Document:

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                                                                   EXHIBIT 10.18
RECORDING REQUESTED BY:

WHEN RECORDED MAIL TO:

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

INSTRUCTIONS TO RECORDER:
Index this document as (i) a deed of
trust, (ii) an assignment of rents,
a security agreement, and
a fixture filing.

_______________________________________________________________________________

                                                           MS Loan No. 04-17356

                PYRAMID GILMAN STREET PROPERTY, LLC, as grantor
                                                  (Borrower)

                                       to

               FIRST AMERICAN TITLE INSURANCE COMPANY, as Trustee

                                      and

              MORGAN STANLEY MORTGAGE CAPITAL INC, as beneficiary
                                                  (Lender)

                          ____________________________

                 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
                     SECURITY AGREEMENT AND FIXTURE FILING

                          ____________________________

                              Dated:    January 27, 2005

                              Location: 901 Gilman Street, Berkeley, California

                              County:   Alameda

<PAGE>
     THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (this "Security Instrument") is made as of January 27, 2005, by
PYRAMID GILMAN STREET PROPERTY, LLC, a Delaware limited liability company,
having its principal place of business at c/o Pyramid Breweries, Inc.,
Attention: Chief Financial Officer, 91 S. Royal Brougham Way, Seattle,
Washington 98134, as grantor ("Borrower") to FIRST AMERICAN TITLE INSURANCE
COMPANY, having an address at 1850 Mt. Diablo Boulevard, Suite 300, Walnut
Creek, California 94596, as trustee ("Trustee"), for the benefit of MORGAN
STANLEY MORTGAGE CAPITAL INC., a New York corporation, having an address at c/o
ARCap Servicing, Inc., 5605 North MacArthur Boulevard, Suite 950, Irving, Texas
75038, as beneficiary ("Lender").

                                   RECITALS:

     Borrower by its promissory note of even date herewith given to Lender is
indebted to Lender in the principal sum of Seven Million Eight Hundred Fifty
Thousand and 00/100 Dollars ($7,850,000.00)(the "Loan Amount") in lawful money
of the United States of America (the note together with all the extensions,
renewals, modifications, substitutions and amendments thereof shall
collectively be referred to as the "Note"), with interest from the date thereof
at the rates set forth in the Note, principal and interest to be payable in
accordance with the terms and conditions provided in the Note.

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

                         Article 1 - GRANTS OF SECURITY

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

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

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

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

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

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

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

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

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

     (h)  CONDEMNATION AWARDS  All awards or payments, including interest
thereon, which may heretofore and hereafter be made with respect to the
Property, whether from the exercise of the right of eminent domain (including
but not limited to any transfer made in lieu of

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or in anticipation of the exercise of the right), or for a change of grade, or
for any other injury to or decrease in the value of the Property,

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

         (j) CONVERSION. All proceeds of the conversion, voluntary or
involuntary, of any of the foregoing including, without limitation, proceeds of
insurance and condemnation awards, into cash or liquidation claims,

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

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

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

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

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

         SECTION 1.3 SECURITY AGREEMENT. This Security Instrument is both a
real property mortgage and a "security agreement" within the meaning of the
California Uniform Commercial Code. The Property includes both real and
personal property and all other rights and interests, whether tangible or
intangible in nature, of Borrower in the Property. By executing and delivering
this Security Instrument, Borrower hereby grants to Lender and Trustee, as
security for the Obligations (defined in Section 2.3), a security interest in
the Personal Property to the full extent that the Personal Property may be
subject to the California Uniform Commercial Code.

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

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

                    ARTICLE 2 - DEBT AND OBLIGATIONS SECURED

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

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

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

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

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

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

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

     SECTION 2.2    OTHER OBLIGATIONS  This Security Instrument and the grants,
assignments and transfers made in Article 1 are also given for the purpose of
securing the performance of the following (the "Other Obligations").

     (a)  all other obligations of Borrower contained herein,

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

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

         Section 2.3    DEBT AND OTHER OBLIGATIONS   Borrower's obligations for
the payment of the Debt and the performance of the Other Obligations shall be
referred to collectively below as the "Obligations"

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

                         ARTICLE 3 - BORROWER COVENANTS

Borrower covenants and agrees that:

         Section 3.1    PAYMENT OF DEBT  Borrower will pay the Debt at the time
and in the manner provided in the Note and in this Security Instrument.

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

     Section 3.3    INSURANCE

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

                  (i)  Property Insurance  Insurance with respect to the
         Improvements insuring against any peril now or hereafter included
         within the classification "Special Cause of Loss" in amounts at all
         times sufficient to prevent Lender from becoming a coinsurer within the
         terms of the applicable policies and under applicable law, but in any
         event such insurance shall be maintained in an amount which, after
         application of deductible, shall be equal to the full insurable value
         of the Improvements, the term "full insurable

                                       5
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value" to mean the actual replacement cost of the Improvements (without taking
into account any depreciation, and exclusive of excavations, footings and
foundations, landscaping and paving) determined annually by an insurer, a
recognized independent insurance broker or an independent appraiser selected and
paid by Borrower and in no event less than the coverage required pursuant to the
terms of any Lease,

         (ii)      LIABILITY INSURANCE. Comprehensive general liability
insurance, including bodily injury, death and property damage liability,
including all legal liability to the extent insurable and imposed upon Lender,
arising out of or connected with the possession, use, leasing, operation,
maintenance or condition of the Property in such amounts as are generally
available at commercially reasonable premiums and are generally required by
institutional lenders for properties comparable to the Property but in any event
for a combined single limit of at least $5,000.000,

         (iii)     WORKERS' COMPENSATION INSURANCE. Statutory workers'
compensation insurance with respect to any work on or about the Property,

         (iv)      LOSS OF RENTS INSURANCE. Loss of rents insurance (A) with
loss payable to Lender, (B) covering the special cause of loss required to be
covered by the insurance provided for in subsection (i) above for a period
commencing at the time of loss for such length of time as it takes to repair or
replace with the exercise of due diligence and dispatch, (C) containing an
extended period of indemnity endorsement which provides that after the physical
loss to the Improvements has been repaired, the continued loss of income will be
insured until such income either returns to the same level it was at prior to
the loss, or the expiration of eighteen (18) months from the date that the
Property is repaired or replaced and operations are resumed, whichever first
occurs, and notwithstanding that the policy may expire prior to the end of such
period; and (D) in an amount equal to one hundred percent (100%) of the
projected gross income from the Property for a period from the date of loss to a
date (assuming total destruction) which is eighteen (18) months from the date
that the Property is repaired or replaced and operations are resumed. The amount
of such loss of rents insurance shall be determined prior to the date hereof and
at least once each year thereafter based on Borrower's reasonable estimate of
the gross income from the Property for the succeeding eighteen (18) month
period, based upon the assumption that no casualty has or will occur. All
proceeds payable to Lender pursuant to this subsection shall be held by Lender
and shall be applied to the obligations secured by the Loan documents from time
to time due and payable hereunder and under the Note and the Other Security
Documents and otherwise as determined by Lender in its sole discretion,
provided, however, that nothing herein contained shall be deemed to relieve
Borrower of its obligations to pay the obligations secured by the Loan documents
on the respective dates of payment provided for herein and in the Note and the
Other Security Documents except to the extent such amounts are actually paid out
of the proceeds of such loss of rents insurance,

         (v)       BOILER AND MACHINERY INSURANCE. Broad form boiler and
machinery insurance (without exclusion for explosion) covering all boilers or
other pressure vessels, machinery, and equipment located in, on or about the
Property and insurance against loss

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         of occupancy or use arising from any breakdown in such amounts as are
         generally required by institutional lenders for properties comparable
         to the Property;

                  (vi)     FLOOD INSURANCE. If required by Subsection 5.5(j)
         hereof, flood insurance in an amount at least equal to the lesser of
         (A) the principal balance of the Note, or (B) the maximum limit of
         coverage available for the Property under the National Flood Insurance
         Act of 1968, The Flood Disaster Protection Act of 1973 or the National
         Flood Insurance Reform Act of 1994, as each may be amended,

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

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

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

         (b)      All insurance provided for in Subsection 3.3(a) hereof shall
be obtained under valid and enforceable policies (the "Policies" or in the
singular, the "Policy"), and shall be issued by one or more domestic primary
insurer(s) having (i) a general policy rating of A or better and a financial
class of VI or better by A.M. Best Company, Inc. (or if a rating of A.M. Best
Company, Inc. is no longer available, a similar rating from a similar or
successor service) and (ii) a claims paying ability rating by a credit rating
agency approved by Lender (a "Rating Agency") of not less than AA by Standard &
Poor's Corp. or such comparable rating by such other Rating Agency. All
insurers providing insurance required by this Security Instrument shall be
authorized to issue insurance in the state in which the Property is located.
The Policy referred to in Subsection 3.3(a)(ii) above shall name Lender as an
additional named insured and the Policies referred to in Subsection 3.3(a)(i),
(iv), (v), (vi) and (vii), and as applicable (viii), above shall provide that
all proceeds be payable to Lender as set forth in Section 3.7 hereof. The
Policies referred to in Subsections 3.3(a)(i), (v), (vi) and (vii) shall also
contain: (i) a standard "non-contributory mortgagee" endorsement or its
equivalent relating, inter alia, to recovery by Lender notwithstanding the
negligent or willful acts or omission of Lender, (ii) to the extent available
at commercially reasonable rates, a waiver of subrogation endorsement as to
Lender, and (iii) an endorsement providing for a deductible per loss of an
amount not more than that which is customarily maintained by prudent owners of
similar properties in the general vicinity of the Property, but in no event in
excess of $10,000. The Policy referred to in Subsection 3.3(a)(i)

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above shall provide coverage for contingent liability from Operation of
Building Laws, Demolition Costs and Increased Cost of Construction Endorsements
together with an "Ordinance or Law Coverage" or "Enforcement" endorsement if
any of the Improvements or the use of the Property shall at any time constitute
legal non-conforming structures or uses. All Policies shall contain (i) a
provision that such Policies shall not be cancelled or terminated, nor shall
they expire, without at least thirty (30) days' prior written notice to Lender
in each instance; and (ii) include effective waivers by the insurer of all
claims for Insurance Premiums (defined below) against any loss payees,
additional insureds and named insureds (other than Borrower) Certificates of
insurance with respect to all renewal and replacement Policies shall be
delivered to Lender not less than twenty (20) days prior to the expiration date
of any of the Policies required to be maintained hereunder, which certificates
shall bear notations evidencing payment of applicable premiums (the "Insurance
Premiums"). Originals or certificates of such replacement Policies shall be
delivered to Lender promptly after Borrower's receipt thereof but in any case
within thirty (30) days after the effective date thereof. If Borrower fails to
maintain and deliver to Lender the original Policies or certificates of
insurance required by this Security Instrument, upon ten (10) days' prior
notice to Borrower, Lender may procure such insurance at Borrower's sole cost
and expense.

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

     SECTION 3.4    PAYMENT OF TAXES, ETC.

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

     (b)  After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted
in good faith and with due diligence, the amount or validity or application in
whole or in part of any of the Taxes, provided that (i) no Event of Default has
occurred and is continuing under the Notes, this Security Instrument or any of
the Other Security Documents, (ii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting
the Property, (iii)

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such proceeding shall suspend the collection of the Taxes from Borrower and
from the Property or Borrower shall have paid all of the Taxes under protest,
(iv) such proceeding shall be permitted under and be conducted in accordance
with the provisions of any other instrument to which Borrower is subject and
shall not constitute a default thereunder, (v) neither the Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, cancelled or lost, and (vi) Borrower shall have deposited with
Lender adequate reserves for the payment of the Taxes, together with all
interest and penalties thereon, unless Borrower has paid all of the Taxes under
protest, or Borrower shall have furnished the security as may be required in
the proceeding, or as may be reasonably requested by Lender to insure the
payment of any contested Taxes, together with all interest and penalties
thereon, taking into consideration the amount in the Escrow Fund available for
payment of Taxes.

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

         SECTION 3.6  CONDEMNATION.  Borrower shall promptly give Lender notice
of the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Notwithstanding any taking by any public or
quasi-public authority through eminent domain or

                                       9

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otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Borrower shall continue to pay the
Debt at the time and in the manner provided for its payment in the Note and in
this Security Instrument and the Debt shall not be reduced until any award or
payment thereof shall have been actually received and applied by Lender, after
the deduction of expenses of collection, to the reduction or discharge of the
Debt. Borrower shall cause the award or payment made in any condemnation or
eminent domain proceeding, which is payable to Borrower, to be paid directly to
Lender. Lender shall not be limited to the interest paid on the award by the
condemning authority but shall be entitled to receive out of the award interest
at the rate or rates provided herein or in the Note. Lender my apply any award
or payment to the reduction or discharge of the Debt whether or not then due and
payable. If the Property is sold, through foreclosure or otherwise, prior to the
receipt by Lender of the award or payment, Lender shall have the right, whether
or not a deficiency judgement on the Note (to the extent permitted in the Note
or herein) shall have been sought, recovered or denied, to receive the award or
payment, or a portion thereof sufficient to pay the Debt.

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

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

     (b)  The term "Net Proceeds" for purposes of this Section 3.7 shall mean:
(i) the net amount of all insurance proceeds under the Policies carried pursuant
to Subsection 3.3(a)(i), (iv), (v), (vi), (vii) and (viii) of this Security
Instrument as a result of such damage or destruction, after deduction of
Lender's reasonable costs and expenses (including, but not limited to reasonable
counsel fees), if any, in collecting the same, or (ii) the net amount of all
awards and payments received by Lender with respect to a taking referenced in
Section 3.6 of this Security Instrument, after deduction of Lender's reasonable
costs and expenses (including, but not limited to reasonable counsel fees), if
any, in collecting the same, whichever the case may be. If (i) the Net Proceeds
do not exceed $50,000 (the "Net Proceeds Availability Threshold"), (ii) the
costs of completing the Restoration as reasonably estimated by Borrower shall be
less than or equal to the Net proceeds, (iii) no Event of Default shall have
occurred and be continuing under the Note, this Security Instrument or any of
the Other Security Documents; (iv) the Property and the use thereof after the
Restoration will be in compliance with, and permitted under, all applicable
zoning laws, ordinances, rules and regulation (including, without limitation,
all applicable Environmental Laws (defined in Section 12.1)), (v)(A) in the
event that the Net Proceeds are insurance proceeds, less than twenty-five
percent (25%) of the total floor area of the Improvements has been damaged or
destroyed, or rendered unusable as a result of such fire or other casualty; or
(B) in the event that the Net Proceeds are condemnation awards, less than 25% of
the Land constituting the Property is taken, such Land that is taken is located
along the perimeter or periphery of the Property, no portion of the Improvements
is located in such Lands,

                                       10
<PAGE>
and such taking does not materially impair access to the Property, and (vi)
Lender shall be satisfied that any operating deficits, including all scheduled
payments of principal and interest under the Note which will be incurred with
respect to the Property as a result of the occurrence of any such fire or other
casualty or taking, whichever the case may be, will be covered out of (1) the
Net Proceeds, or (2) other funds of Borrower, then the Net Proceeds will be
disbursed directly to Borrower

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

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

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

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

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

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

                  (v)  (A) in the event that the Net Proceeds are insurance
         proceeds, less than twenty-five percent (25%) of the total floor area
         of the Improvements has been damaged or destroyed, or rendered unusable
         as a result of such fire or other casualty; or (B) in the event that
         the Net Proceeds are condemnation awards, less than 25% of the Land
         constituting the Property is taken, such Land that is taken is located
         along the perimeter or periphery of the Property, no portion of the
         Improvements is located in such Lands and such taking does not
         materially impair access to the Property,

                  (vi) Lender shall be satisfied that any operating deficits,
         including all scheduled payments of principal and interest under the
         Note which will be incurred with respect to the Property as a result of
         the occurrence of any such fire or other casualty or taking, whichever
         the case may be, will be covered out of (1) the Net Proceeds, or (2)
         other funds of Borrower,

                                       11
<PAGE>
                  (vii) Lender shall be satisfied that, upon the completion of
         the Restoration, the net cash flow of the Property will be restored to
         a level sufficient to cover all carrying costs and operating expenses
         of the Property, including, without limitation, debt service on the
         Note and all required replacement reserves, reserves for tenant
         improvements and leasing commissions,

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

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

         (d) The Net Proceeds held by Lender until disbursed in accordance with
the provisions of this Section 3.7 shall constitute additional security for the
Obligations. The Net Proceeds (other than the Net Proceeds paid under the
Policy described in Subsection 3.3(a)(iv) which shall be applied by Lender
pursuant to and in accordance with the provisions of Subsection 3.3(a)(iv))
shall be disbursed by Lender to, or as directed by, Borrower, in an amount equal
to the costs actually incurred from time to time for work in place as part of
the Restoration less customary retainage from time to time during the course of
the Restoration, not more frequently then once per month, upon receipt of
evidence satisfactory to Lender that (A) all materials installed and work and
labor performed (except to the extent that they are to be paid for out of the
requested disbursement) in connection with the Restoration have been paid for
in full, and (B) there exist no notices of pendency, stop orders, mechanic's or
materialman's liens or notices of intention to file same, or any other liens or
encumbrances of any nature whatsoever on the Property arising out of the
Restoration which have not either been fully bonded and discharged of record or
in the alternative fully insured to the satisfaction of Lender by the title
company insuring the lien of this Security Instrument. Final payment shall be
made after submission to Lender of all licenses, permits, certificates of
occupancy and other required approvals of governmental authorization having
jurisdiction and Casualty Consultant's (as defined below) certification that
the Restoration has been fully completed.

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

                                       12
<PAGE>
         (f)      If at any time the Net Proceeds or the undisbursed balance
thereof shall not, in the reasonable opinion of Lender, be sufficient to pay in
full the balance of the costs which are estimated by the Casualty Consultant to
be incurred in connection with the completion of the Restoration, Borrower
shall deposit the deficiency (the "Net Proceeds Deficiency") with Lender before
any further disbursement of the Net Proceeds shall be made. The Net Proceeds
Deficiency deposited with Lender shall be held by Lender and shall be disbursed
for costs actually incurred in connection with the Restoration on the same
conditions applicable to the disbursement of the Net Proceeds, and until so
disbursed pursuant to this Section 3.7 shall constitute additional security
for the Obligations

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

         (h)      The excess, if any, of the Net Proceeds and the remaining
balance, if any, of the Net Proceeds Deficiency deposited with Lender after (i)
the Casualty Consultant certifies to Lender that the Restoration has been
completed in accordance with the provisions of the Section 3.7, and (ii) the
receipt by Lender of evidence satisfactory to Lender that all costs incurred in
connection with the Restoration have been paid in full and all required permits,
licenses, certificates of occupancy and other required approvals of governmental
authorities having jurisdiction have been issued, shall be remitted by Lender to
Borrower, provided no Event of Default shall have occurred and shall be
continuing under the Note, this Security Instrument or any of the Other Security
Documents

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

         SECTION 3.8       LEASES AND RENTS

         (a)      Borrower may enter into a proposed Lease (including the
renewal or extension of an existing Lease ("a Renewal Lease")) without the prior
written consent of Lender, provided such proposed Lease or Renewal Lease (i)
provides for rental rates and terms comparable to existing local market rates
and terms (taking into account the type and quality of the tenant) as of

                                       13
<PAGE>
the date such Lease is executed by Borrower (unless, in the case of a
Renewal Lease, the rent payable during such renewal, or a formula or
other method to compute such rent, is provided for in the original
Lease), (ii) is an arms-length transaction with a bona fide,
independent third party tenant, (iii) does not have a materially
adverse effect on the value of the Property taken as a whole, (iv) is
subject and subordinate to the Security Instrument and the lessee
thereunder agrees to attorn to Lender, and (v) is written on the
standard form of lease approved by Lender. All proposed Leases which
do not satisfy the requirements set forth in this Subsection 3.8(a)
shall be subject to the prior approval of Lender and its counsel, at
Borrower's expense. Borrower shall promptly deliver to Lender copies
of all Leases which are entered into pursuant to this Subsection
together with Borrower's certification that it has satisfied all of
the conditions of this Subsection.

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

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

         (d)  Notwithstanding anything contained herein to the contrary,
Borrower shall not, without the prior written consent of Lender, enter into,
renew, extend, amend, modify, waive any provisions of, terminate, reduce rents
under, accept a surrender of space under, or shorten the term of, any Major
Lease. The term "Major Lease" shall mean any Lease demising in the aggregate
more than the lesser of (i) 15,000 rentable square feet or (ii) fifteen percent
(15%) of

                                       14
<PAGE>

the total rentable square feet at the Property, or if the Property is
multi-family, any non-residential space at the Property

        SECTION 3.9 MAINTENANCE AND USE OF PROPERTY Borrower shall cause the
Property to be maintained in a good and safe condition and repair. The
Improvements and the Personal Property shall not be removed, demolished or
materially altered (except for normal replacement of the Personal Property)
without the consent of Lender. Borrower shall promptly repair, replace or
rebuild any part of the Property which may be destroyed by any casualty, or
become damaged, worn or dilapidated or which may be affected by any proceeding
of the character referred to in Section 3 6 hereof and shall complete and pay
for any structure at any time in the process of construction or repair on the
Land. Borrower shall not initiate, join in, acquiesce in, or consent to any
change in any private restrictive covenant, zoning law or other public or
private restriction, limiting or defining the uses which may be made of the
Property or any part thereof. If under applicable zoning provisions the use of
all or any portion of the Property is or shall become a nonconforming use,
Borrower will not cause or permit the nonconforming use to be discontinued or
the nonconforming Improvement to be abandoned without the express written
consent of Lender.

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

        SECTION 3.11 COMPLIANCE WITH LAWS

        (a)     Borrower shall promptly comply with all existing and future
federal, state and local laws, orders, ordinances, governmental rules and
regulations or court orders affecting Borrower, the Property, or the use
thereof, including, without limitation, Prescribed Laws (collectively,
"Applicable Laws") The term "Prescribed Laws" shall mean, collectively, (a) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA
PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, and relating to Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism,
(c) the International Emergency Economic Power Act, 50 U.S.C. Section 1701 et
seq and (d) all other legal requirements relating to money laundering or
terrorism

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

        c)      Notwithstanding any provisions set forth herein or in any
document regarding Lender's approval of alterations of the Property, Borrower
shall not alter the Property in any

                                       15
<PAGE>

manner which would materially increase Borrower's responsibilities for
compliance with Applicable Laws without the prior written approval of Lender
Lender's approval of the plans, specifications, or working drawings for
alterations of the Property shall create no responsibility or liability on
behalf of Lender for their completeness, design, sufficiency or their compliance
with Applicable Laws The foregoing shall apply to tenant improvements
constructed by Borrower or by any of its tenants Lender may condition any such
approval upon receipt of a certificate of compliance with Applicable Laws from
an independent architect, engineer, or other person acceptable to Lender

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

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

        SECTION 3.12 BOOKS AND RECORDS

        (a)     Borrower and any Guarantors (defined in Section 10 l(e)) and
Indemnitor(s) (defined in Section 13 4), if any, shall keep adequate books and
records of account in accordance with generally accepted accounting principles
("GAAP"), or in accordance with other methods of Borrower acceptable to Lender
in its sole discretion, consistently applied and furnish to Lender.

                (i)     monthly, or if the Loan (defined below) has been
        securitized or sold as a whole loan by Lender, quarterly and annual
        certified rent rolls signed and dated by Borrower, detailing the names
        of all tenants of the Improvements, the portion of Improvements occupied
        by each tenant, the base rent and any other charges payable under each
        Lease and the term of each Lease, including the expiration date, the
        extent to which any tenant is in default under any Lease, and any other
        information as is reasonably required by Lender, within twenty (20) days
        after the end of each calendar month, forty-five (45) days after the end
        of each fiscal quarter or seventy-five (75) days after the close of each
        fiscal year of Borrower, as applicable,

                (ii)    on a monthly basis, operating statements of the Property
        for the immediately preceding month (and for previous periods if
        required by Lender), or if the

                                       16
<PAGE>

        Loan has been securitized or sold as a whole loan by Lender, quarterly
        and annual operating statements of the Property, all of which shall be
        prepared and certified by Borrower in the form reasonably required by
        Lender, detailing the revenues received, the expenses incurred and the
        net operating income before and after debt service (principal and
        interest) and major capital improvements for each month and containing
        appropriate year to date information, within twenty (20) days after the
        end of each calendar month, forty-five (45) days after the end of each
        fiscal quarter or seventy-five (75) days after the close of each fiscal
        year of Borrower, as applicable,

                (iii)   an annual operating statement of the Property detailing
        the total revenues received, total expenses incurred, total cost of all
        capital improvements, total debt service and total cash flow, to be
        prepared and certified by Borrower in the form reasonably required by
        Lender, or if required by Lender, an audited annual operating statement
        prepared and certified by an independent certified public accountant
        acceptable to Lender, within seventy-five (75) days after the close of
        each fiscal year of Borrower,

                (iv)    quarterly and annual balance sheet and profit and loss
        statements of Borrower, any Guarantors and any Indemnitor(s) in the form
        reasonably required by Lender, prepared and certified by the respective
        Borrower, Guarantors and/or Indemnitor(s), or if required by Lender,
        audited financial statements prepared by an independent certified public
        accountant acceptable to Lender, within forty-five (45) days after the
        end of each fiscal quarter or seventy-five (75) days after the close of
        each fiscal year of Borrower, Guarantors and Indemnitor(s), as the case
        may be, and

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

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

                (i)     a property management report for the Property, showing
        the number of inquiries made and/or rental applications received from
        tenants or prospective tenants and deposits received from tenants and
        any other information requested by Lender, in reasonable detail and
        certified by Borrower (or an officer, general partner, member or
        principal of Borrower if Borrower is not an individual) under penalty of
        perjury to be true and complete, but no more frequently than quarterly,
        and

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

                                       17
<PAGE>

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

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

        (e)     Borrower acknowledges the importance to Lender of the timely
delivery of each of the items required by this Section 3 12 (each, a "Required
Financial Item" and collectively, the "Required Financial Items"). In the event
Borrower fails to deliver to Lender any of the Required Financial Items within
five (5) business days of receipt of notice from Lender that Borrower has failed
to deliver to Lender any of the Required Financial Items within the time frame
specified herein (each such event, a "Reporting Failure"), in addition to
constituting an Event of Default hereunder and without limiting Lender's other
rights and remedies with respect to the occurrence of such an Event of Default,
Borrower shall pay to Lender the sum of $1,000.00 per occurrence for each
Reporting Failure. It shall constitute a further Event of Default hereunder if
any such payment is not received by Lender within thirty (30) days of the date
on which such payment is due, and Lender shall be entitled to the exercise of
all of its rights and remedies provided hereunder

        (f)     In the event that three (3) Reporting Failures occur during any
twelve (12) month period during the term of the Loan, Borrower agrees to
establish a lockbox and lockbox account pursuant to Lender's requirements, each
in the name of Lender, and to execute Lender's standard form Cash Management
Agreement, together with any documentation ancillary thereto as required by
Lender, including, without limitation, a lockbox agreement with a bank
acceptable to Lender, signature cards and letters to tenants, credit card
companies and other account receivable counterparties directing them to pay all
rents, receivables and other sums directly to the lockbox account

        SECTION 3.13 PAYMENT FOR LABOR AND MATERIALS Borrower will promptly pay
when due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Property and never permit to exist in
respect of the Property or any part thereof any lien or security interest, even
though inferior to the liens and the security interests hereof, and in any event
never permit to be created or exist in respect of the Property or any part
thereof any other or additional lien or security interest other than the liens
or security interests hereof, except for the Permitted Exceptions (defined
below)

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

        SECTION 3.15 CHANGE OF NAME, IDENTITY OR STRUCTURE Except as may be
permitted under Article 8 hereof, Borrower will not change Borrower's name,
identity (including its trade name or names) or, if not an individual,
Borrower's corporate, partnership or other

                                       18
<PAGE>

structure without first (a) notifying the Lender of such change in writing at
least thirty (30) days prior to the effective date of such change, (b) taking
all action required by Lender for the purpose of perfecting or protecting the
lien and security interest of Lender and (c) in the case of a change in
Borrower's structure, without first obtaining the prior written consent of the
Lender Borrower shall promptly notify Lender in writing of any change in its
organizational identification number If Borrower does not now have an
organizational identification number and later obtains one, Borrower shall
promptly notify Lender in writing of such organizational identification number

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

        SECTION 3.17 MANAGEMENT The management of the Property shall be by
either: (a) Borrower or an entity affiliated with Borrower approved by Lender
for so long as Borrower or said affiliated entity is managing the Property in a
first class manner, or (b) a professional property management company approved
by Lender Such management by an affiliated entity or a professional property
management company shall be pursuant to a written agreement approved by Lender
In no event shall any manager be removed or replaced or the terms of any
management agreement modified or amended without the prior written consent of
Lender. Lender shall have the right to immediately terminate, or to direct
Borrower to immediately terminate, such management contract and to retain, or to
direct Borrower to retain, a new management agent approved by Lender (a)
following an Event of Default or a default under any management contract then in
effect, which default is not cured within any applicable grace or cure period,
or (b) in the event that the "Debt Service Coverage Ratio" (defined below) drops
below 1 15:1, "Debt Service Coverage Ratio" means the ratio of (a) Lender's
estimated net underwritable cash flow from the Property over a trailing twelve
(12) month period (as determined by Lender in its reasonable discretion and in
accordance with the requirements of any rating agency selected by Lender in its
sole discretion) adjusted, if necessary, to reflect the results of an audit of
the Property cash flows, over (b) the sum of twelve (12) regularly scheduled
principal and interest payments All Rents generated by or derived from the
Property shall first be utilized solely for current expenses directly
attributable to the ownership and operation of the Property, including, without
limitation, current expenses relating to Borrower's liabilities and obligations
with respect to the Note, this Security Instrument and the Other Security
Documents, and none of the Rents generated by or derived from the Property shall
be diverted by Borrower and utilized for any other purpose unless all such
current expenses attributable to the ownership and operation of the Property
have been fully paid and satisfied

        SECTION 3.18 ERISA Borrower shall not engage in any transaction which
would cause any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under the Note, this Security Instrument
or the Other Security Documents) to be a non-exempt (under a statutory or
administrative class exemption) prohibited transaction under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") Borrower shall
deliver to Lender such certifications or other evidence from time to time
throughout the term of the loan, as requested by Lender in its sole discretion,
that (A) Borrower is not an "employee benefit plan" as defined in Section 3(3)
of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within
the meaning of Section 3(32) of ERISA, (B) Borrower is not subject

                                       19
<PAGE>

to any state statute regulating investments of, or fiduciary obligations with
respect to, governmental plans; and (C) one or more of the following
circumstances is true.

                (i)     Equity interests in Borrower are publicly offered
        securities, within the meaning of 29 CFR Section 2510 3-101(b)(2),

                (ii)    Less than twenty-five percent (25%) of each outstanding
        class of equity interests in Borrower is held by "benefit plan
        investors" within the meaning of 29 CFR Section 2510 3-101(f)(2), or

                (iii)   Borrower qualifies as an "operating company" or a "real
        estate operating company" within the meaning of 29 CFR Section 2510
        3-101(c) or (e).

                          ARTICLE 4 - SPECIAL COVENANTS

Borrower covenants and agrees that:

        SECTION 4.1 PROPERTY USE The Property shall be used as a commercial
complex, and for no other use, without the prior written consent of Lender

        SECTION 4.2 SINGLE PURPOSE ENTITY It has not since the date of its
formation and shall not:

        (a)     fail to be organized solely for the purpose of (i) acquiring,
developing, owning, managing or operating the Property, (ii) entering into this
Security Instrument and the documents related hereto, and (iii) engaging in any
activity that is incidental, necessary or appropriate to accomplish the
foregoing;

        (b)     engage in any business or activity other than the ownership,
operation and maintenance of the Property, and activities incidental thereto;

        (c)     acquire or own any material assets other than (i) the Property,
and (ii) such incidental Personal Property as may be necessary for the operation
of the Property;

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

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

        (f)     own, form or acquire any subsidiary or make any investment in,
any person or entity;

                                       20
<PAGE>

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

        (h)     incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Debt, except for trade
payables in the ordinary course of its business of owning and operating the
Property, provided that such debt is not evidenced by a note and is paid when
due;

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

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

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

        (1)     seek the dissolution or winding up in whole, or in part, of
Borrower,

        (m)     fail to correct any known misunderstandings regarding the
separate identity of Borrower from any member, general partner, principal or
affiliate thereof or any other person,

        (n)     guaranty or become obligated for the debts of any other person
or entity or hold out its credit as being able to satisfy the debts of another
person or entity,

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

        (p)     fail to file its own tax returns, if required, nor file a
consolidated federal income tax return with any other entity except that of its
sole member, unless required by law,

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

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

                                       21
<PAGE>

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

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

        (u)     have its assets listed on the financial statement of any other
entity except that of its sole member;

        (v)     fail to observe all applicable organizational formalities;

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

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

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

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

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

        (bb)    acquire the obligations or securities of any member, general
partner, principal or affiliate of Borrower, Guarantor or Indemnitor, or any
member, general partner, principal or affiliate thereof;

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

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

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

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

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

                                       22
<PAGE>

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

                   ARTICLE 5 - REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that:

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

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

        (b)     Borrower's exact legal name is correctly set forth in the first
paragraph of this Security Instrument Borrower is an organization of the type
specified in the first paragraph of this Security Instrument Borrower is
incorporated in or organized under the laws of the state specified in the first
paragraph of this Security Instrument. Borrower's principal place of business
and chief executive office, and the place where Borrower keeps its books and
records, including recorded data of any kind or nature, regardless of the medium
or recording, including software, writings, plans, specifications and
schematics, has been for the preceding four (4) months (or, if less than four
(4) months, the entire period of the existence of Borrower) and will continue to
be the address of Borrower set forth in the first paragraph of this Security
Instrument (unless Borrower notifies Lender in writing at least thirty (30) days
prior to the date of such change) Borrower's organizational identification
number, if any, assigned by the state of incorporation or organization is:
3909664.

        SECTION 5.3 VALIDITY OF DOCUMENTS (a) The execution, delivery and
performance of the Note, this Security Instrument and the Other Security
Documents and the borrowing evidenced by the Note (i) are within the power and
authority of Borrower; (ii) have been authorized by all requisite organizational
action, (iii) have received all necessary approvals

                                       23
<PAGE>

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

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

        Section 5.5 STATUS OF PROPERTY

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

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

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

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

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

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

                                       24

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

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

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

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

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

         SECTION 5.6 NO FOREIGN PERSON Borrower is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as
amended and the related Treasury Department regulations

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

         SECTION 5.8 LEASES (a) Except as disclosed in the rent roll for the
Property delivered to and approved by Lender in writing prior to the date
hereof; (i) Borrower is the sole owner of the entire lessor's interest in the
Leases; (ii) the Leases are valid and enforceable and in full force and effect,
(iii); all of the Leases are arms-length agreements with bona fide, independent
third parties; (iv) no party under any Lease is in default; (v) all Rents due
have been paid in full; (vi) the terms of all alterations, modifications and
amendments to the Leases are reflected in the certified occupancy statement
delivered to and approved by Lender; (vii) none of the Rents reserved in the
Leases have been assigned or otherwise pledged or hypothecated; (viii) none of
the Rents have been collected for more than one (1) month in advance (except a
security deposit shall not be deemed rent collected in advance); (ix) the
premises demised under the Leases have been completed and the tenants under the
Leases have accepted the same and have taken possession of the same on a
rent-paying basis; (x) there exist no offsets or defenses to the payment of any
portion of the Rents and Borrower has no monetary obligation to any tenant under
any Lease; (xi) Borrower has received no notice from any tenant challenging the
validity or enforceability of any Lease, (xii) there are no agreements with the
tenants under the Leases other than expressly set forth in each Lease, (xiii)
the Leases are valid and enforceable against Borrower and the tenants set forth
therein, (xiv) no Lease contains an option to purchase, right of first refusal
to purchase or any other similar provision, (xv) no person or entity has any
possessory interest in, or right to occupy, the Property except under and
pursuant to a Lease;

                                       25
<PAGE>

(xvi) each Lease is subordinate to this Security Instrument, either pursuant to
its terms or a recordable subordination agreement; (xvii) no Lease has the
benefit of a non-disturbance agreement that would be considered unacceptable to
prudent institutional lenders, (xviii) all security deposits relating to the
Leases reflected on the certified rent roll delivered to Lender have been
collected by Borrower; and (xix) no brokerage commissions or finders fees are
due and payable regarding any Lease

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

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

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

         SECTION 5.10 BUSINESS PURPOSES The loan evidenced by the Note secured
by the Security Instrument and the Other Security Documents (the "Loan") is
solely for the business purpose of Borrower, and is not For personal, family,
household, or agricultural purposes

         SECTION 5.11 TAXES Borrower, any Guarantor and any Indemnitor have
filed all federal, state, county, municipal, and city income and other tax
returns required to have been filed by them and have paid all taxes and related
liabilities which have become due pursuant to such returns or pursuant to any
assessments received by them. Neither Borrower, any Guarantor nor any Indemnitor
knows of any basis for any additional assessment in respect of any such taxes
and related liabilities for prior years Borrower confirms that its federal tax
identification number is:_______________________

         SECTION 5.12 MAILING ADDRESS. Borrower's mailing address, as set forth
in the opening paragraph hereof or as changed in accordance with the provisions
hereof, is true and correct

                                       26
<PAGE>

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

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

         Section 5.15 THIRD PARTY REPRESENTATIONS Each of the representations
and the warranties made by each Guarantor and Indemnitor herein or in any Other
Security Document(s) is true and correct in ail material respects

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

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

         Section 5.18 NO PLAN ASSETS As of the date hereof and throughout the
term of the loan (a) Borrower is not and will not be an "employee benefit plan,"
as defined in Section 3(3) of ERISA, subject to Title 1 of ERISA, (b) none of
the assets of Borrower constitutes or will constitute "plan assets" of one or
more such plans within the meaning of 29 CFR Section 2510.3-101, (c) Borrower is
not and will not be a "governmental plan" within the meaning of Section 3(32) of
ERISA, and (d) transactions by or with Borrower are not and will not be subject
to any state statute regulating investments of, or fiduciary obligations with
respect to, governmental plans

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

                                       27
<PAGE>

                      ARTICLE 6 - OBLIGATIONS AND RELIANCES

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

         SECTION 6.2 NO RELIANCE ON LENDER The members, general partners,
principals and (if Borrower is a trust) beneficial owners of Borrower are
experienced in the ownership and operation of properties similar to the
Property, and Borrower and Lender are relying solely upon such expertise and
business plan in connection with the ownership and operation of the Property
Borrower is not relying on Lender's expertise, business acumen or advice in
connection with the Property

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

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

                         ARTICLE 7 - FURTHER ASSURANCES

         SECTION 7.1 RECORDING OF SECURITY INSTRUMENT, ETC. Borrower forthwith
upon the execution and delivery of this Security Instrument and thereafter, from
time to time, will cause this Security Instrument and any of the Other Security
Documents creating a lien or security interest or evidencing the lien hereof
upon the Property and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security interest hereof upon, and the interest of Lender
in, the Property Borrower will pay all taxes, filing, registration or recording
fees, and all expenses incident to the

                                       28
<PAGE>

preparation, execution, acknowledgment and/or recording of the Note, this
Security Instrument, the Other Security Documents, any note or deed of trust or
mortgage supplemental hereto, any security instrument with respect to the
Property and any instrument of further assurance, and any modification or
amendment of the foregoing documents, and all federal, state, county and
municipal taxes, duties, imposts, assessments and charges arising out of or in
connection with the execution and delivery of this Security Instrument, any deed
of trust or mortgage supplemental hereto, any security instrument with respect
to the Property or any instrument of further assurance, and any modification or
amendment of the foregoing documents, except where prohibited by law so to do

         SECTION 7.2 FURTHER ACTS. ETC, Borrower will, at the cost of Borrower,
and without expense to Lender, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, deeds of trust, mortgages,
assignments, notices of assignments, transfers and assurances as Lender shall,
from time to time, require, for the better assuring, conveying, assigning,
transferring, and confirming unto Lender and Trustee the Property and rights
hereby deeded, mortgaged, granted, bargained, sold, conveyed, confirmed,
pledged, assigned, warranted and transferred or intended now or hereafter so to
be, or which Borrower may be or may hereafter become bound to convey or assign
to Lender, or for carrying out the intention or facilitating the performance of
the terms of this Security Instrument or for filing, registering or recording
this Security Instrument, or for complying with all Applicable Laws. Borrower,
on demand, will execute and deliver and hereby authorizes Lender, following 10
days' notice to Borrower, to execute in the name of Borrower or without the
signature of Borrower to the extent Lender may lawfully do so, (i) one or more
financing statements (including, without limitation, initial financing
statements, amendments thereto and continuation statements) with or without the
signature of Borrower as authorized by applicable law, chattel mortgages or
other instruments, to evidence more effectively the security interest of Lender
in the Property and (ii) any amendments or modifications to the Note, this
Security Instrument and/or the Other Security Documents in order to correct any
scrivener's errors contained herein or therein, including, without limitation,
any errors with respect to the spelling of Borrower's name, the address of the
Property, the legal description of the Property and/or the date of execution of
the Note, this Security Instrument and/or the Other Security Documents. Borrower
also ratifies its authorization for Lender to have filed any initial financing
statements, amendments thereto and continuation statements, if filed prior to
the date of this Security Instrument. Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of exercising and
perfecting any and all rights and remedies available to Lender pursuant to this
Section 7 2. To the extent not prohibited by applicable law, Borrower hereby
ratifies all acts Lender has lawfully done in the past or shall lawfully do or
cause to be done in the future by virtue of such power of attorney.

       SECTION 7.3 CHANGES IN TAX. DEBT CREDIT AND DOCUMENTARY STAMP LAWS.

         (a) If any law is enacted or adopted or amended after the date of this
Security Instrument which deducts the Debt from the value of the Property for
the purpose of taxation or which imposes a tax, either directly or indirectly,
on the Debt or Lender's interest in the Property, Borrower will pay the tax,
with interest and penalties thereon, if any. If Lender is advised by counsel
chosen by it that the payment of tax by Borrower would be unlawful or

                                       29
<PAGE>

taxable to Lender or unenforceable or provide the basis for a defense of usury,
then Lender shall have the option, exercisable by written notice of not less
than ninety (90) days, to declare the Debt immediately due and payable In the
event Lender so elects to declare the Debt immediately due and payable, no
Prepayment Consideration shall be due.

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

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

         Section 7.4 ESTOPPEL CERTIFICATES

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

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

                                       30
<PAGE>

lessee claims no defense or offset against the full and timely performance of
its obligations under the Lease

         (c) Upon any transfer or proposed transfer contemplated by Section 18 1
hereof, at Lender's request, Borrower, any Guarantors and any Indemnitor(s)
shall provide an estoppel certificate to the Investor (defined in Section 18 1)
or any prospective Investor in such form, substance and detail as Lender, such
Investor or prospective Investor may require

         SECTION 7.5 FLOOD INSURANCE After Lender's request, Borrower shall
deliver evidence satisfactory to Lender that no portion of the Improvements is
situated in a federally designated "special flood hazard area" or if it is, that
Borrower has obtained insurance meeting the requirements of Section 3 3(a)(vi).

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

                       ARTICLE 8 - DUE ON SALE/ENCUMBRANCE

         SECTION 8.1 NO SALE/ENCUMBRANCE Borrower agrees that Borrower shall
not, without the prior written consent of Lender, sell, convey, mortgage, grant,
bargain, encumber, pledge, assign, or otherwise transfer the Property or any
part thereof or any interest therein or any direct or indirect interest in
Borrower or permit the Property or any part thereof or any interest therein or
any direct or indirect interest in Borrower to be sold, conveyed, mortgaged,
granted, bargained, encumbered, pledged, assigned, or otherwise transferred,
other than pursuant to Leases of space in the Improvements to tenants in
accordance with the provisions of Section 3 8

         SECTION 8.2 SALE/ENCUMBRANCE DEFINED A sale, conveyance, mortgage,
grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning
of this Article 8 shall be deemed to include, but not be limited to, (a) an
installment sales agreement wherein Borrower agrees to sell the Property or any
part thereof for a price to be paid in installments; (b) an agreement by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents, (c) if Borrower, any Guarantor, any
Indemnitor, or any general or limited partner or member of Borrower, any
Guarantor or any Indemnitor is a corporation, any merger, consolidation or
voluntary or involuntary sale, conveyance, transfer or pledge of such
corporation's stock (or the stock of any corporation directly or indirectly
controlling such corporation by operation of law or otherwise) or the creation
or issuance of new stock in one or a series of transactions which results in a
change of control of such entity, (d) if Borrower, any Guarantor or any
Indemnitor or any general or limited partner or member of Borrower, any
Guarantor or any Indemnitor is a limited or general partnership or joint
venture, the change, removal or resignation of a general

                                       31
<PAGE>

partner or the transfer or pledge of the partnership interest of any general
partner or any profits or proceeds relating to such partnership interest or the
voluntary or involuntary sale, conveyance, transfer or pledge of limited
partnership interests (or the limited partnership interests of any limited
partnership directly or indirectly controlling such limited partnership by
operation of law or otherwise), and (e) if Borrower, any Guarantor, any
Indemnitor or any general or limited partner or member of Borrower, any
Guarantor or any Indemnitor is a limited liability company, the change, removal
or resignation of a managing member (or if no managing member, any member or
non-member manager) or the transfer of the membership interest of a managing
member (or if no managing member, any member) or any profits or proceeds
relating to such membership interest or the voluntary or involuntary sale,
conveyance, transfer or pledge of membership interests (or the membership
interests of any limited liability company directly or indirectly controlling
such limited liability company by operation of law or otherwise) Notwithstanding
anything to the contrary in this Section 8 2, so long as Pyramid Breweries, Inc,
a Washington corporation (the "Sole Member"), remains the sole member of
Borrower, and so long as shares of the Sole Member are publicly traded, a
transfer of public shares of the Sole Member shall not be deemed to be a sale,
conveyance or transfer within the meaning of this Article 8

         SECTION 8.3 LENDER'S RIGHTS Lender reserves the right to condition the
consent required hereunder upon a modification of the terms hereof and on
assumption of the Note, this Security Instrument and the Other Security
Documents as so modified by the proposed transferee, payment of a transfer fee
equal to one percent (1%) of the then outstanding principal balance of the Note,
and all of Lender's expenses incurred in connection with such transfer, the
approval by a Rating Agency of the proposed transferee, the proposed
transferee's continued compliance with the covenants set forth in this Security
Instrument, including, without limitation, the covenants in Section 4 2 hereof,
or such other conditions as Lender shall determine in its sole discretion to be
in the interest of Lender All of Lender's expenses incurred shall be payable by
Borrower whether or not Lender consents to the transfer. Lender shall not be
required to demonstrate any actual impairment of its security or any increased
risk of default hereunder in order to declare the Debt immediately due and
payable upon Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance,
pledge, assignment, or transfer of the Property without Lender's consent This
provision shall apply to every sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer of the Property regardless of
whether voluntary or not, or whether or not Lender has consented to any previous
sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or
transfer of the Property

         SECTION 8.4 PERMITTED TWO TRANSFERS Notwithstanding the foregoing
provisions of this Section, Lender shall not unreasonably withhold consent to
two (2) sales, conveyances or transfers of the Property in its entirety
(hereinafter, a "Sale") after the first anniversary of the first day of the
first calendar month after the date hereof (or the date hereof if dated the
first day of a calendar month) and with respect to any such Sale, Lender shall
not require a modification of the material economic terms hereof (other than a
corresponding increase in Borrower's deposits in the Escrow Fund with respect to
Taxes in the event such Sale results in an increase in the real property tax
assessment by the applicable taxing authority), to any person or entity provided
that each of the following terms and conditions are satisfied:

                                       32
<PAGE>

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

                  (ii) Borrower gives Lender written notice of the terms of such
         prospective Sale not less than thirty (30) days before the date on
         which such Sale is scheduled to close and, concurrently therewith,
         gives Lender all such information concerning the proposed transferee of
         the Property (hereinafter, "Buyer") as Lender would reasonably require
         in evaluating an initial extension of credit to a borrower and pays to
         Lender a non-refundable application fee in the amount of $2,500 00
         Lender shall have the right to approve or disapprove the proposed
         Buyer, such approval not to be unreasonably withheld In determining
         whether to give or withhold its approval of the proposed Buyer, Lender
         shall consider the Buyer's experience and track record in owning and
         operating facilities similar to the Property, the Buyer's financial
         strength, the Buyer's general business standing and the Buyer's
         relationships and experience with contractors, vendors, tenants,
         lenders and other business entities, provided, however, that,
         notwithstanding Lender's agreement to consider the foregoing factors in
         determining whether to give or withhold such approval, such approval
         shall be given or withheld based on what Lender determines to be
         commercially reasonable and, if given, may be given subject to such
         conditions as Lender may deem reasonably appropriate;

                  (iii) Borrower pays Lender, concurrently with the closing of
         such Sale, a non-refundable assumption fee in an amount equal to all
         out-of-pocket costs and expenses, including, without limitation,
         reasonable attorneys' fees, incurred by Lender in connection with the
         Sale plus an amount equal to one percent (1.0%) of the then outstanding
         principal balance of the Note Borrower also pays, concurrently with the
         closing of such Sale, all costs and expenses of all third parties and
         Rating Agencies in connection with the Sale;

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

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

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

                  (vii) Buyer shall furnish, if the Buyer is a corporation,
         partnership or other entity, all appropriate papers evidencing the
         Buyer's capacity and good standing, and the

                                       33
<PAGE>

         qualification of the signers to execute the assumption of the
         indebtedness secured hereby, which papers shall include certified
         copies of all documents relating to the organization and formation of
         the Buyer and of the entities, if any, which are partners or members of
         the Buyer The Buyer and such constituent partners, members or
         shareholders of Buyer (as the case may be), as Lender shall require,
         shall be single purpose, "bankruptcy remote" entities which satisfy the
         requirements of Article 4 hereof and the requirements of the Rating
         Agencies, and whose formation documents shall be approved by counsel to
         Lender

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

                  (ix) Buyer shall furnish an opinion of counsel satisfactory to
         Lender and its counsel (A) that the Buyer's formation documents provide
         for the matters described in subparagraph (vii) above, (B) that the
         assumption of the indebtedness evidenced hereby has been duly
         authorized, executed and delivered, and that the Note, this Security
         Instrument, the assumption agreement and the Other Security Documents
         are valid, binding and enforceable against the Buyer in accordance with
         their terms, (C) that the Buyer and any entity which is a controlling
         stockholder, member or general partner of Buyer, have been duly
         organized, and are in existence and good standing, and (D) with respect
         to such other matters as Lender may reasonably request;

                  (x) Lender shall have received confirmation in writing from
         the Rating Agencies that rate the Securities or Participations (as
         defined in Section 18 1) to the effect that the Sale will not result in
         a qualification, downgrade or withdrawal of any rating initially
         assigned or then currently assigned or to be assigned to the Securities
         or Participations, as applicable, and

                  (xi) Borrower's obligations under the contract of sale
         pursuant to which the Sale is proposed to occur shall expressly be
         subject to the satisfaction of the terms and conditions of this
         Section 8 4

Upon the closing of the first approved Sale and assumption pursuant to this
Section 8 4, the original Borrower and the original Guarantors and Indemnitors
shall not be responsible for any covenants and obligations under the Note, this
Security Instrument and the Other Security Documents which arise from events
which occur after the date of such Sale, provided that the Buyer and its
principals shall be responsible for all such covenants and obligations

                             ARTICLE 9 - PREPAYMENT

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

                                       34
<PAGE>

                              ARTICLE 10 - DEFAULT

         SECTION 10.1 EVENTS OF DEFAULT The occurrence of any one or more of the
following events shall constitute an "Event of Default":

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

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

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

         (d) if Borrower violates or does not comply with any of the provisions
of Section 3 12, Section 4 2 or Article 8,

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

         (f) if (i) Borrower or any managing member or general partner of
Borrower, or any Guarantor or Indemnitor shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship
or relief of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the
Borrower or any managing member or general partner of Borrower, or any Guarantor
or Indemnitor shall make a general assignment for the benefit of its creditors,
or (ii) there shall be commenced against Borrower or any managing member or
general partner of Borrower, or any Guarantor or Indemnitor any case, proceeding
or other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of sixty (60) days;
or (iii) there shall be commenced against the Borrower or any managing member or
general partner of Borrower, or any Guarantor or Indemnitor any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of any order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within sixty (60)
days from the entry thereof; or (iv) the Borrower or any managing member or
general partner of Borrower, or

                                       35
<PAGE>

any Guarantor or Indemnitor shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any managing
member or general partner of Borrower, or any Guarantor or Indemnitor shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due,

         (g) if Borrower shall be in default beyond applicable notice and grace
periods under any other mortgage, deed of trust, deed to secure debt or other
security agreement covering any part of the Property whether it be superior or
junior in lien to this Security Instrument,

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

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

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

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

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

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

                        ARTICLE 11 - RIGHTS AND REMEDIES

         SECTION 11.1 REMEDIES Upon the occurrence of any Event of Default,
Borrower agrees that Lender may or acting by or through Trustee may take such
action, without notice or demand, as it deems advisable to protect and enforce
its rights against Borrower and in and to the Property, including, but not
limited to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Lender or Trustee may determine, in

                                       36
<PAGE>

their sole discretion, without impairing or otherwise affecting the other rights
and remedies of Lender or Trustee:

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

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

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

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

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

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

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

         (h) subject to any applicable law, the license granted to Borrower
under Section 1 2 shall automatically be revoked and Lender may enter into or
upon the Property, either personally or by its agents, nominees or attorneys and
dispossess Borrower and its agents and servants therefrom, without liability for
trespass, damages or otherwise and exclude Borrower and its agents or servants
wholly therefrom, and take possession of all books, records and accounts
relating thereto and Borrower agrees to surrender possession of the Property and
of such books, records and accounts to Lender upon demand, and thereupon Lender
may (i) use, operate, manage, control, insure, maintain, repair, restore and
otherwise deal with all and every part of the Property and conduct the business
thereat, (ii) complete any construction on the Property in such manner and form
as Lender deems advisable, (iii) make alterations, additions, renewals,
replacements and improvements to or on the Property; (iv) exercise all rights
and powers of Borrower with respect to the Property, whether in the name of
Borrower or otherwise, including, without limitation, the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect
and receive all Rents of the Property and every part thereof; (v)

                                       37
<PAGE>

require Borrower to pay monthly in advance to Lender, or any receiver appointed
to collect the Rents, the fair and reasonable rental value for the use and
occupation of such part of the Property as may be occupied by Borrower, (vi)
require Borrower to vacate and surrender possession of the Property to Lender or
to such receiver and, in default thereof, Borrower may be evicted by summary
proceedings or otherwise, and (vii) apply the receipts from the Property to the
payment of the Debt, in such order, priority and proportions as Lender shall
deem appropriate in its sole discretion after deducting therefrom all expenses
(including reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges, insurance
and other expenses in connection with the Property, as well as just and
reasonable compensation for the services of Lender, its counsel, agents and
employees;

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

         (j) apply any sums then deposited in the Escrow Fund and any other sums
held in escrow or otherwise by Lender in accordance with the terms of this
Security Instrument or any Other Security Document to the payment of the
following items in any order in its sole discretion: (i) Taxes and Other
Charges; (ii) Insurance Premiums; (iii) interest on the unpaid principal balance
of the Note; (iv) amortization of the unpaid principal balance of the Note, (v)
all other sums payable pursuant to the Note, this Security Instrument and the
Other Security Documents, including without limitation advances made by Lender
pursuant to the terms of this Security Instrument,

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

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

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

In the event of a sale, by foreclosure, power of sale, or otherwise, of less
than all of the Property, this Security Instrument shall continue as a lien and
security interest on the remaining portion of the Property unimpaired and
without loss of priority. Notwithstanding the provisions of this Section 11 1 to
the contrary, if any Event of Default as described in clause (i) or (ii) of

                                       38
<PAGE>

Subsection 10.1(f) shall occur, the entire unpaid Debt shall be automatically
due and payable, without any further notice, demand or other action by Lender

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

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

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

         SECTION 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender shall have
the right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due, and without prejudice to the right
of Lender or Trustee thereafter to bring an action of foreclosure, or any other
action, for a default or defaults by Borrower existing at the time such earlier
action was commenced

         SECTION 11.6 EXAMINATION OF BOOKS AND RECORDS. Lender, its agents,
accountants and attorneys shall have the right, upon prior written notice to
Borrower if no Event of Default exists, to examine and audit, during reasonable
business hours, the records, books, management and other papers of Borrower and
its affiliates or of any Guarantor or Indemnitor which pertain to their
financial condition or the income, expenses and operation of the Property, at
the Property or at any office regularly maintained by Borrower or its affiliates
or any

                                       39
<PAGE>

Guarantor or Indemnitor where the books and records are located. Lender and its
agents shall have the right to make copies and extracts from the foregoing
records and other papers.

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

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

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

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

         SECTION 11.9 VIOLATION OF LAWS If the Property is not in compliance
with Applicable Laws, Lender may impose additional requirements upon Borrower in
connection herewith including, without limitation, monetary reserves or
financial equivalents

                                       40
<PAGE>

         SECTION 11.10 RIGHT OF ENTRY. Lender and its agents shall have the
right to enter and inspect the Property at all reasonable times.

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

                       ARTICLE 12 - ENVIRONMENTAL MATTERS

         SECTION 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants, based upon an environmental site assessment of the
Property and information that Borrower knows or should reasonably have known,
that, (a) there are no Hazardous Materials (defined below) or underground
storage tanks in, on, or under the Property, except those that are both (i) in
compliance with Environmental Laws (defined below) and with permits issued
pursuant thereto (if such permits are required), if any, and (ii) either (A) in
amounts not in excess of that necessary to operate the Property or (B) fully
disclosed to and approved by Lender in writing pursuant to the written reports
resulting from the environmental site assessments of the Property delivered to
Lender (the "Environmental Report"); (b) there are no past, present or
threatened Releases (defined below) of Hazardous Materials in violation of any
Environmental Law and which would require remediation by a governmental
authority in, on, under or from the Property except as described in the
Environmental Report; (c) there is no threat of any Release of Hazardous
Materials migrating to the Property except as described in the Environmental
Report; (d) there is no past or present non-compliance with Environmental Laws,
or with permits issued pursuant thereto, in connection with the Property except
as described in the Environmental Report; (e) Borrower does not know of, and has
not received, any written or oral notice or other communication from any person
or entity (including but not limited to a governmental entity) relating to
Hazardous Materials in, on, under or from the Property; (f) Borrower has
truthfully and fully provided to Lender, in writing, any and all information
relating to environmental conditions in, on, under or from the Property known to
Borrower or contained in Borrower's files and records, including but not limited
to any reports relating to Hazardous Materials in, on, under or migrating to or
from the Property and/or to the environmental condition of the Property, (g) the
Property currently displays no evidence of water infiltration or water damage;
(h) there are no prior or current complaints by tenants at the Property
regarding water infiltration or water damage or leaks or odors related thereto,
and (i) the Property currently displays no conspicuous evidence of the growth of
Microbial Matter. "Environmental Law" means any present and future federal,
state and local laws, statutes, ordinances, rules, regulations, standards,
policies and other government directives or requirements, as well as common law,
including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act and the Resource Conservation and Recovery Act,
that apply to Borrower or the Property and relate to Hazardous Materials and/or
Microbial Matter "Hazardous Materials" shall mean petroleum and petroleum
products and compounds containing

                                       41

<PAGE>

them, including gasoline, diesel fuel and oil; explosives, flammable materials,
radioactive materials, polychlorinated biphenyls ("PCBs") and compounds
containing them, lead and lead-based paint, asbestos or asbestos-containing
materials in any form that is or could become friable, underground or
above-ground storage tanks, whether empty or containing any substance, any
substance the presence of which on the Property is prohibited by any federal,
state or local authority, any substance that requires special handling, and any
other material or substance now or in the future defined as a "hazardous
substance," "hazardous material", hazardous waste", toxic substance", "toxic
pollutant", "contaminant", or pollutant" within the meaning of any Environmental
Law. "Release" of any Hazardous Materials includes but is not limited to any
release, deposit, discharge, emission, leaking, spilling, seeping, migrating,
injecting, pumping, pouring, emptying, escaping, dumping, disposing or other
movement of Hazardous Materials. "Microbial Matter" shall mean fungi or
bacterial matter which reproduces through the release of spores or the splitting
of cells, including, but not limited to, mold, mildew and viruses, whether or
not such Microbial Matter is living.

         SECTION 12.2 ENVIRONMENTAL COVENANTS. Borrower covenants and agrees
that so long as Borrower owns, manages, is in possession of, or otherwise
controls the operation of the Property; (a) all uses and operations on or of the
Property, whether by Borrower or any other person or entity, shall be in
compliance with all Environmental Laws and permits issued pursuant thereto; (b)
there shall be no Releases of Hazardous Materials in, on, under or from the
Property; (c) there shall be no Hazardous Materials in, on, or under the
Property, except those that are both (i) in compliance with all Environmental
Laws and with permits issued pursuant thereto, if and to the extent required,
and (ii) (A) in amounts not in excess of that necessary to operate the Property
or (B) fully disclosed to and approved by Lender in writing; (d) Borrower shall
keep the Property free and clear of all liens and other encumbrances imposed
pursuant to any Environmental Law, whether due to any act or omission of
Borrower or any other person or entity (the "Environmental Liens"); (e) Borrower
shall, at its sole cost and expense, fully and expeditiously cooperate in all
activities pursuant to Section 12.3 below, including but not limited to
providing all relevant information and making knowledgeable persons available
for interviews; (f) Borrower shall, at its sole cost and expense, perform any
environmental site assessment or other investigation of environmental conditions
in connection with the Property, pursuant to any reasonable written request of
Lender, upon Lender's reasonable belief that the Property is not in full
compliance with all Environmental Laws, and share with Lender the reports and
other results thereof, and Lender and other Indemnified Parties shall be
entitled to rely on such reports and other results thereof; (g) Borrower shall,
at its sole cost and expense, comply with all reasonable written requests of
Lender to (i) reasonably effectuate remediation of any Hazardous Materials in,
on, under or from the Property; and (ii) comply with any Environmental Law; (h)
Borrower shall not allow any tenant or other user of the Property to violate any
Environmental Law, (i) Borrower shall immediately notify Lender in writing after
it has become aware of (A) any presence or Release or threatened Releases of
Hazardous Materials in, on, under, from or migrating towards the Property; (B)
any non-compliance with any Environmental Laws related in any way to the
Property; (C) any actual or potential Environmental Lien, (D) any required or
proposed remediation of environmental conditions relating to the Property, and
(E) any written or oral notice or other communication of which Borrower becomes
aware from any source whatsoever (including but not limited to a governmental
entity) relating in any way to Hazardous Materials; (j) Borrower shall undertake
any course of action recommended by the Environmental Protection Agency to
prevent the

                                       42

<PAGE>

growth of Microbial Matter; and (k) Borrower shall comply with any and all
local, state or federal laws, legislation, guidelines or statutes at any time in
effect with respect to Microbial Matter Any failure of Borrower to perform its
obligations pursuant to this Section 12.2 shall constitute bad faith waste with
respect to the Property.

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

         Section 12.4 OPERATIONS AND MAINTENANCE PROGRAMS. Where recommended by
the Environmental Report or as a result of any other environmental assessment or
audit of the Property, Borrower shall establish and comply with an operations
and maintenance program with respect to the Property, in form and substance
reasonably acceptable to Lender, prepared by an environmental consultant
reasonably acceptable to Lender, which program shall address any asbestos
containing material or lead based paint that may now or in the future be
detected at or on the Property. Without limiting the generality of the preceding
sentence, Lender may require (a) periodic notices or reports to Lender in form,
substance and at such intervals as Lender may specify, (b) an amendment to such
operations and maintenance program to address changing circumstances, laws or
other matters, (c) at Borrower's sole expense, supplemental examination of the
Property by consultants specified by Lender; (d) access to the Property by
Lender, its agents or servicer, to review and assess the environmental condition
of the Property and Borrower's compliance with any operations and maintenance
program, and (e) variation of the operations and maintenance program in response
to the reports provided by any such consultants.

                          ARTICLE 13 - INDEMNIFICATIONS

         SECTION 13.1 GENERAL INDEMNIFICATION. Borrower shall, at its sole cost
and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties (defined below) from and against any and all Losses (defined
below) imposed upon or incurred by or asserted against any Indemnified Parties
and directly or indirectly arising out of or in any way relating to any one or
more of the following; (a) any accident, injury to or death of persons or loss
of or damage to property occurring in, on or about the Property or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (b) any use, nonuse or condition in, on or about
the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (c) performance of any
labor or services or the furnishing of any materials or other property in
respect of the Property or any part thereof; (d) any failure of the Property to
be in compliance with any Applicable Laws, (e) any and all claims and demands
whatsoever which may be asserted against Lender by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants, or agreements contained in any Lease; or (f) the payment of
any

                                       43

<PAGE>

commission, charge or brokerage fee to anyone which may be payable in connection
with the funding of the Loan evidenced by the Note and secured by this Security
Instrument. Any amounts payable to Lender by reason of the application of this
Section 1.3.1 shall become immediately due and payable and shall bear interest
at the Default Rate from the date loss or damage is sustained by Lender until
paid.

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

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

         SECTION 13.3 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND
EXPENSES. Upon written request by any Indemnified Party, Borrower shall defend
such Indemnified Party (if requested by any Indemnified Party, in the name of
the Indemnified Party) by attorneys and other professionals approved by the
Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may,
in their sole discretion, engage their own attorneys and other professionals to
defend or assist them, and, at the option of Indemnified Parties, their
attorneys shall control the resolution of any claim or proceeding. Upon demand,
Borrower shall pay or, in the sole discretion of the Indemnified Parties,
reimburse, the Indemnified Parties for the payment of reasonable fees and
disbursements of attorneys, engineers, environmental consultants, laboratories
and other professionals in connection therewith.

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

                              ARTICLE 14 - WAIVERS

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

         SECTION 14.2 MARSHALLING AND OTHER MATTERS. Borrower hereby waives, to
the extent permitted by law, the benefit of all appraisement, valuation, stay,
extension,

                                       44

<PAGE>

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

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

         SECTION 14.4 WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby
expressly waives and releases to the fullest extent permitted by law, the
pleading of any statute of limitations as a defense to payment of the Debt or
performance of its Other Obligations.

         SECTION 14.5 SOLE DISCRETION OF LENDER. Wherever pursuant to this
Security Instrument (a) Lender exercises any right given to it to approve or
disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender, shall be in the sole discretion of Lender, except as may be otherwise
expressly and specifically provided herein.

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

                            ARTICLE 15 - EXCULPATION

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

                              ARTICLE 16 - NOTICES

         SECTION 16.1 NOTICES. All notices or other written communications
hereunder shall be deemed to have been properly given (i) upon delivery, if
delivered in person or by facsimile transmission with receipt acknowledged by
the recipient thereof and confirmed by telephone by

                                       45

<PAGE>

sender, (ii) one (1) Business Day (defined below) after having been deposited
for overnight delivery with any reputable overnight courier service, or (iii)
three (3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed to Borrower or Lender, as the case may be, at the addresses set forth
on the first page of this Security Instrument or addressed as such party may
from time to time designate by written notice to the other parties.

         Notices to Borrower shall be addressed to the attention of Pyramid
Breweries, Inc., Attention: Chief Financial Officer, 91 S. Royal Brougham Way,
Seattle, Washington 98134. Borrower's telephone number is (206) 682-8322 and
facsimile number is (206) 467-0832.

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

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

                           ARTICLE 17 - APPLICABLE LAW

         SECTION 17.1 CHOICE OF LAW. This Security Instrument shall be governed,
construed, applied and enforced in accordance with the laws of the State of
California.

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

                          ARTICLE 18 - SECONDARY MARKET

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

                                       46

<PAGE>

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

                               ARTICLE 19 - COSTS

         SECTION 19.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges
and confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination of the Loan, (b) the release or substitution of
collateral therefor, (c) obtaining certain consents, waivers and approvals with
respect to the Property, or (d) the review of any Lease or proposed Lease or the
preparation or review of any subordination, non-disturbance agreement (the
occurrence of any of the above shall be called an "Event"). Borrower further
acknowledges and confirms that it shall be responsible for the payment of all
costs of reappraisal of the Property or any part thereof, whether required by
law, regulation, Lender or any governmental or quasi-governmental authority.
Borrower hereby acknowledges and agrees to pay, immediately, with or without
demand, all such fees (as the same may be increased or decreased from time to
time), and any additional fees of a similar type or nature which may be imposed
by Lender from time to time, upon the occurrence of any Event or otherwise.
Wherever it is provided for herein that Borrower pay any costs and expenses,
such costs and expenses shall include, but not be limited to, ail reasonable
legal fees and disbursements of Lender, whether with respect to retained firms,
the reimbursement for the expenses of in-house staff or otherwise.

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

                            ARTICLE 20 - DEFINITIONS

         SECTION 20.1 GENERAL DEFINITIONS. Unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, words used
in this Security

                                       47

<PAGE>

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

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

                      ARTICLE 21 - MISCELLANEOUS PROVISIONS

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

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

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

         SECTION 21.4 DUPLICATE ORIGINALS, COUNTERPARTS. This Security
Instrument may be executed in any number of duplicate originals and each
duplicate original shall be deemed to be an original. This Security Instrument
may be executed in several counterparts, each of which counterparts shall be
deemed an original instrument and all of which together shall constitute a
single Security Instrument. The failure of any party hereto to execute this
Security Instrument, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.

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

                                       48

<PAGE>

                      ARTICLE 22 - DEED OF TRUST PROVISIONS

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

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

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

                                       49

<PAGE>

expenses incurred by Trustee in the performance of Trustee's duties hereunder
and to reasonable compensation for such of Trustee's services hereunder as shall
be rendered.

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

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

         SECTION 22.6 SUCCESSION INSTRUMENTS. Any substitute trustee appointed
pursuant to any of the provisions hereof shall, without any further act, deed,
or conveyance, become vested with all the estates, properties, rights, powers,
and trusts of its or his/her predecessor in the rights hereunder with like
effect as if originally named as Trustee herein, but nevertheless, upon the
written request of Lender or of the substitute trustee, the Trustee ceasing to
act shall execute and deliver any instrument transferring to such substitute
trustee, upon the trusts herein expressed, all the estates, properties, rights,
powers, and trusts of the Trustee so ceasing to act, and shall duly assign,
transfer and deliver any of the property and moneys held by such Trustee to the
substitute trustee so appointed in the Trustee's place.

                   ARTICLE 23 - SPECIAL CALIFORNIA PROVISIONS

         SECTION 23.1 REMEDIES NOT EXCLUSIVE; WAIVER. Trustee and Lender shall
have all powers, rights and remedies under applicable law whether or not
specifically or generally granted or described in this Security Instrument.
Nothing contained herein shall be construed to impair or to restrict such
powers, rights and remedies or to preclude any procedures or process otherwise
available to trustees or beneficiaries under deeds of trust in the State of
California. Trustee and Lender, and each of them, shall be entitled to enforce
the payment and performance of any indebtedness or obligations secured hereby
and to exercise all rights and powers under this Security Instrument or under
any Other Security Document or other agreement or any laws now or hereafter in
force, notwithstanding the fact that some or all of the indebtedness and
obligations secured hereby may now or hereafter be otherwise secured, whether by
mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the
acceptance of this Security Instrument nor its enforcement, whether by court
action or pursuant to the power of sale or other powers contained herein, shall
prejudice or in any manner affect Trustee's or Lender's right to realize upon or
enforce any other rights or security now or hereafter held by Trustee or Lender.
Trustee and Lender, and each of them, shall be entitled to enforce this Security
Instrument and any other rights or security now or hereafter held by Lender or
Trustee in such order and manner as they or either of them may in their absolute
discretion determine. No remedy herein conferred upon or reserved to Trustee or
Lender is intended to be exclusive of any other remedy contained herein or by
law provided or permitted, but each shall

                                       50

<PAGE>

be cumulative and in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity. Every power or remedy given by any of
this Security Instrument or the Other Security Documents to Trustee or Lender,
or to which either of them may be otherwise entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by Trustee or Lender, and either of them may pursue inconsistent
remedies. By exercising or by failing to exercise any right, option or election
hereunder, Lender shall not be deemed to have waived any provision hereof or to
have released Borrower from any of the obligations secured hereby unless such
waiver or release is in writing and signed by Lender. The waiver by Lender of
Borrower's failure to perform or observe any term, covenant or condition
referred to or contained herein to be performed or observed by Borrower shall
not be deemed to be a waiver of such term, covenant or condition or of any
subsequent failure of Borrower to perform or observe the same or any other such
term, covenant or condition referred to or contained herein, and no custom or
practice which may develop between Borrower and Lender during the term hereof
shall be deemed a waiver of or in any way affect the right of Lender to insist
upon the performance by Borrower of the obligations secured hereby in strict
accordance with the terms hereof or of any Other Security Document.

         SECTION 23.2 POWER OF SALE. (i) Should Lender elect to foreclose by
exercise of the power of sale contained herein, Lender shall notify Trustee and
shall, if required, deposit with Trustee the Note, the original or a certified
copy of this Security Instrument, and such other documents, receipts and
evidences of expenditures made and secured hereby as Trustee may require. Upon
receipt of such notice from Lender, Trustee shall cause to be recorded and
delivered to Borrower such notice as may then be required by law and by this
Security Instrument. Trustee shall, without demand on Borrower, after lapse of
such time as may then be requited by law and after recordation of such notice of
default and after notice of sale has been given as required by law, sell the
Property at the time and place of sale fixed by it in said notice of sale,
either as a whole or in separate lots or parcels or items as Trustee shall deem
expedient, and in such order as it may determine, at public auction to the
highest bidder for cash in lawful money of the United States payable at the time
of sale. Trustee shall deliver to the purchaser or purchasers at such sale its
good and sufficient deed or deeds conveying the property so sold, but without
any covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof. Any
person, including, without limitation, Borrower, Trustee or Lender, may purchase
at such sale, and Borrower hereby covenants to warrant and defend the title of
such purchaser or purchasers.

         (ii) After deducting all costs, fees and expenses of Trustee and of
this Security Instrument, including, without limitation, costs of evidence of
title and actual and customary attorneys' fees of Trustee or Lender in
connection with a sale as provided in subparagraph (i) above, Trustee shall
apply the proceeds of such sale (a) first, to the payment of all sums expended
by Lender under the terms of this Security Instrument or the Other Security
Documents and not yet repaid, together with interest on such sums at the Default
Rate as set forth in the Note, (b) second, to the payment of all sums expended
under the terms hereof not then repaid, with accrued interest at the rate of
interest equal to the rate then in effect under the Note, or if the Note has
been repaid, the rate that would have been in effect under the Note, (c) third,
to the payment of all other sums then secured hereby, and (d) fourth, the
remainder, if any, to the person or persons legally entitled thereto.

                                       51

<PAGE>

         SECTION 23.3 RIGHT OF RESCISSION Lender may from time to time rescind
any notice of default or notice of sale before any Trustee's sale in accordance
with the laws of the State of California. The exercise by Lender of such right
of rescission shall not constitute a waiver of any breach or default then
existing or subsequently occurring, or impair the right of Lender to execute and
deliver to Trustee, as above provided, other declarations or notices of default
to satisfy the obligations of this Security Instrument or secured hereby, nor
otherwise affect any provision, covenant or condition of this Security
Instrument or any Other Security Document or any of the rights, obligations or
remedies of Trustee or Lender hereunder or thereunder.

         SECTION 23.4 FULL RECONVEYANCE Upon written request of Lender stating
that all sums secured hereby have been paid, upon surrender to Trustee of the
Note and the original or a certified copy of this Security Instrument for
cancellation and retention, and upon payment of its fees. Trustee shall fully
reconvey, without warranty, the entire remaining Property then held hereunder.
The recitals in such reconveyance of any matters of facts shall be conclusive
proof of the truthfulness thereof. The grantee in such reconveyance may be
described as "the person or persons legally entitled thereto."

         SECTION 23.5 FIXTURE FILING This Security Instrument constitutes a
fixture filing under the fixture filing provisions of the UCC, Sections 9334
and 9502(c) as enacted and under the equivalent statutes in the State of
California, as amended or recodified from time to time. For purposes of the
fixture filing, the "debtor" is Borrower which has as its principal place of
business the address listed in the first paragraph of this Security Instrument
and the "secured party" is Lender.

         SECTION 23.6 BORDER ZONE PROPERTY Borrower represents and warrants that
the Property has not been designated as Border Zone Property under the
provisions of California Health and Safety Code, Sections 25220 et seq or any
regulation adopted in accordance therewith, and there has been no occurrence or
condition on any real property adjoining or in the vicinity of the Property that
is reasonably likely to cause the Property or any part thereof to be designated
as Border Zone Property.

         SECTION 23.7 REQUEST FOR NOTICES Pursuant to California Government Code
Section 27321 5(b), Borrower requests that a copy of any notice of default and a
copy of any notice of sale hereunder be mailed to it at the address set forth in
the first paragraph of this Security Instrument.

         SECTION 23.8 INSURANCE NOTICE Lender hereby notifies Borrower of the
provisions of Section 2955 5(a) of the California Civil Code, which reads as
follows:

                  "No lender shall require a borrower, as a condition of
                  receiving or maintaining a loan secured by real property, to
                  provide hazard insurance coverage against risks to the
                  improvements on that real property in an amount exceeding the
                  replacement value of the improvements on the property "

                                       52

<PAGE>

This disclosure is being made by Lender to Borrower pursuant to Section 2955
5(b) of the California Civil Code Borrower hereby acknowledges receipt of this
disclosure and acknowledges that this disclosure has been made by Lender before
execution of any note or security document evidencing or securing the Loan.

                         [NO FURTHER TEXT ON THIS PAGE]

                                       53

<PAGE>

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

                                           BORROWER:

                                           PYRAMID GILMAN STREET PROPERTY, LLC,
                                           a Delaware limited liability company

                                           By: Pyramid Breweries, Inc,
                                               a Washington corporation
                                               Its Sole Member

                                               By: /s/ James K. Hilger
                                                  ----------------------------
                                               Name: James K. Hilger
                                                    --------------------------
                                               Title: CFO
                                                     -------------------------

                                       54

<PAGE>

STATE OF___________________  )
                             )       ss
COUNTY OF__________________  )

         On January __, 2005, before me, the undersigned, personally
appeared________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public in and for said
County and State

                                       (SEAL)

                                       55

<PAGE>

                                    EXHIBIT A

                         Legal Description of Property

                                       1<PAGE>
                                                                   EXHIBIT 10.19

                                                            MS Loan No. 04-17356

                         RESERVE AND SECURITY AGREEMENT

            THIS RESERVE AND SECURITY AGREEMENT ("Agreement") is made as of
January 27, 2005, by PYRAMID GILMAN STREET PROPERTY, LLC, a Delaware limited
liability company, having its principal place of business at Pyramid Breweries,
Inc., Attention: Chief Financial Officer, 91 S. Royal Brougham Way, Seattle,
Washington 98134 ("Borrower"), in favor of MORGAN STANLEY MORTGAGE CAPITAL INC.,
a New York corporation, having an address at c/o ARCap Servicing, Inc., 5605
North MacArthur Boulevard, Suite 950, Irving, Texas 75038 ("Lender").

            All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Security Instrument (defined below).

                                    RECITALS:

            Borrower by its promissory note of even date herewith given to
Lender (the note together with all extensions, renewals, modifications,
substitutions and amendments thereof shall collectively be referred to as the
"Note") is indebted to Lender in the principal sum of $7,850,000.00 in lawful
money of the United States of America, with interest from the date thereof at
the rates set forth in the Note (the indebtedness evidenced by the Note,
together with such interest accrued thereon, shall collectively be referred to
as the "Loan"), principal and interest to be payable in accordance with the
terms and conditions provided in the Note.

            The Loan is secured by, among other things, a Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing (the
"Security Instrument"), dated as of the date hereof, which grants Lender a first
lien on the property encumbered thereby (the "Property"). All and any of the
documents other than the Note, the Security Instrument and this Agreement now or
hereafter executed by Borrower and/or others and by or in favor of Lender, which
wholly or partially secure or guarantee payment of the Note are referred to as
the "Other Security Documents."

            Lender requires as a condition to the making of the Loan that
Borrower enter into this Agreement and make certain deposits with Lender as
provided in this Agreement as additional security for all of Borrower's
obligations under the Note, the Security Instrument and the Other Security
Documents.

                                   AGREEMENT:

            For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

                                       1
<PAGE>

                             I. BORROWER OBLIGATIONS

            SECTION 1.1 REPLACEMENTS AND REPAIRS.

            (a) Based on the results outlined in certain engineering and
building condition reports delivered to Lender in connection with the making of
the Loan, Lender hereby requires and Borrower hereby agrees, that Borrower shall
perform, or cause to be performed, each of the following in accordance with the
terms of this Agreement:

                  (i) capital repairs, replacements and improvements necessary
to keep the Property in good order and repair and in a good marketable condition
or prevent deterioration of the Property, including but not limited to the
performance of work to the roofs, chimneys, gutters, downspouts, paving, curbs,
ramps, driveways, balconies, porches, patios, exterior walls, exterior doors and
door ways, windows, elevators and mechanical and HVAC equipment (such items are
referred to collectively as the "Replacements"); and

                  (ii) those repairs and improvements to the Property described
on Exhibit A attached to this Agreement and made a part hereof (the "Repairs").

            (b) If at any time during the term of the Loan, Lender determines
that repairs and improvements not listed on Exhibit A and not intended to be
covered by the Replacement Reserve (defined below) (the "Additional Repairs") or
additional Replacements not intended to be covered by the Completion/Repair
Reserve (defined below) (the "Additional Replacements") are advisable to keep
the Property in good order and repair and in a good marketable condition, or
prevent deterioration of the Property, or if any major building systems or
components (for example, roof, HVAC system) will reach the end of its useful
life within two (2) years of the date of any inspection by Lender, Lender may
send Borrower written notice of the need for making such Additional Repairs or
Additional Replacements. Borrower shall commence making such Additional Repairs
or Additional Replacements in accordance with all the requirements of this
Agreement within thirty (30) days after written request by Lender, except that
Borrower understands that reimbursement from the Completion/Repair Reserve or
the Replacement Reserve, as applicable, shall not be made unless Lender has
agreed to such reimbursement pursuant to the terms of this Agreement. Except for
this Section 1.1(b), all references in this Agreement to "Repairs" and
"Replacements" shall include the "Additional Repairs" and the "Additional
Replacements", respectively.

            SECTION 1.2 TENANT IMPROVEMENTS AND LEASING COMMISSIONS. Lender
hereby requires, and Borrower hereby agrees, (a) to perform, or cause to be
performed, tenant improvements required under any new Lease or modification,
renewal or extension of any existing Lease which is entered into after the date
hereof and which is approved by Lender or, if Lender's approval is not required,
is entered into in accordance with the provisions of Section 3.8 of the Security
Instrument (collectively, the "Tenant Improvements"). and (b) pay the costs of
leasing commissions incurred by Borrower in connection with the leasing of the
Property or a portion thereof, provided that (x) such leasing commissions are
reasonable and customary for properties similar to the Property and the portion
of the Property leased for which such leasing commission is due, and (y) the
amounts of such leasing commissions are determined pursuant to arm's length
transactions between Borrower and any leasing agent to which a leasing

                                       2
<PAGE>

commission is due, and excluding any leasing commissions which shall be due any
member, general partner or shareholder of Borrower or any affiliate of Borrower
(collectively, "Leasing Commissions").

            SECTION 1.3 TIMELY AND DILIGENT PERFORMANCE. Borrower shall (a)
commence each Repair immediately following the execution of this Agreement (or
as soon thereafter as weather reasonably shall permit) and complete each Repair
prior to the date which is six (6) months from the date of this Agreement, or
such other date set forth on Exhibit A (the "Completion Date"), (b) make each
Replacement when required in order to keep the Property in good order and repair
and in a good marketable condition, and (c) make each Tenant Improvement when
required under the terms of the applicable Lease. Borrower shall diligently
pursue all Repairs, Replacements and Tenant Improvements (collectively, the
"Required Work") to completion.

            SECTION 1.4 PAYMENT OF REQUIRED WORK. Borrower shall pay all costs
necessary for completion of the Required Work without regard to the sufficiency
of the funds in Replacement Reserve, the Completion/Repair Reserve or the Tenant
Improvements and Leasing Commissions Reserve (each as defined below, and each a
"Reserve" and collectively, the "Reserves"). The insufficiency of any balance in
any Reserve shall not relieve Borrower from fulfilling all preservation and
maintenance covenants in the Security Instrument, any covenants or agreements
with any tenants under any Leases or any agreements with any leasing
agents.

            SECTION 1.5 WORKMANLIKE COMPLETION. Borrower shall complete all
Required Work in a good and workmanlike manner as soon as practicable following
the commencement of such Required Work.

            SECTION 1.6 CONTRACT APPROVALS. Lender shall have the right to
approve all contracts or work orders with materialmen, mechanics, suppliers,
subcontractors, contractors or other parties providing labor or materials in
connection with any Repair, Replacement or Tenant Improvement. Upon Lender's
request, Borrower shall assign any such contract or subcontract to Lender.

            SECTION 1.7 LIEN-FREE COMPLETION. Borrower covenants and agrees that
each of the Repairs, Replacements and Tenant Improvements, and all materials,
equipment, fixtures, or any other item comprising a part of any Repair,
Replacement or Tenant Improvement shall be constructed, installed or completed,
as applicable, free and clear of all mechanic's, materialman's or other liens,
and prior to each disbursement from any of the Completion/Repair Escrow Account,
the Replacement Reserve Escrow Account or the Tenant Improvements and Leasing
Commissions Reserve Escrow Account (each as defined below, and collectively, the
"Reserve Escrow Accounts"). For any Repair, Replacement or Tenant Improvement
the cost of which exceeds $5,000, Lender may require Borrower to provide Lender
with a search of title for the Property evidencing the same prior to
disbursement from any of the Reserve Escrow Accounts.

            SECTION 1.8 COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS.

            (a) All Required Work shall comply with all applicable laws,
ordinances, rules and regulations of all governmental authorities having
jurisdiction over the Property and

                                       3
<PAGE>

applicable insurance requirements including, without limitation, applicable
building codes, special use permits, environmental regulations, and requirements
of insurance underwriters.

            (b) Borrower represents and warrants that to the best of its
knowledge, no permits or approvals from any agency or authority, other than
those previously obtained and furnished to Lender, are necessary for the
commencement and completion of the Required Work. Borrower shall pay all
applicable fees and charges of such authorities.

            SECTION 1.9 NO OBLIGATION OF LENDER. Nothing in this Agreement shall
be construed in such a way as to (a) make Lender responsible for making or
completing any of the Required Work, (b) require Lender to expend funds to make
or complete any of the Required Work, (c) obligate Lender to proceed with any of
the Required Work or (d) obligate Lender to demand from Borrower additional sums
to make or complete any of the Required Work.

            SECTION 1.10 BORROWER'S OTHER OBLIGATIONS. Nothing contained in this
Agreement shall in any manner whatsoever alter, impair or affect the obligations
of Borrower, or relieve Borrower of any of its obligations to make payments and
perform all of its other obligations required, under the Note, the Security
Instrument or any of the Other Security Documents.

            SECTION 1.11 ADDITIONAL DOCUMENTS. Upon completion of all or any
portion of the Required Work and upon Lender's request, Borrower shall execute
and deliver to Lender an amendment to the security agreement provisions of the
Security Instrument and the original financing statement or similar
instrument(s) necessary or desirable to perfect Lender's lien upon any property
for which funds from the Reserve Escrow Accounts were expended.

                              II. DEPOSITS TO THE RESERVES

            SECTION 2.1 REPLACEMENT RESERVE.

            (a)   (i) On each date upon which a regularly scheduled payment of
interest and/or principal is due under the Loan (each, a "Payment Date"),
Borrower shall deposit with Lender the sum of $1,729.17 (the "Replacement
Reserve Monthly Deposit"). The amount of the Replacement Reserve Monthly Deposit
may be increased by Lender in accordance with Section 2.1(c).

                  (ii) Lender shall deposit each Replacement Reserve Monthly
Deposit, as received, in an interest-bearing escrow account for the benefit of
Borrower (the "Replacement Reserve Escrow Account"; the Replacement Reserve
Monthly Deposits and all other funds in the Replacement Reserve Escrow Account
are referred to collectively as the "Replacement Reserve").

                  (iii) Notwithstanding any other provision of this Section 2.1,
Borrower shall not be required to make the Replacement Reserve Monthly Deposit
if the balance in the Replacement Reserve Escrow Account is at least $62,250.00
on the applicable Payment Date.

                                       4
<PAGE>

            (b) Except as otherwise provided in this Agreement, Lender shall
make disbursements from the Replacement Reserve to reimburse Borrower for the
costs of the Replacements in accordance with the terms of this Agreement.

            (c) In the event that the balance of the Replacement Reserve is less
than the current estimated cost to make the Replacements required by Lender,
Borrower shall deposit the shortage within ten (10) days of request by Lender.
In the event Lender determines from time to time based on Lender's inspections
that the amount of the Replacement Reserve Monthly Deposit is insufficient to
fund the cost of likely Replacements and related contingencies that may arise
during the remaining term of the Loan, Lender may require an increase in the
amount of the Replacement Reserve Monthly Deposit upon thirty (30) days prior
written notice to Borrower.

            SECTION 2.2 COMPLETION/REPAIR RESERVE.

            (a)   (i) Concurrently with the execution of this Agreement,
Borrower shall deposit with Lender the sum of $0 (the "Completion/Repair
Deposit"). The Completion/Repair Deposit represents 125% of the estimated cost
to complete the Repairs.

                  (ii) Lender shall deposit the Completion/Repair Deposit in an
interest-bearing escrow account for the benefit of Borrower (the
"Completion/Repair Escrow Account"; the Completion/Repair Deposit, and all other
funds from time to time in the Completion/Repair Escrow Account are collectively
referred to as the "Completion/Repair Reserve").

            (b) Except as otherwise provided in this Agreement, Lender shall
make disbursements from the Completion/Repair Escrow Account to reimburse
Borrower for the costs of the Repairs in accordance with the terms of this
Agreement.

            SECTION 2.3 TENANT IMPROVEMENTS AND LEASING COMMISSIONS RESERVE.

            (a)   (i) Concurrently with the execution of this Agreement,
Borrower shall deposit with Lender the sum of $500,000.00 out of the proceeds of
the Loan (the "TI & LC Reserve Initial Deposit").

                  (ii) On each Payment Date, Borrower shall deposit with Lender
the sum of $10,000.00 (the "TI & LC Reserve Monthly Deposit").

                  (iii) Notwithstanding any other provision of this Section 2.3,
Borrower shall not be required to make the TI & LC Reserve Monthly Deposit if
the balance in the Tenant Improvements and Leasing Commissions Reserve Escrow
Account (as defined below) is at least $750,000.00 on the applicable Payment
Date.

            (b) Lender shall deposit the TI & LC Reserve Initial Deposit and
each TI & LC Reserve Monthly Deposit, as received, in an interest-bearing escrow
account for the benefit of Borrower (the "Tenant Improvements and Leasing
Commissions Reserve Escrow Account"; the TI & LC Reserve Initial Deposit, the TI
& LC Reserve Monthly Deposits and all other funds in the Tenant Improvements and
Leasing Commissions Reserve Escrow Account are referred to collectively as the
"Tenant Improvements and Leasing Commissions Reserve").

                                       5
<PAGE>

            (c) Except as otherwise provided in this Agreement, Lender shall
make disbursements from the Tenant Improvements and Leasing Commissions Reserve
Escrow Account to reimburse Borrower for the costs of Tenant Improvements and
Leasing Commissions in accordance with the terms of this Agreement.

                  III. SECURITY INTEREST AND INDEMNIFICATION

            SECTION 3.1 GRANT OF SECURITY INTEREST. Borrower hereby pledges,
assigns and grants a security interest to Lender, as security for payment of the
Debt and the performance of all other terms, conditions and covenants of the
Note, the Security Instrument, this Agreement and the Other Security Documents
on Borrower's part to be paid and performed, in all of Borrower's right, title
and interest in and to each of the Reserve Escrow Accounts and each of the
Reserves. The funds contained in each of the Reserves shall be under the sole
dominion and control of Lender. The Reserve Escrow Accounts and the funds
therein shall not constitute a trust fund and may be commingled with other
monies held by Lender. Lender or a designated representative of Lender shall
have the sole right to make withdrawals from such accounts.

            SECTION 3.2 PROHIBITION AGAINST FURTHER ENCUMBRANCE. Borrower shall
not, without the prior consent of Lender, further pledge, assign or grant any
security interest in the Reserves or funds contained in any of the Reserve
Escrow Accounts or permit any lien or encumbrance to attach thereto, or any levy
to be made thereon, or any UCC-1 Financing Statements, except those naming
Lender as the secured party, to be filed with respect thereto.

            SECTION 3.3 INDEMNIFICATION. Borrower agrees to indemnify Lender and
to hold Lender harmless from and against any and all actions, suits, claims,
demands, liabilities, losses, damages, obligations and costs and expenses
(including litigation costs and reasonable attorneys' fees and expenses) arising
from or in any way connected with (a) the performance of any of the Required
Work or (b) the payment of any Leasing Commissions. Borrower assigns to Lender
all rights and claims Borrower may have against all persons or entities
supplying labor or materials in connection with any of the Required Work
provided, however, that Lender may not pursue any such right or claim unless an
Event of Default has occurred under this Agreement, the Note, the Security
Instrument or any of the Other Security Documents.

            SECTION 3.4 ASSIGNMENT OF THE RESERVES. Borrower understands and
agrees that, in connection with any sale of the Loan pursuant to Section 18.1 of
the Security Instrument, all of Lender's interest in the Reserves and the
Reserve Escrow Accounts will be assigned to the transferee of the Loan.

                           IV. RESERVE DISBURSEMENTS

            SECTION 4.1 DISBURSEMENTS FROM RESERVES. Upon written request from
Borrower and satisfaction of the requirements set forth in this Agreement,
Lender shall promptly disburse to Borrower amounts from (a) the
Completion/Repair Escrow Account necessary to reimburse Borrower for the actual
costs of each Repair (but not exceeding 125 % of the original estimated cost of
such Repair as set forth on Exhibit A, unless Lender has agreed to reimburse
Borrower for such excess cost pursuant to Section 4.2), (b) the Replacement
Reserve Escrow Account necessary to reimburse Borrower for the actual costs of
any approved Replacements, or

                                       6
<PAGE>

(c) the Tenant Improvements and Leasing Commissions Reserve Escrow Account to
reimburse Borrower for the actual costs of Tenant Improvements and Leasing
Commissions. Notwithstanding the preceding, in no event shall Lender be required
to (i) disburse any amounts which would cause the amount of funds remaining in
the Completion/Repair Escrow Account after any disbursement (other than with
respect to the final disbursement) to be less than 125% of the then current
estimated cost of completing all remaining Repairs for the Property, (ii)
disburse funds from any of the Reserve Escrow Accounts if an Event of Default
exists under this Agreement or under the Note, the Security Instrument or any of
the Other Security Documents, or (iii) disburse funds from the Replacement
Reserve Escrow Account to reimburse Borrower for the costs of routine
maintenance to the Property or for costs which are to be reimbursed from funds
held in the Completion/Repair Reserve.

            SECTION 4.2 ADDITIONAL COST ITEMS. In the event Borrower requests a
disbursement from the Completion/Repair Reserve to reimburse Borrower for the
actual cost of labor or materials used in connection with repairs or
improvements other than the Repairs specified on Exhibit A, or for a Repair to
the extent the cost of such Repair exceeds 125% of the estimated cost of such
Repair as set forth on Exhibit A (in either case, an "Additional Cost Item"),
Borrower shall disclose in writing to Lender why funds in the Completion/Repair
Reserve should be used to pay for such Additional Cost Item. If Lender
determines that (a) such Additional Cost Item is of the type intended to be
covered by the Completion/Repair Reserve, (b) such Additional Cost Item is not
covered or is not of the type intended to be covered by the Replacement Reserve,
(c) costs for such Additional Cost Item are reasonable, (d) the funds in the
Completion/Repair Reserve are sufficient to pay for such Additional Cost Item
and all other Repairs for the Property specified on Exhibit A, and (e) all other
conditions for disbursement under this Agreement have been met, Lender may
disburse funds from the Completion/Repair Reserve.

            SECTION 4.3 REQUEST FOR DISBURSEMENTS. Each request for disbursement
from any of the Reserve Escrow Accounts shall be on a form provided or approved
by Lender. Each request for reimbursement shall include (a) copies of invoices
for all items or materials purchased and all labor or services provided, (b) if
such request for disbursement is in connection with Tenant Improvements, a
certificate from the tenant(s) for which the Tenant Improvements have been
performed stating that such Tenant Improvements have been completed in a manner
satisfactory and acceptable to such tenant(s) and (unless disbursement is
requested pursuant to Section 4.7) such tenant(s) has accepted the premises
demised under the applicable Lease(s) and containing such other information as
Lender may require, in form and substance reasonably satisfactory to Lender,
and/or (c) if such request for disbursement is in connection with Leasing
Commissions, a certificate from the leasing agent that no further sums are due
to it in connection with the applicable Leasing Commission.

            SECTION 4.4 FREQUENCY OF REQUESTS FOR DISBURSEMENT; AMOUNTS OF
DISBURSEMENTS.

            (a) Borrower shall not make a request for disbursement from any of
the Reserve Escrow Accounts more frequently than once in any calendar month.

                                       7
<PAGE>

            (b) Borrower shall not make a request for disbursement from any of
the Reserve Escrow Accounts in an amount less than the lesser of (i) $5,000.00
or (ii) the total cost of the Repair, Replacement, Tenant Improvement or Leasing
Commission, as applicable, for which the disbursement is requested.

            SECTION 4.5 DISBURSEMENT CONDITIONS.

            (a) Unless Lender has agreed to issue joint checks in connection
with a particular Repair, Replacement or Tenant Improvement pursuant to Section
4.7 below, Borrower shall pay all invoices for items or materials supplied or
purchased and all contracted labor or services performed in connection with the
Repairs, Replacements and Tenant Improvements prior to submitting such request
for disbursement from the Completion/Repair Escrow Account, the Replacement
Reserve Escrow Account or the Tenant Improvements and Leasing Commissions
Reserve Escrow Account, as the case may be.

            (b) Each request for disbursement shall be made only after
completion of the Repair, Replacement or Tenant Improvement (or the portion
thereof completed in accordance with Section 4.7 below), or the full performance
by the leasing agent of its obligations (in the case of Leasing Commissions), as
applicable, for which disbursement is requested. Borrower shall provide Lender
evidence satisfactory to Lender in its reasonable judgment of such completion or
performance.

            SECTION 4.6 INSPECTIONS.

            (a) Borrower shall permit Lender or Lender's representatives
(including an independent person such as an engineer, architect, or consultant)
or third parties making Repairs, Replacements or Tenant Improvements pursuant to
Section 7.2 of this Agreement to enter onto the Property during normal business
hours (subject to the rights of tenants under their Leases) to inspect the
condition of the Property, to inspect the progress of any Repair, Replacement or
Tenant Improvement and all materials being used in connection with such Repair,
Replacement or Tenant Improvement, to examine all plans and shop drawings
relating to such Repair, Replacement or Tenant Improvement which are or may be
kept at the Property and to inspect all books and records of Borrower with
respect to the Property. Borrower agrees to cause all contractors and
subcontractors to cooperate with Lender, Lender's representatives, and such
other persons described above in connection with inspections and Repairs,
Replacements or Tenant Improvements made pursuant to this Section 4.6 and
Section 7.2.

            (b) Lender may inspect the Property in connection with any Repair,
Replacement or Tenant Improvement prior to disbursing funds from any of the
Reserve Escrow Accounts for such Repair, Replacement or Tenant Improvement. In
addition to Lender's costs and expenses, Borrower shall pay Lender a reasonable
inspection fee not exceeding $500 for each such inspection by Lender. Prior to
disbursing any amounts from any of the Reserve Escrow Accounts for a Repair,
Replacement or Tenant Improvement, Lender may require an inspection and/or
certificate of completion by an appropriate independent qualified professional
(such as an architect, engineer, or consultant, depending on the nature of the
Repair, Replacement or Tenant Improvement) selected by Lender. Borrower shall
pay all reasonable

                                       8
<PAGE>

fees and expenses charged by such engineer, architect, consultant or other
person inspecting the Property, and all other reasonable fees, costs and
expenses relating to such inspections.

            SECTION 4.7 PARTIAL COMPLETION. If (a) the time required to complete
a Repair, Replacement or Tenant Improvement, as applicable, exceeds one month,
(b) the contractor performing a Repair, Replacement or Tenant Improvement, as
applicable, requires periodic payments pursuant to terms of a written contract,
and (c) Lender has approved in writing in advance such periodic payments, a
request for disbursement from the Completion/Repair Escrow Account, the
Replacement Reserve Escrow Account or the Tenant Improvements and Leasing
Commissions Reserve Escrow Account, as applicable, may be made after completion
of a portion of the work under such contract, provided (i) the contract requires
payment upon completion of such portion of the work, (ii) all other conditions
for disbursement under this Agreement have been met, (iii) the materials for
which the request for disbursement has been made are on site at the Property and
are properly secured or have been installed in the Property, (iv) the funds
remaining in the Completion/Repair Escrow Account, the Replacement Reserve
Escrow Account or the Tenant Improvements and Leasing Commissions Reserve Escrow
Account, as applicable, designated for such Repair, Replacement or Tenant
Improvement, as the case may be, are in Lender's judgment sufficient to complete
that Repair, Replacement or Tenant Improvement, (v) the cost of the portion of
the work completed under such contract exceeds $10,000.00, and (vi) each
contractor or subcontractor receiving payments under such contract provides a
waiver of liens with respect to amounts which have been previously paid to that
contractor or subcontractor. Upon satisfaction of the foregoing, Lender may, at
its option, issue joint checks payable to Borrower and the supplier,
materialman, mechanic, subcontractor or other party to whom payment is due.

            SECTION 4.8 FEES AND EXPENSES. In addition to any other fees payable
by Borrower to Lender in connection with the Loan and this Agreement (including,
but not limited to, the inspection fee set forth in Section 4.6(b)), Borrower
shall reimburse Lender within ten (10) days after demand all reasonable fees,
charges, costs and expenses incurred by Lender in connection with disbursing
funds from the Reserve Escrow Accounts pursuant to this Agreement.

            SECTION 4.9 NO WARRANTY BY LENDER. Lender's disbursement of funds
contained in the Reserves or other acknowledgment of completion of any Repair,
Replacement or Tenant Improvement in a manner satisfactory to Lender shall not
be deemed a certification or warranty by Lender to any person that the Repair,
Replacement or Tenant Improvement, as the case may be, has been completed in
accordance with applicable building, zoning or other codes, ordinances,
statutes, laws, regulations or requirements of any governmental agency.

                               V. TERM OF RESERVES

            SECTION 5.1 TERMINATION OF THE RESERVES. Upon the earlier of (a)
Borrower's completion of all Repairs to the satisfaction of Lender (provided
Borrower has supplied Lender with evidence satisfactory to Lender of payment of
all Repairs and, if required under this Agreement, waivers of liens and/or a
title search of the Property) or (b) payment in full of all sums evidenced by
the Note, Lender shall disburse to Borrower all remaining funds in the
Completion/Repair Reserve. Upon payment in full of all sums evidenced by the
Note,

                                       9
<PAGE>

Lender shall disburse to Borrower all remaining funds in the Replacement Reserve
and the Tenant Improvements and Leasing Commissions Reserve.

                                  VI. DEFAULTS

            SECTION 6.1 EVENT OF DEFAULT. Each of the following events shall
constitute an "Event of Default" hereunder:

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

            (b) if Borrower shall continue to be in default under any of the
other terms, covenants or conditions of this Agreement not specified in
subsection (a) above, for ten (10) days after notice to Borrower from Lender, in
the case of any default which can be cured by the payment of a sum of money, or
for thirty (30) days after notice from Lender in the case of any other default;
provided, however, that if such non-monetary default is susceptible of cure but
cannot reasonably be cured within such 30-day period and provided further that
Borrower shall have commenced to cure such default within such 30-day period and
thereafter diligently and expeditiously proceed to cure the same, such 30-day
period shall be extended for such time as is reasonably necessary for Borrower
in the exercise of due diligence to cure such default, such additional period
not to exceed sixty (60) days; or

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

            SECTION 6.2 LOSS OF RIGHTS TO DISBURSEMENTS. If an Event of Default
exists, then Borrower shall immediately lose all of its rights to receive
disbursements from each of the Reserves unless and until the Debt has been paid
in full and the lien of the Security Instrument has been released or assigned by
Lender.

                                  VII. REMEDIES

            SECTION 7.1 APPLICATION OF RESERVE FUNDS.

            (a) Upon the occurrence of any Event of Default, Lender, in its sole
discretion, may use the funds remaining in each of the Reserves (or any portion
thereof) for any purpose, including but not limited to (i) repayment of any
portion of the Debt; provided, however, that such application of funds shall not
cure or be deemed to cure any Event of Default; (ii) reimbursement of Lender for
any losses or expenses (including, without limitation, legal fees) suffered or
incurred by Lender as a result of such Event of Default; (iii) making or
completing the Repairs, Replacements or Tenant Improvements as provided in
Section 7.2; or (iv) applying the funds in connection with exercising any and
all rights and remedies available to

                                       10
<PAGE>

Lender at law or in equity or under this Agreement or pursuant to the Note, the
Security Instrument or any of the Other Security Documents.

            (b) Nothing in this Agreement or the Security Instrument shall
obligate Lender to apply all or any portion of the Reserves on account of any
Event of Default by Borrower or to repayment of the indebtedness evidenced by
the Note or in any specific order of priority.

            SECTION 7.2 LENDER'S RIGHT TO COMPLETE. In the event Lender
determines in its sole discretion that (a) a Repair is not completed by the
Completion Date, (b) a Repair, Replacement or Tenant Improvement is not being
performed in a workmanlike or timely manner or has not been completed in a
workmanlike or timely manner, or (c) Borrower has failed to commence any
Additional Repairs or Additional Replacements within thirty (30) days after
written request by Lender, Lender shall have the option to withhold
disbursements for such unsatisfactory Repair, Replacement or Tenant Improvement,
as the case may, proceed under existing contracts or contract with third parties
to complete such Repair, Replacement or Tenant Improvement, as the case may be,
and apply the funds remaining in the Completion/Repair Escrow Account, the
Replacement Reserve Escrow Account or the Tenant Improvements and Leasing
Commissions Reserve Escrow Account, as applicable, toward the labor and
materials necessary to make or complete such Repair, Replacement or Tenant
Improvement, as the case may be, in each case without providing any prior notice
to Borrower, and to exercise any and all other remedies available to Lender upon
an Event of Default pursuant to this Article 7.

            SECTION 7.3 ENTRY ONTO PROPERTY. In order to facilitate Lender's
completion or making of the Repairs, Replacements or Tenant Improvements
pursuant to Section 7.2 above, Lender shall have the right, but not the
obligation, to enter onto the Property and perform any and all work and labor
necessary to complete or make the Repairs, Replacements or Tenant Improvements
and/or employ watchmen to protect the Property from damage. All sums so expended
by Lender shall be deemed to have been advanced under the Loan to Borrower and
shall be secured by the Security Instrument. Borrower hereby constitutes and
appoints Lender its true and lawful attorney-in-fact with full power of
substitution to complete or undertake the Repairs, Replacements and Tenant
Improvements in the name of Borrower. It is further understood and agreed that
this power of attorney, which shall be deemed to be a power coupled with an
interest, cannot be revoked. Borrower specifically agrees that all power granted
to Lender under this Agreement may be assigned by Lender to Lender's successors
or assigns as holder of the Note.

            SECTION 7.4 REMEDIES CUMULATIVE; No WAIVER.

            (a) Upon the occurrence of an Event of Default, all or any one or
more of the rights, powers, privileges and other remedies available to Lender
against Borrower under the Note, the Security Instrument, this Agreement or any
of the Other Security Documents executed and delivered by, or applicable to,
Borrower may be exercised by Lender at any time and from time to time, whether
or not all or any of the Debt shall be declared due and payable, and whether or
not Lender shall have commenced any foreclosure proceeding or other action for
the enforcement of its rights and remedies under the Note, the Security
Instrument, this Agreement or any of the Other Security Documents with respect
to the Property. Any such actions taken by

                                       11
<PAGE>

Lender shall be cumulative and concurrent and may be pursued independently,
singly, successively, together or otherwise, at such time and in such order as
Lender may determine in its sole discretion, to the fullest extent permitted by
law, without impairing or otherwise affecting the other rights and remedies of
Lender permitted by law, equity or contract or as set forth herein or in the
Note, Security Instrument or any of the Other Security Documents. Without
limiting the generality of the foregoing, Borrower agrees that if an Event of
Default is continuing (i) Lender is not subject to any "one action" or "election
of remedies" law or rule, and (ii) all liens and other rights, remedies or
privileges provided to Lender shall remain in full force and effect until Lender
has exhausted all of its remedies against the Property and the Security
Instrument has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.

            (b) Neither any failure nor any delay on the part of Lender in
insisting upon strict performance of any term, condition, covenant or agreement,
or exercising any right, power, remedy or privilege hereunder, or under the
Note, the Security Instrument or under any of the Other Security Documents, or
any other instrument given as security therefor, shall operate as or constitute
a waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege.

                               VIII. MISCELLANEOUS

            SECTION 8.1 GOVERNING LAW. This Agreement shall be governed,
construed, applied and enforced in accordance with the laws of the state in
which the Property is located,

            SECTION 8.2 NOTICES. All notices, consents, approvals and requests
required or permitted hereunder shall be given in writing and shall be effective
for all purposes if delivered or sent in accordance with the requirements set
forth in the Security Instrument.

            SECTION 8.3 SUCCESSORS AND ASSIGNS. All covenants, promises and
agreements in this Agreement, by or on behalf of Borrower and Lender, shall
inure to the benefit of the legal representatives, successors and assigns of
Borrower and Lender.

            SECTION 8.4 LENDER'S DISCRETION. Whenever pursuant to this
Agreement, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.

            SECTION 8.5 MODIFICATION, WAIVER IN WRITING. All notices, demands,
waivers, consents or other communications required or permitted hereunder shall
be in writing. No modification, amendment, extension, discharge, termination or
waiver of any provision of this Agreement, or of the Note, the Security
Instrument or of any of the Other Security Documents, nor consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in a writing signed by the party against whom enforcement is sought,
and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to, or

                                       12
<PAGE>

demand on, Borrower shall entitle Borrower to any other or future notice or
demand in the same, similar or other circumstances.

            SECTION 8.6 CONFLICT. In the event of any conflict between the
provisions of this Agreement and any of the Note, the Security Instrument or the
Other Security Documents, the provisions of this Agreement shall control.

            SECTION 8.7 INCORPORATION BY REFERENCE. All the covenants, terms,
conditions, agreements and remedies contained in the Note, the Security
Instrument and any of the Other Security Documents now or hereafter executed by
Borrower and/or others and by or in favor of Lender, which wholly or partially
secure or guaranty payment of the Note, are hereby made a part of this Agreement
to the same extent and with the same force as if fully set forth herein.

            SECTION 8.8 PRINCIPLES OF CONSTRUCTION. All references to sections
and schedules are to sections and schedules in or to this Agreement unless
otherwise specified. Unless otherwise specified, the words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise specified, all meanings attributed to defined terms
herein shall be equally applicable to both the singular and plural forms of the
terms so defined. If Borrower consists of more than one person or party, the
obligations and liabilities of each person or party shall be joint and several.

                         [NO FURTHER TEXT ON THIS PAGE]

                                       13
<PAGE>

            IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly
executed by its duly authorized representative, all as of the day and year first
above written.

                                     BORROWER:

                                     PYRAMID GILMAN STREET PROPERTY, LLC,
                                     a Delaware limited liability company

                                     By: Pyramid Breweries, Inc.,
                                         a Washington corporation
                                         Its Sole Member

                                     By : /s/ James K. Hilger
                                          -------------------------------------
                                     Name : James K. Hilger
                                     Title: CFO VP Finance

                                       14
<PAGE>

                                    EXHIBIT A

                                     REPAIRS

                                      None

                                       15

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