeds of
such sale.


 


(b)                                 Borrower hereby
irrevocably appoints Lender as its attorney-in-fact, coupled with an interest,
to file with the appropriate public office on its behalf any financing or other
statements signed only by Lender, as secured party, or, to the extent permitted
under the UCC, unsigned, in connection with the Collateral covered by this
Security Instrument.


 


Section 18.15.  Actions and Proceedings.  Lender has the right to appear in and defend
any action or proceeding brought with respect to the Property in its own name
or, if required by Legal Requirements or, if in Lender’s reasonable judgment,
it is necessary, in the name and on behalf of Borrower, which Lender believes
will adversely affect the Property or this Security Instrument and to bring any
action or proceedings, in its name or 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 18.16.  Usury Laws.  This Security Instrument and the Note are
subject to the express condition, and it is the expressed intent of the
parties, that at no time shall Borrower be obligated or required to pay
interest on the principal balance due under the Note at a rate which could
subject the holder of the Note to either civil or criminal liability as a
result of being in excess of the maximum interest rate which Borrower is
permitted by law to contract or agree to pay. 
If by the terms of this Security Instrument or the Note, Borrower is at
any time required or obligated to pay interest on the principal balance due
under the Note at a rate in excess of such maximum rate, such rate of interest
shall be deemed to be immediately reduced to such maximum rate and the interest
payable shall be computed at such maximum rate and all prior interest payments
in excess of such maximum rate shall be applied and shall be deemed to have
been payments in reduction of the principal balance of the Note.  No application to the principal balance of
the Note pursuant to this Section 18.16 shall give rise to any requirement
to pay any prepayment fee or charge of any kind due hereunder, if any.


 


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Section 18.17.  Remedies of Borrower.  In the event that a claim or adjudication is
made that Lender has acted unreasonably or unreasonably delayed acting in any
case where by law or under the Note, this Security Instrument or the Loan
Documents, it has an obligation to act reasonably or promptly, Lender shall not
be liable for any monetary damages, and Borrower’s remedies shall be limited to
injunctive relief or declaratory judgment.


 


Section 18.18.  Offsets, Counterclaims and Defenses.  Any assignee of this Security Instrument, the
Assignment and the Note shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to the Note, the Assignment or
this Security Instrument which Borrower may otherwise have against any assignor
of this Security Instrument, the Assignment and the Note and no such unrelated
counterclaim or defense shall be interposed or asserted by Borrower in any
action or proceeding brought by any such assignee upon this Security
Instrument, the Assignment or the Note and any such right to interpose or
assert any such unrelated offset, counterclaim or defense in any such action or
proceeding is hereby expressly waived by Borrower.


 


Section 18.19.  No Merger.  If Borrower’s and Lender’s estates become the
same including, without limitation, upon the delivery of a deed by Borrower in
lieu of a foreclosure sale, or upon a purchase of the Property by Lender in a
foreclosure sale, this Security Instrument and the lien created hereby shall
not be destroyed or terminated by the application of the doctrine of merger and
in such event Lender shall continue to have and enjoy all of the rights and
privileges of Lender as to the separate estates; and, as a consequence thereof,
upon the foreclosure of the lien created by this Security Instrument, any
Leases or subleases then existing and created by Borrower shall not be
destroyed or terminated by application of the law of merger or as a result of
such foreclosure unless Lender or any purchaser at any such foreclosure sale
shall so elect.  No act by or on behalf
of Lender or any such purchaser shall constitute a termination of any Lease or
sublease unless Lender or such purchaser shall give written notice thereof to
such lessee or sublessee.


 


Section 18.20.  Restoration of Rights.  In case Lender shall have proceeded to
enforce any right under this Security Instrument by foreclosure sale, entry or
otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely, then, in every such case,
Borrower and Lender shall be restored to their former positions and rights
hereunder with respect to the Property subject to the lien hereof.


 


Section 18.21.  Waiver of Statute of Limitations.  The pleadings of any statute of limitations
as a defense to any and all obligations secured by this Security Instrument are
hereby waived to the full extent permitted by Legal Requirements.


 


Section 18.22.  Advances.  This Security Instrument shall cover any and
all advances made pursuant to the Loan Documents, rearrangements and renewals
of the Debt and all extensions in the time of payment thereof, even though such
advances, extensions or renewals be evidenced by new promissory notes or other
instruments hereafter executed and irrespective of whether filed or
recorded.  Likewise, the execution of
this Security Instrument shall not impair or affect any other security which
may be given to secure the payment of the Debt, and all such additional
security shall be considered as cumulative. 
The taking of additional security,


 


111





















 


execution of partial releases of the security, or any extension of time
of payment of the Debt shall not diminish the force, effect or lien of this
Security Instrument and shall not affect or impair the liability of Borrower
and shall not affect or impair the liability of any maker, surety, or endorser
for the payment of the Debt.


 


Section 18.23.  Application of Default Rate Not a Waiver.  Application of the Default Rate shall not be
deemed to constitute a waiver of any Default or Event of Default or any rights
or remedies of Lender under this Security Instrument, any other Loan Document
or applicable Legal Requirements, or a consent to any extension of time for the
payment or performance of any obligation with respect to which the Default Rate
may be invoked.


 


Section 18.24.  Intervening Lien.  To the fullest extent permitted by law, any
agreement hereafter made pursuant to this Security Instrument shall be superior
to the rights of the holder of any intervening lien.


 


Section 18.25.  No Joint Venture or Partnership.  Borrower and Lender intend that the
relationship created hereunder be solely that of mortgagor and mortgagee or
grantor and beneficiary or borrower and lender, as the case may be.  Nothing herein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender nor to grant Lender any interest in the Property other than
that of mortgagee, beneficiary or lender.


 


Section 18.26.  Time of the Essence.  Time shall be of the essence in the
performance of all obligations of Borrower hereunder.


 


Section 18.27.  Borrower’s Obligations Absolute.  Borrower acknowledges that Lender and/or
certain Affiliates of Lender are engaged in the business of financing, owning,
operating, leasing, managing, and brokering real estate and in other business
ventures which may be viewed as adverse to or competitive with the business,
prospect, profits, operations or condition (financial or otherwise) of
Borrower.  Except as set forth to the
contrary in the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice or demand, counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of:  (a) any damage to or
destruction of or any Taking of the Property or any portion thereof or any
other Cross-collateralized Property; (b) any restriction or prevention of
or interference with any use of the Property or any portion thereof or any
other Cross-collateralized Property; (c) any title defect or encumbrance
or any eviction from the Premises or any portion thereof by title paramount or
otherwise; (d) any bankruptcy proceeding relating to Borrower, any General
Partner, or any guarantor or indemnitor, or any action taken with respect to
this Security Instrument or any other Loan Document by any trustee or receiver
of Borrower or any other Cross-collateralized Borrower or any such General
Partner, guarantor or indemnitor, or by any court, in any such proceeding; (e) any
claim which Borrower has or might have against Lender; (f) any default or
failure on the part of Lender to perform or comply with any of the terms hereof
or of any other agreement with Borrower or any other Cross-collateralized
Borrower; or (g) any other


 


112





















 


occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not Borrower shall have notice or knowledge of any of the foregoing.


 


Section 18.28.  Publicity.  All promotional news releases, publicity or
advertising by Manager, Borrower or their respective Affiliates through any
media intended to reach the general public shall not refer to the Loan
Documents or the financing evidenced by the Loan Documents, or to Lender or to
any of its Affiliates without the prior written approval of Lender or such
Affiliate, as applicable, in each instance, such approval not to be
unreasonably withheld or delayed.  Lender
shall be authorized to provide information relating to the Property, the Loan
and matters relating thereto to rating agencies, underwriters, potential
securities investors, auditors, regulatory authorities and to any Persons which
may be entitled to such information by operation of law and may use basic
transaction information (including, without limitation, the name of Borrower,
the name and address of the Property and the Loan Amount) in press releases or
other marketing materials.


 


Section 18.29.  Securitization Opinions.  In the event the Loan is included as an asset
of a Securitization by Lender or any of its Affiliates, Borrower shall, within
fifteen (15) Business Days after Lender’s written request therefor, at Lender’s
sole cost and expense, deliver opinions in form and substance and delivered by
counsel reasonably acceptable to Lender and the Rating Agency, as may be
reasonably required by Lender and/or the Rating Agency in connection with such
securitization.  Borrower’s failure to
deliver the opinions required hereby within such fifteen (15) Business Day
period shall constitute an “Event of Default” hereunder.  Notwithstanding the foregoing, in no event
shall Borrower be required to deliver a “10b-5 opinion” in connection with any
Securitization.  Notwithstanding the
foregoing, Borrower shall, upon demand, reimburse Lender for up to $10,000 of
the cost incurred by Lender pursuant to the terms of this Section 18.29
and Lender shall only be obligated to pay reasonable costs and expenses.


 


Section 18.30.  Cooperation with Rating Agencies.  Borrower covenants and agrees that in the
event the Loan is to be included as an asset of a Securitization, Borrower
shall (a) gather any information reasonably required by each Rating Agency
in connection with such a Securitization, (b) at Lender’s request, meet
with representatives of each Rating Agency to discuss the business and
operations of the Property, and (c) cooperate with the reasonable requests
of each Rating Agency and Lender, at Borrower’s sole cost and expense with
respect to the first such request made by Lender following the Closing Date and
at Lender’s expense for any additional requests thereafter, in connection with
all of the foregoing as well as in connection with all other matters and the
preparation of any offering documents with respect thereto, including, without
limitation, entering into any amendments or modifications to this Security
Instrument or to any other Loan Document which may be requested by Lender to
conform to Rating Agency or market standards for a Securitization provided that
no such modification shall modify (a) the Class A Rate or the Class B
Rate payable under the Note, (b) the stated maturity of the Note, (c) the
amortization of principal under the Note, (d) Section 18.32 hereof, (e) any
other material economic term of the Loan or (f) any provision, the effect
of which would increase Borrower’s obligations or materially decrease Borrower’s
rights under the Loan Documents. 
Borrower acknowledges that the information provided by Borrower to
Lender may be incorporated into the offering documents for a Securitization and
to the fullest extent


 


113





















 


permitted, Borrower irrevocably waives all rights, if any, to prohibit
such disclosures including, without limitation, any right of privacy.  Lender and each Rating Agency shall be
entitled to rely on the information supplied by, or on behalf of, Borrower and
Borrower indemnifies and holds harmless the Indemnified Parties, their
Affiliates and each Person who controls such Persons within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as same may be amended from time to time, for, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature, known or unknown, contingent or otherwise,
whether incurred or imposed within or outside the judicial process, including,
without limitation, reasonable attorneys’ fees and disbursements that arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such information or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated in such information or necessary in order to make the statements in
such information, or in light of the circumstances under which they were made,
not misleading.


 


Section 18.31.  Securitization Financials.  Borrower covenants and agrees that, upon
Lender’s written request therefor in connection with a Securitization, Borrower
shall, at Lender’s sole cost and expense, promptly deliver audited financial
statements and related documentation prepared by an Independent certified
public accountant (which may include up to three (3) years of historical
audited financial statements).


 


Section 18.32.  Exculpation.  Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in this Section 18.32
to the contrary, Lender shall not enforce the liability and obligation of
Borrower and (a) if Borrower is a partnership, its constituent partners or
any of their respective partners, (b) if Borrower is a trust, its
beneficiaries or any of their respective Partners (as hereinafter defined), (c) if
Borrower is a corporation, any of its shareholders, directors, principals,
officers or employees, or (d) if Borrower is a limited liability company,
any of its members and their respective legal, equitable and beneficial owner
(the Persons described in the foregoing clauses (a) - (d), as the case may
be, are hereinafter referred to as the “Partners”) to perform and
observe the obligations contained in this Security Instrument or any of the
other Loan Documents by any action or proceeding wherein a money judgment shall
be sought against Borrower or the Partners, except that Lender may bring a
foreclosure action, action for specific performance, or other appropriate
action or proceeding (including, without limitation, an action to obtain a
deficiency judgment) solely for the purpose of enabling Lender to realize upon (i) Borrower’s
interest in the Property and (ii) any other collateral given to Lender
under the Loan Documents (the “Default Collateral”); provided, however,
that any judgment in any such action or proceeding shall be enforceable against
Borrower and the Partners only to the extent of any such Default
Collateral.  The provisions of this Section shall
not, however, (a) impair the validity of the Debt evidenced by the Note or
in any way affect or impair the lien of this Security Instrument or any of the
other Loan Documents or the right of Lender to foreclose this Security
Instrument following the occurrence of an Event of Default; (b) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under this Security Instrument; (c) affect
the validity or enforceability of the Note, this Security Instrument, or any of
the other Loan Documents, or impair the right of Lender to seek a personal
judgment against Guarantor; (d) impair the right of Lender to obtain the
appointment of a receiver; (e) impair the enforcement of the Assignment;


 


114





















 


(f) impair the right of Lender to bring suit for monetary judgment with
respect to damages incurred by Lender resulting from fraud or intentional
misrepresentation by Borrower, or any other Person in connection with this
Security Instrument, the Note or the other Loan Documents, and the foregoing
provisions shall not modify, diminish or discharge the liability of Borrower or
the Partners with respect to same; (g) impair the right of Lender to bring
suit for a monetary judgment with respect to Borrower’s misappropriation of
tenant security deposits or Rent, and the foregoing provisions shall not
modify, diminish or discharge the liability of Borrower or the Partners with
respect to same; (h) impair the right of Lender to obtain Loss Proceeds
due to Lender pursuant to this Security Instrument; (i) impair the right
of Lender to enforce the provisions of Sections 2.02(g), 12.01, 16.01 or 16.02,
inclusive of this Security Instrument, even after repayment in full by Borrower
of the Debt or to bring suit for a monetary judgment against Borrower or the
Partners with respect to any obligation set forth in said Sections; (j) prevent
or in any way hinder Lender from exercising, or constitute a defense, or
counterclaim, or other basis for relief in respect of the exercise of, any
other remedy against any or all of the collateral securing the Note as provided
in the Loan Documents; (k) impair the right of Lender to bring suit for a
monetary judgment with respect to damages incurred by Lender resulting from any
misapplication or conversion of Loss Proceeds, and the foregoing provisions
shall not modify, diminish or discharge the liability of Borrower or the Partners
with respect to same; (l) impair the right of Lender to sue for, seek or demand
a deficiency judgment against Borrower solely for the purpose of foreclosing
the Property or any part thereof, or realizing upon the Default Collateral; provided,
however, that any such deficiency judgment referred to in this clause
(l) shall be enforceable against Borrower and the Partners only to the extent
of any of the Default Collateral; (m) impair the ability of Lender to bring
suit for a monetary judgment with respect to damages incurred by Lender
resulting from arson or waste to or of the Property or damage to the Property
committed by Borrower or its Affiliates; (n) impair the right of Lender to
bring a suit for a monetary judgment in the event of the exercise of any right
or remedy under any federal, state or local forfeiture laws resulting in the
loss of the lien of this Security Instrument, or the priority thereof, against
the Property; (o) be deemed a waiver of any right which Lender may have under
Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy
Code to file a claim for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt; (p) impair the right of
Lender to bring suit for monetary judgment with respect to damages incurred by
Lender resulting from any losses resulting from any claims, actions or
proceedings initiated by Borrower (or any Affiliate of Borrower) alleging that
the relationship of Borrower and Lender is that of joint venturers, partners,
tenants in common, joint tenants or any relationship other than that of debtor
and creditor; (q) impair the right of Lender to bring suit for a monetary
judgment for damages incurred by Lender in the event of a Transfer in violation
of the provisions of Article IX hereof, including, without limitation, the
failure to obtain Lender’s consent to a Transfer as, when and to the extent
required thereunder; (r) impair the right of Lender to bring suit for a
monetary judgment in the event that Borrower moves its principal place of
business or its books and records relating to the Property which are governed
by the UCC, or changes its name, its jurisdiction of organization, type of
organization or other legal structure or, if it has one, organizational identification
number, without first giving Lender thirty (30) days prior written notice or
(s) impair the right of Lender to bring suit for a monetary judgment in the
event that Borrower changes its name of otherwise does anything which would
make the information set forth in any UCC Financing Statements relating to the
Property


 


115





















 


materially misleading without giving Lender thirty (30) days prior
written notice thereof.  The provisions
of this Section 18.32 shall be inapplicable to Borrower if (a) any
proceeding, action, petition or filing under the Bankruptcy Code, or any
similar state or federal law now or hereafter in effect relating to bankruptcy,
reorganization or insolvency, or the arrangement or adjustment of debts, shall
be filed by, consented to or acquiesced in by or with respect to Borrower, or
if Borrower shall institute any proceeding for its dissolution or liquidation,
or shall make an assignment for the benefit of creditors or (b) Borrower
or any Affiliate contests or in any material way interferes with, directly or
indirectly (collectively, a “Contest”) any foreclosure action, UCC sale
or other material remedy exercised by Lender upon the occurrence of any Event
of Default whether by making any motion, bringing any counterclaim, claiming
any defense, seeking any injunction or other restraint, commencing any action,
or otherwise (provided that if any such Person obtains a non-appealable order
successfully asserting a Contest, Borrower shall have no liability under this
clause (b)), in which event Lender shall have recourse against all of the
assets of Borrower including, without limitation, any right, title and interest
of Borrower in and to the Property and any partnership interests in Borrower
(but excluding the other assets of such Partners to the extent Lender would not
have had recourse thereto other than in accordance with the provisions of this Section 18.32).


 


Section 18.33.  Component Classes.  Lender, at its sole cost and expense, without
in any way limiting Lender’s other rights hereunder, in its sole and absolute
discretion, shall have the right at any time to require Borrower to modify the
Note to change the allocation of the Class A Portion and the Class B
Portion, provided that (a) the aggregate principal amount of such classes
shall equal the outstanding principal balance of the Loan immediately prior to
the creation of such “component” notes, (b) the weighted average interest
rate of all such classes shall on the date reallocated equal the interest rate
which was applicable to the Loan immediately prior to the creation of such
classes, (c) the debt service payments on all such classes shall on the
date reallocated equal the debt service payment which was due under the Loan
immediately prior to the creation of such classes and (d) the other terms
and provisions of the Note shall be identical in substance and substantially
similar in form to the Loan Documents. 
Borrower shall cooperate with all reasonable requests of Lender in order
to establish reallocated the Class A Portion and the Class B Portion
and shall execute and deliver such documents as shall reasonably be required by
Lender in connection therewith, all in form and substance reasonably
satisfactory to Lender, including, without limitation, the severance of
security documents if requested.  It
shall be an Event of Default if Borrower fails to comply with any of the terms,
covenants or conditions of this Section 18.33 after the expiration of
fifteen (15) Business Days after notice thereof.


 


Section 18.34.  Intentionally Omitted.


 


Section 18.35.  Intentionally Omitted.


 


Section 18.36.  Certain Matters Relating to Property
located in the State of Florida. 
With respect to the Property which is located in the State of Florida,
notwithstanding anything contained herein to the contrary:


 


(a)                                  It is agreed that, in
addition to existing indebtedness, any future advances made by the then holder
of the Note to or for the benefit of Borrower or Borrower’s permitted


 


116


















 


assignees, whether such advances are obligatory or are made at the
option of Lender, or otherwise, at any time within twenty (20) years from the
date of this Security Instrument, with interest thereon at the rate agreed upon
at the time of each additional loan or advance, shall be equally secured with
and have the same priority as the Debt and be subject to all of the terms and
provisions of this Security Instrument, whether or not such additional loan or
advance is evidenced by a promissory note of Borrower and whether or not
identified by a recital that it is secured by this Security Instrument;
provided that, although the total amount of the indebtedness that may be
secured may decrease to zero from time to time or may increase from time to
time, the aggregate amount of outstanding Debt so secured at any one time shall
not exceed the sum of One Hundred Seven Million Four Hundred Ten Thousand Five
Hundred Sixty and 34/100 Dollars ($107,410,560.34), plus interest and
disbursements made for the payment of taxes, levies or insurance on the
Property with interest on such disbursements. 
It is understood and agreed that this future advance provision shall not
be construed to obligate Lender to make any such additional loans or
advances.  It is further agreed that any
additional note or notes executed and delivered under this future advance
provision shall be included in the words “Note” or “Debt” wherever either
appears in the context of this Security Instrument.  Borrower, for itself and its successors in
title and its successors and permitted assigns, hereby expressly waives and
relinquishes any rights granted under Section 697.04 of the Florida
Statutes, or otherwise, to limit the amount of indebtedness that may be secured
by this Security Instrument at any time during the term of this Security
Instrument.  Borrower further covenants
not to file for record any notice limiting the maximum principal amount that
may be secured by this Security Instrument and agrees that any such notice, if
filed, shall be null and void; and except as hereinafter provided, of no
effect.  In the event that,
notwithstanding the foregoing covenant, Borrower or its successor in title
files for record any notice limiting the maximum principal amount that may be
secured by this Security Instrument in violation of the foregoing covenant, the
Debt shall, at the option of Lender, become immediately due and payable.


 


(b)                                 Notwithstanding
anything to the contrary contained in this Security Instrument, Lender shall
comply with the requirements of Section 501.137. Florida Statutes, as
applicable, with respect to the payment of Impositions and insurance premiums
from the Basic Carrying Costs Sub-Account so that the maximum tax discount
available may be obtained with regard to the Premises and so that insurance
coverage on the Property does not lapse.


 


Section 18.37.  Intentionally Omitted.


 


Section 18.38.  Assignment Upon Repayment.  At Borrower’s request, and upon (a) Borrower’s
prepayment of the Debt in full, whether by prepayment or otherwise and (b) payment
by Borrower of Lender’s reasonable counsel fees and disbursements and other
reasonable costs, if any, and provided Borrower (a) refinances the Loan
through any institution other than Lender, or (b) sells any of the
Premises, and an institution other than Lender is involved in the financing of
such sale, Lender shall deliver an assignment of the Note, this Security
Instrument to Borrower’s designee without recourse, representation or warranty,
together with the Note (or an affidavit of lost note) duly endorsed by Lender
to Borrower’s designee.


 


*********


 


117





















 


IN WITNESS
WHEREOF, Borrower has duly executed this Security Instrument the day and year
first above written.


 


	
  Borrower’s Organizational Identification

  	
  BEACH HOTEL ASSOCIATES LLC,

  
	
  Number:

  	
  20-1487269

  	
   

  	
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc S. Gordon

  	
  ,

  
	
   

  	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
						



 


 


The undersigned SPE Pledgors hereby agree and consent to the terms
hereof.


 


	
  MORGANS/DELANO PLEDGOR LLC,

  
	
  a Delaware limited liability company, SPE Pledor

  
	
   

  
	
  By:

  	
   

  	
  /s/ Marc S. Gordon

  	
   

  
	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
  Title: Authorized Signatory

  



 


118





















 


	
  ACKNOWLEDGED AND AGREED TO THIS

  
	
  30 DAY OF JUNE,
  2005.

  
	
   

  
	
   

  
	
  WACHOVIA BANK, NATIONAL ASSOCIATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Robert Rosenberg

  	
   

  
	
   

  	
  Name: Robert Rosenberg

  
	
   

  	
  Title: Managing Director

  



 





















 


ACKNOWLEDGMENT


 


 


	
  STATE OF NEW YORK

  	
   

  	
  )

  
	
   

  	
   

  	
  )ss.:

  
	
  COUNTY OF NEW YORK

  	
   

  	
  )

  



 


 


On the 29 day of June in the year 2005 before me, the undersigned,
personally appeared Marc S. Gordon, personally known to me or proved to
me on the basis of satisfactory evidence to be the individual(s) whose name(s)
is (are) subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their capacity(ies), and that by
his/her/their signature(s) on the instrument, the individual(s), or the person
upon behalf of which the individual(s) acted, executed the instrument.


 


 


	
   

  	
  /s/ Cynthia Margareten

  	
   

  
	
   

  	
  Notary Public

  
	
   

  	
  Cynthia Margareten

  
	
   

  	
  Notary Public, State of New York

  
	
   

  	
  No. 01MA4884255

  
	
   

  	
  Qualified in Nassau County

  
	
   

  	
  Commission Expires January 26, 2007

  



 





















 


ACKNOWLEDGMENT


 


 


	
  STATE OF NEW YORK

  	
   

  	
  )

  
	
   

  	
   

  	
  )ss.:

  
	
  COUNTY OF NEW YORK

  	
   

  	
  )

  



 


 


On the 30 day of June in the year 2005 before me, the
undersigned, personally appeared Robert Rosenberg, personally known to
me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument.


 


 


	
   

  	
  /s/ Madeline Zorrilla

  	
   

  
	
   

  	
  Notary Public

  
	
   

  	
  Madeline Zorrilla

  
	
   

  	
  Notary Public, State of New York

  
	
   

  	
  No. 01Z06043997

  
	
   

  	
  Qualified in Westchester County

  
	
   

  	
  My Commission Expires June 26, 2006

  



 





















 


EXHIBIT A


 


Legal Description of Premises


 





















 


EXHIBIT B


 


SUMMARY OF
RESERVES**


 


	
  Reserve Items

  	
   

  	
  Initial Deposit Amount

  	
   

  	
  Monthly Installment

  Amount

  	
   

  
	
  Basic
  Carrying Costs

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  •                  Taxes

  	
   

  	
  $

  	
  1,061,111.62

  	
   

  	
  $

  	
  440,073.71

  	
   

  
	
  •                  Insurance
  Premiums

  	
   

  	
  $

  	
  0

  	
   

  	
  $

  	
  142,899.94

  	
   

  
	
  •                  Ground Rents

  	
   

  	
  $

  	
  0

  	
   

  	
  $

  	
  65,965.00

  	
   

  
	
  SAOT Deposit

  	
   

  	
  $

  	
  0

  	
   

  	
  TBD

  	
   

  
	
  Recurring
  Replacement Reserve

  	
   

  	
  $

  	
  2,518,942.63

  	
   

  	
  $

  	
  487,238.00

  	
  *

  
	
  Initial
  Engineering Deposits

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  •     Immediate Repairs

  	
   

  	
  $

  	
  0

  	
   

  	
  Not Applicable

  	
   

  
	
  •     Environmental Remediation

  	
   

  	
  $

  	
  0

  	
   

  	
  Not Applicable

  	
   

  
	
  Capex Trap
  Escrow

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  	
   

  	
   

  



 










*                                         This
figure is only applicable during the first (1st) year of  the Loan, after which such amount shall
adjust in accordance with the definition of “Recurring Replacement Reserve”.


 


**                                  The
sums set forth are an aggregate number with respect to all of the
Cross-collateralized Properties.


 





















 


EXHIBIT C


 


	
   

  	
  Property:

  	
   

  
	
   

  	
  Location:

  	
   

  
	
  Cash Flow Statement for Month of:

  	
   

  	
   

  	
  Year:

  
					



 


	
   

  	
   

  	
  Current

  	
   

  	
  Year to

  	
   

  
	
   

  	
   

  	
  Month

  	
   

  	
  Date

  	
   

  
	
  REVENUE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Rental
  Revenue

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other
  Revenue

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Effective Gross Income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OPERATING
  EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Common Area
  Maintenance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Payroll

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Leasing

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Service

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Clean &
  Decorate

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Utilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Repairs &
  Maintenance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Taxes

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Insurance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Management
  Fees

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Operating Expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Operating Income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  RECURRING
  EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  To Include Expenses for: Carpet
  Replacement, Appliance Replacement, HVAC/Water Heater Replacement;
  Miniblinds/Drapes/Ceiling Fans:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NON-RECURRING
  EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  To Include Capital Expenses for:
  Playground, Major Signage, Lawns/Trees/Shrubs, Paving/Parking, Roof
  Replacement, Carpentry/Siding/Balconies, Exterior Paint, Major
  Concrete/Sidewalks, Foundations, Major Exterior, Boiler Replacement, Major
  HVAC Replacement, Plumbing Replace, Electrical Replace, Other Major,
  Fire & Storm, Ins. Loss Recovery:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Cash Flow

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


	
   

  	
  Certified By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Management Company:

  	
   

  



 





















 


EXHIBIT D


 


Required Engineering Work


 


NONE


 





















 


EXHIBIT E


 


Intentionally Omitted.


 





















 


EXHIBIT F


 


Initial Allocated Loan Amount
and


Cross-collateralized Properties


 


	
  Cross-collateralized Property

  	
   

  	
  Initial Allocated Loan Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Morgans
  Hotel

  	
   

  	
  $

  	
  34,306,034.48

  	
   

  
	
  Royalton
  Hotel

  	
   

  	
  $

  	
  49,417,025.86

  	
   

  
	
  Hudson Hotel

  	
   

  	
  $

  	
  186,232,758.62

  	
   

  
	
  Delano Hotel

  	
   

  	
  $

  	
  107,410,560.34

  	
   

  
	
  Mondrian
  Hotel

  	
   

  	
  $

  	
  96,383,620.69

  	
   

  



 





















 


EXHIBIT G


 


CREDIT CARD
PAYMENT DIRECTION LETTER


 


(For use with Chase Merchant
Services, L.L.C. and Chase Manhattan Bank)


 


June    , 2005


 


 


Chase Merchant Services, L.L.C.


3975 Northwest 120th Avenue


Coral Springs, Florida 33065


 


Re:                                              (the
“Company”)


 


Gentlemen:


 


Chase Merchant
Services, L.L.C. and
Chase Manhattan Bank (collectively, the “Processor”) have entered
into arrangements pursuant to which Processor acts as credit card processing
service provider with respect to certain credit card and debit card sales by
the Company at, among other properties, the                             Hotel
located at                             
(the “Property”) and makes payments to the Company in respect of such sales as
set forth in the Merchant Services Bankcard Agreement between Processor and the
Company (and together with any replacement agreement thereto, referred to
herein as the “Card Processing Agreement”).


 


Please be advised that certain affiliates of
the Company, including the owner of the Property, have entered or are about to
enter into financing arrangements with
Wachovia Bank, National Association (the “Lender”) pursuant to which
Lender may from time to time make loans and advances and provide other
financial accommodations to certain affiliates of the Company, including the
owner of the Property, secured by, among other things, all of the Property
owner’s right, title and interest in and to all deposit and other bank accounts
and proceeds of the foregoing, including all amounts at any time payable by
Processor to the Company, with respect to the Property pursuant to the Card
Processing Agreement or otherwise.


 


Notwithstanding anything to the contrary
contained in the Card Processing Agreement or any prior instructions to
Processor, unless and until Processor receives written instructions from Lender
to the contrary, effective as of the day after the date of Processor’s written
acknowledgment below all amounts payable by Processor to the Company pursuant
to the Card Processing Agreement or otherwise shall be sent by federal funds
wire transfer or electronic depository transfer to the following bank account
of the Lender:


 





















 


Wachovia Bank, National
Association


ABA # 053-000-219


	
   

  	
  Acct Name-                                   

  
	
   

  	
  Acct #                                   

  



Ref Loan # when available


 


MERCHANT


 


In the event Processor at any time receives
any other instructions from Lender with respect to the disposition of amounts
payable by or through Processor to the Company, which relate to the Property,
pursuant to the Card Processing Agreement or otherwise, Processor is hereby
irrevocably authorized and directed to follow such instructions, without inquiry
as to Lender’s right or authority to give such instructions. Company and Lender
acknowledge that (a) any instructions from Lender to Processor to change
the account to which funds must be sent by a vice president or other officer of
Lender to Chase Merchant Services, L.L.C., 3975 Northwest 120th Avenue, Coral
Springs, Florida 33065, Attention: Vice President - Risk Management; (b) such
instructions shall only provide for funds to be sent to a single deposit
account of Lender, in a manner with respect to the nature of the funds transfer
and at times consistent with the payment practices of Processor as then in
effect, unless otherwise agreed by Processor. The Company agrees to hold
harmless Processor for any action taken by Processor in accordance with the
terms of this letter and the Card Processing Agreement; and Lender shall
complete such account change forms as Processor may require.  The Company hereby acknowledges that the
account set forth above is owned by the Company but is under the control of Lender.


 


Lender and the Company hereby confirm and
agree as follows: (i) the Card Processing Agreement is in full force and
effect, and (ii) this Assignment does not prohibit or limit any rights
Processor possesses under the Card Processing Agreement, including but not
limited to Processor’s right to debit, offset or charge back any amounts owing
to Processor under the Card Processing Agreement or any replacement or renewal
thereof, against funds sent to or to be sent to the above referenced bank
account.


 


This Irrevocable Payment Instruction cannot
be changed, modified, or terminated, except by written agreement signed by
Lender, Company, and Processor. This Irrevocable Payment Instruction supersedes
and replaces any prior instructions provided to Processor to date. Processor
agrees to use reasonable efforts to ensure payment instructions are followed,
but Lender and Company herein acknowledge that Processor shall incur no
liability for changes or modifications wherein Processor has received
instructions from Company or Lender to change the deposit account.


 


ii





















 


Please acknowledge your receipt of, and
agreement to, the foregoing by signing in the space provided below.


 


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  	
  , a

  
	
   

  	
   

  	
  limited liability company

  
	
   

  	
  (the “Company”)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  (Duly
  Authorized)

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
								



 


iii





















 


	
  ACKNOWLEDGED AND AGREED:

  
	
   

  
	
  Wachovia Bank, National Association

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
  (Duly Authorized)

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  
	
   

  
	
  ACKNOWLEDGED AND AGREED:

  
	
   

  
	
  CHASE MERCHANT SERVICES, L.L.C.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
  (Duly
  Authorized)

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  
	
   

  
	
  ACKNOWLEDGED AND AGREED:

  
	
   

  
	
  CHASE MANHATTAN BANK

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
  (Duly
  Authorized)

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  
								



 


iv





















 


 


 


 


 


 


 


 


 


 


[THIS PAGE INTENTIONALLY LEFT
BLANK]


 


 


 


 


 


 


 


 


 


 


v





















 


 


 


 


(For use with American Express)


 


TO BE COMPLETED BY AUTHORIZED REPRESENTATIVES
OF THE MERCHANT AND THE LENDING INSTITUTION


 


June    ,
2005


 


General Counsel’s Office


American Express Travel Related Services Company, Inc.


3 World Financial Center


200 Vesey Street


New York, NY 10285-4906


Attn: Establishment Services Practice Group


 


RE:                              FINANCING
AGREEMENT – ASSIGNMENT OF CREDIT CARD RECEIVABLES


 


Dear Sir/Madam:


 


                        
(the “Company”) has recently entered into a new financing facility with
Wachovia Bank, National Association (the “Assignee”).  In accordance with the terms of that loan
facility, the Company granted to Assignee a security interest in Company’s
inventory, accounts and substantially all of Company’s tangible and intangible
personal property, including, without limitation, all rights of the Company to
receive payments in respect of proceeds of American Express card sales in the
Company’s stores pursuant to that certain American ExpressÒ Card Acceptance Agreement between American
Express Travel Related Services Company, Inc. (“American Express”) and the
Company in effect as of the date hereof (the “Agreement”).


 


Pursuant to the loan
facility, the Company is obligated to arrange for the proceeds of American
Express card sales in the Company’s stores to be routed by American Express to
a new cash concentration account under the control of the Assignee, as opposed
to the account routing instructions that are presently in place.  Accordingly, by this letter, the Company
instructs American Express to immediately begin routing all proceeds of
American Express card sales in the Company’s stores (under Service
Establishment No.                         )
to the new Company account (“Account”) set forth below.


 


	
  Account No:

  	
   

  	
                                    

  
	
  Account Name:

  	
   

  	
  Wachovia Bank, National Association, as

  beneficiary/mortgagee of                              ,
  a                    

  limited liability company

  
	
  ABA Routing No.:

  	
   

  	
  053-000-219

  
	
  Bank Name:

  	
   

  	
  Wachovia Bank, National Association

  
	
  Contact:

  	
   

  	
  David Tucker

  
	
   

  	
   

  	
  (704) 593-7735

  



 


 


vi





















 


All
payments under the Agreement should continue to be made to the Account and to
no other account unless and until you receive express prior written
notification from an officer of Assignee. 
Such notification will only be valid if made in writing and sent, via
first-class mail or overnight delivery, to American Express at the following
address:


 


General Counsel’s Office


American Express Travel Related Services
Company, Inc.


3 World Financial Center


200 Vesey Street


New York, NY 10285-4906


Attn: Establishment Services Practice Group


 


The Company acknowledges that American Express retains all of its
rights under the Agreement, including, but not limited to, American Express’
rights to Full Recourse, as such term is defined in the Agreement.  Furthermore, the Company acknowledges and
agrees that American Express is not required to alter its regular course of
business with respect to acceptance of payment instructions from merchants and
that American Express will have no liability if it acts in accordance with
payment instructions received from an employee or agent of the Company acting
with apparent authority.


 


The Company will indemnify and hold harmless American Express from any
and all liabilities, claims, demands, actions or judgments, including but not
limited to attorneys’ fees, arising out of or resulting from the acts or
omissions of the Company, its employees, officers or agents in connection with
this letter agreement.


 


The Company appreciates American Express’ anticipated cooperation and
assistance in effectuating this request. 
Should you have any questions concerning this matter, please do not
hesitate to contact us at your convenience, or feel free to contact the
Assignee directly at Wachovia Bank, National Association, Commercial Real
Estate National Association, 8739 Research Drive URP4, NC 175, Charlotte, North
Carolina 28262, Attention: Portfolio Management, Telecopier (704) 715-0036.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  	
  Date: June    , 2005

  
					



 


vii





















 


	
  ACCEPTED AND AGREED:

  
	
   

  
	
  WACHOVIA BANK, NATIONAL
  ASSOCIATION

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Name

  	
   

  	
   

  
	
   

  
	
  Title

  	
   

  	
   

  
	
   

  
	
  Date

  	
   

  	
   

  
					



 


viii





















 


EXHIBIT H


 


CERTAIN DEBT
SERVICE COVERAGE REQUIREMENTS


 


	
  Period

  	
   

  	
  Debt Service Coverage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st four
  calendar quarters

  	
   

  	
  1.05 : 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Next four
  calendar quarters

  	
   

  	
  1.09 : 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Next two
  calendar quarters

  	
   

  	
  1.11 : 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Next two
  calendar quarters

  	
   

  	
  1.13 : 1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Thereafter

  	
   

  	
  1.15 : 1.00

  	
   

  



 





















 


EXHIBIT I


 


CERTAIN
DEFINITIONS


 


“Food and Beverage Lessee/Operator” shall mean, collectively, SC
Morgans/Delano LLC, a Delaware limited liability company and SC Collins LLC, a
Delaware limited liability company..


 


“SPE Pledgor” shall mean Morgans/Delano Pledgor LLC, a Delaware
limited liability company.


 





















 


INDEX


 


EXHIBITS


 


	
  EXHIBIT A

  	
   

  	
  Legal
  Description of Premises

  
	
  EXHIBIT B

  	
   

  	
  Summary Of
  Reserves

  
	
  EXHIBIT C

  	
   

  	
  Cash Flow
  Statement

  
	
  EXHIBIT D

  	
   

  	
  Required
  Engineering Work

  
	
  EXHIBIT E

  	
   

  	
  Intentionally
  Omitted

  
	
  EXHIBIT F

  	
   

  	
  Initial
  Allocated Loan Amount and Cross-collateralized Properties

  
	
  EXHIBIT G

  	
   

  	
  Credit Card
  Payment Direction Letter

  
	
  EXHIBIT H

  	
   

  	
  Certain Debt
  Service Coverage Requirements

  
	
  EXHIBIT I

  	
   

  	
  Certain
  Definitions