Document:

<PAGE>   1

                   ALEXANDER'S KINGS PLAZA, LLC, as mortgagor

                     ALEXANDER'S OF KINGS, LLC, as mortgagor

                                       and

                        KINGS PARKING, LLC, as mortgagor
                            (collectively, Borrower)

                                       to

             MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as mortgagee
                                    (Lender)

                       AMENDED, RESTATED AND CONSOLIDATED
                                  MORTGAGE AND
                               SECURITY AGREEMENT

                          Dated: May 31, 2001

                          Location: Kings Plaza Shopping Center
                          Brooklyn, New York

                          Block: 8470
                          Lots: 1, 50, 55 and 114
                          County: Kings

                          PREPARED BY AND UPON
                          RECORDATION RETURN TO:

                          CADWALADER, WICKERSHAM & TAFT
                          100 Maiden Lane
                          New York, New York 10038

                          Attention: William P. McInerney, Esq.

                          File No.: 41853.017

THIS MORTGAGE DOES NOT COVER REAL PROPERTY PRINCIPALLY IMPROVED BY ONE OR MORE
STRUCTURES CONTAINING IN THE AGGREGATE NOT MORE THAN SIX RESIDENTIAL DWELLING
UNITS, EACH DWELLING UNIT HAVING ITS OWN COOKING FACILITIES.
<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 PAGE

                                   ARTICLE I

                               GRANTS OF SECURITY

<S>                                                                                                                 <C>
Section 1.1         Property Mortgaged...........................................................................    3
Section 1.2         Assignment of Leases and Rents...............................................................    6
Section 1.3         Security Agreement...........................................................................    6
Section 1.4         Pledge of Monies Held........................................................................    6

                                   ARTICLE II

                          DEBT AND OBLIGATIONS SECURED

Section 2.1         Debt.........................................................................................    7
Section 2.2         Other Obligations............................................................................    7
Section 2.3         Debt and Other Obligations...................................................................    7
Section 2.4         Payments.....................................................................................    8
Section 2.5         Release of Parking Land......................................................................    8

                                   ARTICLE III

                               BORROWER COVENANTS

Section 3.1         Payment of Debt..............................................................................    8
Section 3.2         Incorporation by Reference...................................................................    8
Section 3.3         Insurance....................................................................................    9
Section 3.4         Payment of Taxes, Etc........................................................................   13
Section 3.5         Escrow Fund..................................................................................   13
Section 3.6         Condemnation.................................................................................   14
Section 3.7         Leases and Rents.............................................................................   15
Section 3.8         Maintenance of Property......................................................................   19
Section 3.9         Waste........................................................................................   20
Section 3.10        Compliance With Laws.........................................................................   20
Section 3.11        Books and Records............................................................................   21
Section 3.12        Payment For Labor and Materials..............................................................   24
Section 3.13        Performance of Other Agreements..............................................................   25
Section 3.14        Alterations..................................................................................   25
Section 3.15        Non-Consolidation Opinion....................................................................   26
Section 3.16        Management...................................................................................   26
Section 3.17        Additional Collateral/Letter of Credit.......................................................   27
Section 3.18        Ground Lease.................................................................................   30
</TABLE>

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<TABLE>
<CAPTION>

<S>                                                                                                                 <C>
Section 3.19        Ground Lease Escrow Fund.....................................................................   31
Section 3.20        No Merger of Fee and Leasehold Estates; Releases.............................................   31
Section 3.21        Kings LLC's Acquisition of Fee Estate........................................................   32
Section 3.22        Rejection of the Ground Lease................................................................   32
Section 3.23        Subleases....................................................................................   33
Section 3.24        Principal Place of Business; State of Organization...........................................   33
Section 3.25        Overhang Lease...............................................................................   33
Section 3.26        Reserve Funds, Generally.....................................................................   36

                                   ARTICLE IV

                                SPECIAL COVENANTS

Section 4.1         Property Use.................................................................................   37
Section 4.2         ERISA........................................................................................   37
Section 4.3         Single Purpose Entity........................................................................   38
Section 4.4         Restoration..................................................................................   41

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

Section 5.1         Warranty of Title............................................................................   46
Section 5.2         Authority....................................................................................   46
Section 5.3         Legal Status and Authority...................................................................   47
Section 5.4         Validity of Documents........................................................................   47
Section 5.5         Litigation...................................................................................   47
Section 5.6         Status of Property...........................................................................   47
Section 5.7         No Foreign Person............................................................................   48
Section 5.8         Separate Tax Lot.............................................................................   48
Section 5.9         ERISA Compliance.............................................................................   49
Section 5.10        Intentionally Deleted........................................................................   49
Section 5.11        Financial Condition..........................................................................   49
Section 5.12        Business Purposes............................................................................   49
Section 5.13        Taxes........................................................................................   49
Section 5.14        Mailing Address..............................................................................   50
Section 5.15        No Change in Facts or Circumstances..........................................................   50
Section 5.16        Non-Consolidation Opinion Assumptions........................................................   50
Section 5.17        Federal Reserve Regulations..................................................................   50
Section 5.18        Illegal Activity.............................................................................   50
Section 5.19        Contracts....................................................................................   50
Section 5.20        Investment Company Act.......................................................................   50
Section 5.21        Disclosure...................................................................................   51
Section 5.22        Principal Place of Business; State of Organization...........................................   51
Section 5.23        Illegal Activity/Forfeiture..................................................................   51
Section 5.24        Permitted Exceptions.........................................................................   51
</TABLE>

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<TABLE>
<CAPTION>

<S>                                                                                                                 <C>
Section 5.25        Ground Lease.................................................................................   51
Section 5.26        Overhang Lease...............................................................................   52

                                   ARTICLE VI

                            OBLIGATIONS AND RELIANCES

Section 6.1         Relationship of Borrower and Lender..........................................................   53
Section 6.2         No Reliance on Lender........................................................................   53
Section 6.3         No Lender Obligations........................................................................   53
Section 6.4         Reliance.....................................................................................   54

                                   ARTICLE VII

                               FURTHER ASSURANCES

Section 7.1         Recording of Security Instrument, Etc........................................................   54
Section 7.2         Further Acts, Etc............................................................................   54
Section 7.3         Changes in Tax, Debt Credit and Documentary Stamp Laws.......................................   55
Section 7.4         Estoppel Certificates........................................................................   55
Section 7.5         Flood Insurance..............................................................................   56
Section 7.6         Splitting of Security Instrument.............................................................   56
Section 7.7         Replacement Documents........................................................................   56

                                  ARTICLE VIII

                             DUE ON SALE/ENCUMBRANCE

Section 8.1         Transfer Definitions.........................................................................   56
Section 8.2         No Sale/Encumbrance..........................................................................   57
Section 8.3         Permitted Transfers..........................................................................   58
Section 8.4         Lender's Rights..............................................................................   60

                                   ARTICLE IX

                                   PREPAYMENT

Section 9.1         Prepayment...................................................................................   60
Section 9.2         Prepayment on Casualty or Condemnation.......................................................   60

                                    ARTICLE X

                                     DEFAULT

Section 10.1        Events of Default............................................................................   61
Section 10.2        Late Payment Charge..........................................................................   64
</TABLE>

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<TABLE>
<CAPTION>
<S>                                                                                                                 <C>
Section 10.3        Default Interest.............................................................................   64

                                   ARTICLE XI

                               RIGHTS AND REMEDIES

Section 11.1        Remedies.....................................................................................   64
Section 11.2        Application of Proceeds......................................................................   67
Section 11.3        Right to Cure Defaults.......................................................................   67
Section 11.4        Actions and Proceedings......................................................................   67
Section 11.5        Recovery of Sums Required To Be Paid.........................................................   67
Section 11.6        Examination of Books and Records.............................................................   67
Section 11.7        Other Rights, Etc............................................................................   67
Section 11.8        Right to Release Any Portion of the Property.................................................   68
Section 11.9        Violation of Laws............................................................................   68
Section 11.10       Recourse and Choice of Remedies..............................................................   68
Section 11.11       Right of Entry...............................................................................   69

                                   ARTICLE XII

                              ENVIRONMENTAL HAZARDS

Section 12.1        Environmental Representations and Warranties.................................................   69
Section 12.2        Environmental Covenants......................................................................   71
Section 12.3        Lender's Rights..............................................................................   72

                                  ARTICLE XIII

                                 INDEMNIFICATION

Section 13.1        General Indemnification......................................................................   73
Section 13.2        Mortgage and/or Intangible Tax...............................................................   74
Section 13.3        ERISA Indemnification........................................................................   74
Section 13.4        Environmental Indemnity......................................................................   74
Section 13.5        Duty to Defend; Attorneys' Fees and Other Fees and Expenses..................................   74

                                   ARTICLE XIV

                                     WAIVERS

Section 14.1        Waiver of Counterclaim.......................................................................   75
Section 14.2        Marshalling and Other Matters................................................................   75
Section 14.3        Waiver of Notice.............................................................................   75
Section 14.4        Waiver of Foreclosure Defense................................................................   75
Section 14.5        Sole Discretion of Lender....................................................................   75
Section 14.6        Survival.....................................................................................   75
</TABLE>

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<TABLE>
<CAPTION>
<S>                                                                                                                 <C>
Section 14.7        WAIVER OF TRIAL BY JURY......................................................................   76

                                   ARTICLE XV

                                   EXCULPATION

Section 15.1        Exculpation..................................................................................   76

                                   ARTICLE XVI

                                     NOTICES

Section 16.1        Notices......................................................................................   76

                                  ARTICLE XVII

                               SERVICE OF PROCESS

Section 17.1        Consent to Service...........................................................................   78
Section 17.2        Submission to Jurisdiction...................................................................   78
Section 17.3        Jurisdiction Not Exclusive...................................................................   78

                                  ARTICLE XVIII

                                 APPLICABLE LAW

Section 18.1        Choice of Law................................................................................   78
Section 18.2        Usury Laws...................................................................................   79
Section 18.3        Provisions Subject to Applicable Law.........................................................   79

                                   ARTICLE XIX

                                SECONDARY MARKET

Section 19.1        Transfer of Loan.............................................................................   79
Section 19.2        Cooperation..................................................................................   79
Section 19.3        Reserves/Escrows.............................................................................   79
Section 19.4        Servicer.....................................................................................   80

                                   ARTICLE XX

                                      COSTS

Section 20.1        Performance at Borrower's Expense............................................................   80
Section 20.2        Attorney's Fees for Enforcement..............................................................   80
</TABLE>

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<TABLE>
<CAPTION>
                                   ARTICLE XXI

                                   DEFINITIONS

<S>                                                                                                                 <C>
Section 21.1        General Definitions..........................................................................   81

                                  ARTICLE XXII

                            MISCELLANEOUS PROVISIONS

Section 22.1        No Oral Change...............................................................................   81
Section 22.2        Liability....................................................................................   81
Section 22.3        Inapplicable Provisions......................................................................   81
Section 22.4        Headings, Etc................................................................................   81
Section 22.5        Duplicate Originals; Counterparts............................................................   81
Section 22.6        Number and Gender............................................................................   82
Section 22.7        Subrogation..................................................................................   82
Section 22.8        Future Assignment of Mortgage................................................................   82
Section 22.9        Brokers......................................................................................   83
Section 22.10       Withholdings.................................................................................   83

                                  ARTICLE XXIII

                         ADDITIONAL NEW YORK PROVISIONS

Section 23.1        Controlling Provisions.......................................................................   84
Section 23.2        Commercial Property..........................................................................   84
Section 23.3        Maximum Principal Indebtedness...............................................................   84
Section 23.4        Insurance Proceeds...........................................................................   84
Section 23.5        Trust Fund...................................................................................   84
Section 23.6        Section 291-f Agreement......................................................................   84
</TABLE>

                                      -vi-
<PAGE>   8

                             EXHIBITS AND SCHEDULES

<TABLE>
<CAPTION>
<S>                         <C>       <C>
EXHIBIT A-1                 --        Description of the Fee Land

EXHIBIT A-2                 --        Description of the Overhang Leased Land

EXHIBIT A-3                 --        Description of the City Leased Land

EXHIBIT A-4                 --        Description of Parking Land

EXHIBIT B                   --        Description of Mortgages

EXHIBIT C                   --        Form of SNDA

SCHEDULE I                  --        Litigation
</TABLE>

                                     -vii-

<PAGE>   9
                                                              Exhibit 10(v) A1

                  THIS AMENDED, RESTATED AND CONSOLIDATED MORTGAGE AND SECURITY
AGREEMENT (this "SECURITY INSTRUMENT") is made as of the 31st day of May, 2001,
by ALEXANDER'S KINGS PLAZA, LLC ("PLAZA LLC"), a Delaware limited liability
company, ALEXANDER'S OF KINGS, LLC ("KINGS LLC"), a Delaware limited liability
company, and KINGS PARKING, LLC ("PARKING LLC"), a Delaware limited liability
company, each having its principal place of business at c/o Vornado Realty
Trust, 210 Route 4 East, Paramus, New Jersey 07652, as mortgagor (Plaza LLC,
Kings LLC and Parking LLC are collectively referred to as "BORROWER") to MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation, having an
address at 60 Wall Street, New York, New York 10260, as mortgagee ("LENDER").

                                    RECITALS:

                  WHEREAS, Plaza LLC is the fee simple owner of the real
property described in Exhibit A-1 attached hereto and made a part hereof (the
"FEE LAND") and the improvements located thereon and of the leasehold estate and
all of tenant's right, title, interest, privileges and options created by that
certain Lease dated as of February 1, 1970, as assigned by the Assignment and
Assumption of Tenant's Interest in the Overhang Leases from Kings Plaza Shopping
Center of Avenue U, Inc. to Alexander's Department Stores of Brooklyn, Inc.
dated June 18, 1998, as amended by Amendment to Macy's Overhang Lease dated July
18, 1998 and as further assigned by the Assignment and Assumption of Tenant's
Interest in the Overhang Leases from Alexander's Department Stores of Brooklyn,
Inc. to Alexander's Kings Plaza Center, Inc. dated June 18, 1998 (as amended,
modified, extended, assigned and assumed or supplemented from time to time the
"OVERHANG LEASE"), together with all of Plaza LLC's right, title and interest in
and to the land described on Exhibit A-2 attached hereto and made a part hereof
and the improvements thereon demised pursuant to the Overhang Lease (the
"OVERHANG LEASED LAND");

                  WHEREAS, Kings LLC is the owner of that certain leasehold
estate and all of tenant's right, title, interest, privileges and options
created by that certain Indenture between The City of New York, a municipal
corporation existing under the laws of the State of New York, dated as of
November 29, 1967, as amended by an Amendment of Indenture dated September 19,
1969, and assigned by U&F Realty Corp. to Kings Plaza Shopping Center of
Flatbush Avenue, Inc. and Kings Plaza Shopping Center of Avenue U, Inc. pursuant
to an Assignment and Assumption Agreement dated January 27, 1970, as further
amended by letter agreement dated May 25, 1972 and by Agreement dated May 25,
1976 and as further assigned by Kings Plaza Shopping Center of Flatbush, Inc. to
Alexander's Department Stores of Brooklyn, Inc., pursuant to an Assignment and
Assumption of City Lease dated as of June 18, 1998 covering Block 8470, p/o 50
and part of Lot 1, Brooklyn, New York (as amended, modified, extended, assigned
and assumed or supplemented from time to time, the "GROUND LEASE"), together
with all of Kings LLC's right, title and interest in and to the land described
on Exhibit A-3 attached hereto and made a part hereof and the improvements
thereon demised pursuant to the Ground Lease (the "CITY LEASED LAND").

<PAGE>   10

                  WHEREAS, Parking LLC is the fee simple owner of the real
property described in Exhibit A-4 attached hereto and made a part hereof and the
improvements located thereon (the "PARKING LAND");

                  WHEREAS, Lender is the owner and holder of certain mortgages
covering the fee and leasehold estates in the Land as more particularly
described on Exhibit B attached hereto (hereinafter referred to as the "ORIGINAL
MORTGAGES") and of the notes, bonds or other obligations secured thereby
(hereinafter referred to as the "ORIGINAL NOTES");

                  WHEREAS, there is now owing on the Original Notes and the
Original Mortgages the unpaid principal sum of One Hundred Fifteen Million Two
Hundred Nine Thousand Five Hundred Ninety Two and No/100 Dollars
($115,209,592.00), together with interest;

                  WHEREAS, in connection with the making of a loan by Lender to
Borrower, Borrower has made that certain Mortgage Note dated the date hereof in
the principal amount of One Hundred Seven Million Seven Hundred Ninety Thousand
Four Hundred Eight and No/100 Dollars ($107,790,408.00) in favor of Lender (the
"NEW NOTE"), which New Note has an outstanding principal balance of One Hundred
Seven Million Seven Hundred Ninety Thousand Four Hundred Eight and No/100
Dollars ($107,790,408.00), together with interest;

                  WHEREAS, the New Note is secured by, among other things, that
certain Mortgage dated as of the date hereof made by Borrower to Lender
encumbering the Premises, a copy of which is to be recorded in the Office of the
City Register, Kings County, New York prior to the recording of this Security
Instrument (the "NEW MORTGAGE");

                  WHEREAS, contemporaneously with the execution and delivery of
this Security Instrument, Borrower has executed and delivered to Lender a
certain Amended, Restated and Consolidated Promissory Note in the aggregate
principal amount of Two Hundred Twenty Three Million And No/100 Dollars
($223,000,000.00) (as the same may be amended, restated, replaced, supplemented,
substituted or otherwise modified from time to time, the "NOTE"), which Note
evidences, and amends, restates and consolidates into one indebtedness all
amounts presently due and owing in respect of the Original Notes and the New
Note, and secured by the Original Mortgages and the New Mortgage; and

                  WHEREAS, Borrower and Lender have agreed in the manner
hereinafter set forth (i) to spread the Original Mortgages and the New Mortgage
and the respective liens thereof over those portions of the Property (as
hereinafter defined) not already covered thereby, (ii) to combine, consolidate
and coordinate the Original Mortgages and the New Mortgage and the respective
liens thereof, as spread, into one unified lien in the aggregate principal
amount of Two Hundred Twenty Three Million And No/100 Dollars ($223,000,00.00)
encumbering the Property (hereinafter defined) and (iii) to modify, amend and
restate the terms and provisions of the Original Mortgages and the New Mortgage
in their entirety.

                                      -2-
<PAGE>   11

                  NOW, THEREFORE, in consideration of the foregoing recitals,
which are incorporated into the operative provisions of this Security Instrument
by this reference, and for other good and valuable consideration, the receipt
and adequacy of which are hereby conclusively acknowledged, Borrower hereby
represents and warrants to and covenants and agrees with Lender as follows:

                  A.      Mortgage Spreader. The Original Mortgages and the New
Mortgage and the respective liens thereof are hereby spread over those portions
of the Property not already covered thereby.

                  B.      Mortgage Consolidation. The Original Mortgages and
the New Mortgage and the respective liens thereof, as spread in accordance with
Paragraph A above, are hereby combined and consolidated so that together they
shall hereafter constitute in law but one mortgage, a single lien, covering the
Property and securing the aggregate principal sum of Two Hundred Twenty Three
Million And No/100 Dollars ($223,000,000.00), together with interest thereon as
provided in the Note.

                  C.      Outstanding Indebtedness. The aggregate outstanding
indebtedness evidenced by the Note and secured by this Security Instrument is in
the amount of Two Hundred Twenty Three Million And No/100 Dollars
($223,000,000.00), it being understood that no interest under the Note is
accrued and unpaid for the period prior to the date hereof, but that interest
shall accrue from and after the date hereof at the rate or rates provided in the
Note.

                  D.      Amendment and Restatement. The Original Mortgages are
hereby consolidated and completely amended and restated to read as follows:

                                   ARTICLE I

                               GRANTS OF SECURITY

                  Section 1.1 Property Mortgaged. Borrower does hereby
irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer
and convey to Lender, and grant a security interest to Lender in, the following
property, rights, interests and estates now owned, or hereafter acquired by
Borrower (collectively, the "PROPERTY"):

                  (a) Ground Lease. The Ground Lease and the leasehold estate
created thereby in and to the Property and City Leased Land, together with all
modifications, extensions and renewals of the Ground Lease and all credits,
deposits (including, without limitation, any deposit of cash or securities or
any other property which may be held to secure Borrower's performance of its
obligations under the Ground Lease), options, privileges and rights of Borrower
as tenant under the Ground Lease, including, but not limited to, the right, if
any, to renew or extend the Ground Lease for a succeeding term or terms;

(b) Overhang Lease. The Overhang Lease and the leasehold estate
created thereby in and to the Property and Overhang Leased Land, together with
all modifications, extensions and renewals of the Overhang Lease and all
credits, deposits (including, without limitation, any deposit of cash or
securities or any other property which may be held to secure

                                      -3-
<PAGE>   12

Borrower's performance of its obligations under the Overhang Lease), options,
privileges and rights of Borrower as tenant under the Overhang Lease, including,
but not limited to, the right, if any, to renew or extend the Overhang Lease for
a succeeding term or terms;

                  (c) Land. The Fee Land, the Parking Land and any interest
Borrower may have in the Overhang Leased Land and the City Leased Land
(collectively, the "LAND");

                  (d) 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;

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

                  (f) 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, servitudes,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
now or hereafter belonging, relating or pertaining to the Land and/or the
Improvements, including, but not limited to, those arising under and by virtue
of the Ground Lease or the COREA (hereinafter defined), 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, in and to the
Land and/or the Improvements, including, but not limited to, those arising under
and by virtue of the Ground Lease, and every part and parcel thereof, with the
appurtenances thereto;

                  (g) 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"), superior in lien to the lien of this Security
Instrument and all proceeds and products of the above;

                  (h) 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

                                      -4-
<PAGE>   13
entered into by Borrower and all extensions, amendments and modifications
thereto (the "LEASES"), whether before or after the filing by or against
Borrower of any petition for relief under Creditors Rights Laws (defined in
Article 10 hereof) 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, 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 Creditors Rights Laws (the
"RENTS") and all proceeds, fees, penalties or other receipts from the sale,
termination, surrender or other disposition of the Leases and the right to
receive and apply the Rents to the payment of the Debt;

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

                  (j) 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;

                  (k) Tax Certiorari. Subject to the rights of any tenants under
the Leases, 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;

                  (l) 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;

                  (m) 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;

                  (n) Agreements. All agreements, contracts, certificates,
instruments, franchises, permits, licenses, plans, specifications and other
documents, now or hereafter entered into, and all rights therein and thereto,
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 happening of any default hereunder, to receive
and collect any sums payable to Borrower thereunder;

                  (o) Trademarks. All of Borrower's right, title and interest in
all tradenames (excluding the name "Alexander's"), trademarks, servicemarks,
logos, copyrights, goodwill,

                                      -5-
<PAGE>   14
books and records and all other general intangibles relating to or used in
connection with the operation of the Property; and

                  (p) Accounts. All reserves, escrows and deposit accounts which
are required to be established by Borrower for the benefit of Lender pursuant to
the Loan Documents with respect to the Property including, without limitation,
the Lockbox Account (as defined in that certain Cash Management Agreement (the
"CASH MANAGEMENT AGREEMENT"), dated the date hereof, by and among Borrower and
Lender) and all cash, checks, drafts, certificates, securities, investments,
property, instruments and financial assets held therein from time to time and
all proceeds, products, distributions or dividends or substitutions thereon and
thereof.

                  (q) Other Rights. Any and all other rights of Borrower in and
to the items set forth in Subsections 1.1(a) through 1.1(p) above.

                  Section 1.2 Assignment of Leases and Rents. Borrower hereby
absolutely and unconditionally assigns to Lender all of Borrower's right, title
and interest in and to all current and future Leases and Rents; it being
intended by Borrower that this assignment constitutes a present, absolute
assignment and not an assignment for additional security only. Nevertheless,
subject to the terms of this Section 1.2, Section 3.7 hereof and the terms and
conditions of the Cash Management Agreement, Lender grants to Borrower a
revocable license to collect and receive the Rents.

                  Section 1.3 Security Agreement. This Security Instrument is
both a real property mortgage and a "security agreement" within the meaning of
the Uniform Commercial Code. The Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Borrower in the Property. By executing and delivering this Security
Instrument, Borrower hereby grants to Lender, as security for the Obligations
(defined in Section 2.3), a security interest in the Personal Property and other
collateral given as security for the Obligations (whether denominated as part of
the Property or otherwise) to the extent that under applicable law the same
would be governed by the Uniform Commercial Code (collectively, "UCC
COLLATERAL") to the full extent that the Personal Property and other UCC
Collateral may be subject to the Uniform Commercial Code.

                  Section 1.4 Pledge of Monies Held. Borrower hereby pledges to
Lender any and all monies now or hereafter held by Lender, including, without
limitation, any sums deposited in the Escrow Fund (as defined in Section 3.5),
Net Proceeds (as defined in Section 4.4) and Awards (as defined in Section 3.6),
as additional security for the Obligations until expended or applied by
Borrower, or distributed to Borrower by Lender, as provided in this Security
Instrument and the Other Security Documents.

                               CONDITIONS TO GRANT

                  TO HAVE AND TO HOLD the above granted and described Property
unto and to the use and benefit of Lender, and the successors and assigns of
Lender, forever;

                  PROVIDED, HOWEVER, these presents are upon the express
condition that, if Borrower shall well and truly pay to Lender the Debt in full
and shall well and truly perform the

                                      -6-
<PAGE>   15
Other Obligations as set forth in this Security Instrument, these presents and
the estate hereby granted shall cease, terminate and be void.

                                   ARTICLE II

                          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 following, in such order of priority as Lender may determine in its
sole discretion (the "DEBT"):

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

                  (b) the payment of 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 payment of the Default Consideration (as defined in
the Note), if any;

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

                  (e) the payment of 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) the payment of 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 following (the "OTHER OBLIGATIONS"):

                  (a) the performance of all other obligations of Borrower
contained herein;

                  (b) the performance of each obligation of Borrower contained
in any other agreement given by Borrower to Lender which is for the purpose of
further securing the obligations secured hereby, and any amendments,
modifications and changes thereto; and

                  (c) the performance of 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."

                                      -7-
<PAGE>   16

                  Section 2.4 Payments. Unless payments are made in the required
amount in immediately available funds at the place where the Note is payable,
remittances in payment of all or any part of the Debt shall not, regardless of
any receipt or credit issued therefor, constitute payment until the required
amount is actually received by Lender in funds immediately available at the
place where the Note is payable (or any other place as Lender, in Lender's sole
discretion, may have established by delivery of written notice thereof to
Borrower) and shall be made and accepted subject to the condition that any check
or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default (defined below). Notwithstanding anything to the contrary contained
in this Security Instrument, the Note or the Other Security Documents
(hereinafter defined), and provided no Event of Default (hereinafter defined)
has occurred and is continuing, Borrower's obligations with respect to the
monthly payment of principal and interest and amounts due for Taxes (hereinafter
defined) and any other payment reserves established pursuant to this Security
Instrument, the Note or any Other Security Documents shall be deemed satisfied
to the extent sufficient amounts are available in the Lockbox Account
established pursuant to the Cash Management Agreement to satisfy such
obligations on the dates each such payment is required, regardless of whether
any of such amounts are properly applied by Lender.

                  Section 2.5 Release of Parking Land. At any time after the
Lockout Period Expiration Date (as defined in the Note), Borrower may obtain the
release of the Parking Land from the lien of this Security Instrument, upon
satisfaction of the applicable provisions and conditions contained in Article 5
of the Note regarding repayment and defeasance. In the event that the Parking
Land is so released from the lien of this Security Instrument, Lender's consent
shall not be required with respect to modifications of the COREA which relate to
the Parking Land provided that such modifications do not adversely affect
Lender's security for the Loan.

                                   ARTICLE III

                               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 and 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 or are otherwise executed and
delivered in connection with the Loan (such other documents, together with any
and all extensions, renewals, substitutions, replacements, amendments,
modifications and/or restatements thereof, 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.

                                      -8-
<PAGE>   17

                  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) comprehensive "all risk" insurance on the Improvements
         and the Personal Property, in each case (A) in an amount equal to one
         hundred percent (100%) of the "FULL REPLACEMENT COST," which for
         purposes of this Security Instrument shall mean actual replacement
         value (exclusive of costs of excavations, foundations, underground
         utilities and footings) with a waiver of depreciation, but the amount
         shall in no event be less than the outstanding principal balance of the
         Note; (B) containing an agreed amount endorsement with respect to the
         Improvements and Personal Property waiving all co-insurance provisions;
         (C) providing for no deductible in excess of $100,000; and (D)
         providing 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. The
         Full Replacement Cost shall be redetermined from time to time (but not
         more frequently than once in any twelve (12) calendar months) at the
         request of Lender by an appraiser or contractor designated and paid by
         Borrower and approved by Lender, or by an engineer or appraiser in the
         regular employ of the insurer. After the first appraisal, additional
         appraisals may be based on construction cost indices customarily
         employed in the trade. No omission on the part of Lender to request any
         such ascertainment shall relieve Borrower of any of its obligations
         under this Subsection;

                     (ii) commercial general liability insurance against claims
         for personal injury, bodily injury, death or property damage occurring
         upon, in or about the Property, such insurance (A) to be on the
         so-called "occurrence" form with a combined single limit of not less
         than $1,000,000; (B) to continue at not less than the aforesaid limit
         until reasonably required to be changed by Lender in writing by reason
         of changed economic conditions making such protection inadequate; and
         (C) to cover at least the following hazards: (1) premises and
         operations; (2) products and completed operations on an "if any" basis;
         (3) independent contractors; (4) blanket contractual liability for all
         written and oral contracts; and (5) contractual liability covering the
         indemnities contained in Article 13 hereof to the extent the same is
         available;

                     (iii) loss of rents insurance (A) with loss payable jointly
         to Lender and Borrower as their interests appear; (B) covering all
         risks required to be covered by the insurance provided for in
         Subsection 3.3(a)(i); (C) in an amount such that the projected gross
         income from the Property (as reduced to reflect expenses not incurred
         during a period of Restoration) is paid during the entire period that
         it takes to restore the physical loss to the Improvements and the
         Personal Property; and (D) containing an extended period of indemnity
         endorsement which provides that after the physical loss to the
         Improvements and the Personal Property has been repaired, the continued
         loss of income will be insured until such income returns to the same
         level it was prior to the loss, or the expiration of eighteen (18)
         months from the date of the completion of Restoration, whichever first
         occurs, and notwithstanding that the policy may expire prior to the end
         of such period. 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

                                      -9-
<PAGE>   18
         estimate of the gross income from the Property for the succeeding
         twenty-four month period. All insurance proceeds payable to Lender
         pursuant to this Subsection 3.3(a)(iii) shall be deposited into the
         Lockbox Account and disbursed in accordance with the Cash Management
         Agreement; provided, however, that if such insurance proceeds are
         disbursed to Lender in an amount representing losses for a period in
         excess of one (1) month, then such insurance proceeds shall be held by
         Lender and applied in accordance with the Cash Management Agreement on
         a monthly basis in the amount attributed to the related month by the
         insurance company providing such loss of rents insurance.
         Notwithstanding anything to the contrary contained in this Subsection
         3.3(a)(iii), Borrower shall not be deemed relieved of its obligations
         to pay the obligations secured hereunder on the respective dates of
         payment provided for in the Note except to the extent such amounts are
         actually paid out of the proceeds of such loss of rents insurance;

                     (iv) 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 or endorsement waiving co-insurance provisions;

                     (v) workers' compensation, subject to the statutory limits
         of the state in which the Property is located, and employer's liability
         insurance with a limit of at least $1,000,000 per accident and per
         disease per employee, and $1,000,000 for disease aggregate in respect
         of any work or operations on or about the Property, or in connection
         with the Property or its operation (if applicable);

                     (vi) comprehensive boiler and machinery insurance, if
         applicable, in amounts as shall be reasonably required by Lender;

                     (vii) if any portion of the Improvements is at any time
         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 National Flood Insurance Act of 1968, the Flood
         Disaster Protection Act of 1973 or the National Flood Insurance Reform
         Act of 1994, as each may be amended, or any successor law (the "FLOOD
         INSURANCE ACTS"), flood hazard insurance in an amount equal to the
         lesser of (A) the principal balance of the Note, and (B) the maximum
         limit of coverage available for the Property under the Flood Insurance
         Acts;

                     (viii) earthquake, sinkhole and mine subsidence insurance,
         if required, in amounts, form and substance reasonably satisfactory to
         Lender, provided that the insurance pursuant to this Subsection (viii)
         shall be on terms consistent with the all risk insurance policy
         required under Subsection 3.3(a)(i);

                     (ix) umbrella liability insurance in an amount not less
         than One Hundred Million and No/100 Dollars ($100,000,000) per
         occurrence on terms consistent with the

                                      -10-
<PAGE>   19
         commercial general liability insurance policy required under Subsection
         3.3(a)(ii) above; and

                     (x) such other insurance and in such amounts as Lender from
         time to time may reasonably request against such other insurable
         hazards which at the time are commonly insured against for property
         similar to the Property located in or around the region in which the
         Property is located.

                     (b) All insurance provided for in Subsection 3.3(a) hereof
shall be obtained under valid and enforceable policies (the "POLICIES" or in the
singular, the "POLICY"), in such forms and, from time to time after the date
hereof, in such amounts as may from time to time be satisfactory to Lender,
issued by financially sound and responsible insurance companies authorized to do
business in the state in which the Property is located and reasonably approved
by Lender (each such insurer shall be referred to below as a "QUALIFIED
INSURER"). The insurance companies must have a general policy rating of A or
better and a financial class of IX or better by A.M. Best Company, Inc. and a
claims paying ability rating of "AA" (or its equivalent) or better by at least
two (2) of the credit rating agencies (each a "RATING AGENCY") rating the
Securities (one of which will be Standard & Poor's if they are rating the
Securities and one of which shall be Moody's Investors Service, Inc. if they are
rating the Securities), or if only one Rating Agency is rating the Securities,
then only by such Rating Agency. Not less than ten (10) days prior to the
expiration dates of the Policies theretofore furnished to Lender pursuant to
Subsection 3.3(a), certified copies of the Policies or renewal certificates of
insurance marked "premium paid" or accompanied by evidence satisfactory to
Lender of payment of the premiums due thereunder (the "INSURANCE PREMIUMS"),
shall be delivered by Borrower to Lender; provided, however, that in the case of
renewal Policies, Borrower may furnish Lender with binders therefor to be
followed by the certified copies of the Policies when issued.

                     (c) Borrower shall be permitted to obtain the insurance
required pursuant to this Security Instrument by the use of an umbrella or
blanket liability or casualty Policy, provided that, in each case, such Policy
is approved in advance in writing by Lender, which approval shall not be
unreasonably withheld or delayed and Lender's interest is included therein as
provided in this Security Instrument and such Policy is issued by a Qualified
Insurer. Except to the extent permitted pursuant to Section 3.3(a) hereof,
Borrower shall not obtain separate insurance concurrent in form or contributing
in the event of loss with that required in Subsection 3.3(a) to be furnished by,
or which may be reasonably required to be furnished by, Borrower. In the event
Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower
shall notify Lender of the same and shall cause certified copies of each Policy
to be delivered as required in Subsection 3.3(a). Any blanket insurance Policy
shall specifically allocate to the Property the amount of coverage from time to
time required hereunder and shall otherwise provide the same protection as would
a separate Policy insuring only the Property in compliance with the provisions
of Subsection 3.3(a).

                     (d) All Policies of insurance provided for or contemplated
by Subsection 3.3(a), except for the Policy referenced in Subsection 3.3(a)(v),
shall name Lender as an additional insured and Borrower as the insured or
additional insured, as their respective interests may appear, and in the case of
property damage, boiler and machinery, and flood insurance, shall contain a
so-called New York standard non-contributing mortgagee clause in

                                      -11-
<PAGE>   20
favor of Lender providing that the loss thereunder shall be payable jointly to
Lender and Borrower as their interests may appear.

                     (e) All Policies of insurance provided for in Subsection
3.3(a) shall contain clauses or endorsements to the effect that:

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

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

                     (iii) each Policy shall provide that the issuers thereof
         shall give written notice to Lender if the Policy has not been renewed
         ten (10) days prior to its expiration; and

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

                     (f) Borrower shall furnish to Lender annually upon request
by Lender, a statement certified by Borrower or a duly authorized officer of
Borrower of the amounts of insurance maintained in compliance herewith, of the
risks covered by such insurance and of the insurance company or companies which
carry such insurance and, if requested by Lender, verification of the adequacy
of such insurance by an independent insurance broker or appraiser acceptable to
Lender.

                     (g) If at any time Lender is not in receipt of written
evidence that all insurance required hereunder is in full force and effect,
Lender shall have the right, with notice to Borrower to take such action as
Lender deems necessary to protect its interest in the Property, including,
without limitation, the obtaining of such insurance coverage as described in
this Security Instrument, and all expenses incurred by Lender in connection with
such action or in obtaining such insurance and keeping it in effect shall be
paid by Borrower to Lender upon demand and until paid shall be secured by this
Security Instrument and shall bear interest in accordance with Section 10.3
hereof.

                     (h) If the Property shall be damaged or destroyed, in whole
or in material part, by fire or other casualty, Borrower shall give prompt
notice of such damage to Lender and shall promptly commence and diligently
prosecute the completion of the repair and restoration of the Property (other
than tenant improvements required to be restored by tenants pursuant to their
Leases) and shall cause any tenants under Leases at the Property to repair and
restore any tenant improvements damaged by such fire or other casualty to the
extent such tenant is required to perform such repair or restoration pursuant to
the applicable Lease, as nearly as possible to the condition the Property was in
immediately prior to such fire or other casualty, with such alterations as may
be approved by Lender (the "CASUALTY RESTORATION") and otherwise in

                                      -12-
<PAGE>   21
accordance with Section 4.4 of this Security Instrument. Borrower shall pay all
costs of such Casualty Restoration whether or not such costs are covered by
insurance.

                     (i) In the event of a foreclosure of the Security
Instrument or other transfer of title to the Property in extinguishment in whole
or in part of the Debt, all right, title and interest of Borrower in and to the
Policies then in force concerning the Property and all proceeds payable
thereunder shall thereupon vest exclusively in Lender or the purchaser at such
foreclosure or other transferee in the event of such other transfer of title.

                     Section 3.4 Payment of Taxes, Etc. (a) Subject to the
provisions of Section 3.4(b) below, 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 sums 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 of record (or bonded and discharged of record) 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 any interest, penalties or
additional fees are due in connection with any non-payment of such Taxes and
Other Charges.

                     (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 or Other Charges, 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 not
restricted from doing so under the provisions of any other mortgage, deed of
trust or deed to secure debt affecting the Property, (iii) such proceeding shall
suspend the collection of the Taxes or Other Charges, as applicable, from
Borrower and from the Property or Borrower shall have paid all of the Taxes or
Other Charges, as applicable, 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 any imminent danger of being sold, forfeited, terminated, cancelled
or lost and,(vi) Borrower shall have furnished the security as may be required
in the proceeding, or as may be requested by Lender (but without duplication of
amounts paid pursuant to clause (iii) above), to insure the payment of any
contested Taxes or Other Charges, as applicable, together with all interest and
penalties thereon.

                  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
tenth day of each calendar month (a) one-twelfth of an amount which would be
sufficient to pay the Taxes payable, or estimated

                                      -13-
<PAGE>   22

by Lender to be payable, during the next ensuing twelve (12) months and (b) at
the option of Lender, if the liability or casualty Policy maintained by Borrower
covering the Property shall not constitute an approved blanket or umbrella
Policy pursuant to Subsection 3.3(c) hereof, 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 (any initial
deposits plus the amounts in (a) and (b) above shall be called the "ESCROW
FUND"). In the event Lender shall elect to collect payments in escrow for
Insurance Premiums, Borrower shall pay to Lender an initial deposit to be
determined by Lender, in its sole discretion, to increase the amounts in the
Escrow Fund to an amount which, together with anticipated monthly escrow
payments, shall be sufficient to pay all Insurance Premiums and Taxes as they
become due. 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 and Other Charges 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 that there are sufficient
amounts in the Escrow Fund and no Event of Default exists, Lender will apply the
Escrow Fund to payments of 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 pursuant to a written request from
Borrower, after determining, in its reasonable discretion, the sufficient amount
necessary to pay Taxes and Insurance Premiums when due, return any excess to
Borrower. 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. Borrower shall pay Lender the
sum of Five Thousand Dollars ($5,000) per year for the servicing of the Escrow
Fund and all other accounts established pursuant to the Cash Management
Agreement. Such sum shall be deducted from the interest income earned on the
Escrow Account, if any, and to the extent such interest income shall not be
sufficient to pay such costs, such costs shall be paid by Borrower promptly on
demand by Lender. Notwithstanding anything to the contrary contained in this
Section 3.5, and provided no Event of Default has occurred and is continuing,
Borrower's obligations to make payments to the Escrow Fund shall be deemed
satisfied to the extent that sufficient funds are deposited in the Lockbox
Account to satisfy such obligations on the date such payment is required,
regardless of whether any such amounts are so applied by Lender.

                     Section 3.6 Condemnation. Borrower shall promptly give
Lender notice of the actual or threatened commencement of any condemnation or
eminent domain proceeding and shall deliver to Lender copies of any and all
papers served in connection with such proceedings. Notwithstanding any taking by
any public or quasi-public authority through eminent domain or otherwise
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of such taking), and whether or not any Award (as defined herein)
is made available to the Borrower for Restoration in accordance with Section
4.4, Borrower shall continue to pay the Debt at the time and in the manner
provided for its payment in the Note and in this Security Instrument and the
Debt shall not be reduced until any award or payment therefor (an "AWARD") shall
have been actually received and applied by Lender, after the deduction of
expenses of collection, to the reduction or discharge of the Debt. Lender shall
not be limited to the interest

                                      -14-
<PAGE>   23
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.
Borrower shall cause the Award to be paid directly to Lender, which Lender will
disburse or apply to the Debt pursuant to Section 4.4 hereof. If the Award is to
be used to reduce or discharge the debt pursuant to Section 4.4, Lender may
apply the Award to the reduction or discharge of the Debt whether or not then
due and payable. In the event that the Property, or any portion thereof is taken
by any condemning authority, Borrower shall promptly proceed to restore, repair,
replace or rebuild the Property (other than tenant improvements required to be
restored by tenants pursuant to their Leases) and shall cause any tenants under
Leases at the Property to restore, repair, replace or rebuild the Property to
the extent such tenant is required to perform such restoration, repair or
replacement pursuant to the applicable Lease, in a workman-like manner to the
extent practicable to be of at least equal value and substantially the same
character as prior to such condemnation or eminent domain proceeding (the
"CONDEMNATION RESTORATION"; the Casualty Restoration and the Condemnation
Restoration collectively referred to as the "RESTORATION") in accordance with
all Applicable Laws (as hereinafter defined) affecting the use, repair and
restoration of the Property. If the Property is sold in a foreclosure, or by a
deed-in-lieu of foreclosure, prior to the receipt by Lender of the Award, Lender
shall have the right, whether or not a deficiency judgment on the Note shall
have been sought, recovered or denied, to receive the Award, or a portion
thereof sufficient to pay the Debt.

                  Section 3.7 Leases and Rents. (a) Borrower shall, or shall
cause the Manager (hereinafter defined) to, manage and operate the Property in a
prudent manner. 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 is not an
Anchor Lease or a Major Lease (a "NON-MAJOR LEASE") and satisfies the following:
(i) provides for rental rates and terms comparable to existing local market
rates and terms (taking into account the type and quality of the tenant) as of
the date such Lease or Renewal 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 in any other respect have a materially adverse effect on the
value of the Property or Lender's interest under this Security Instrument, and
(iv) is subject and subordinate to this Security Instrument or will be subject
and subordinate upon execution of an SNDA (defined below), reasonably acceptable
to Lender, and the lessee thereunder agrees to attorn to Lender; provided,
however, the requirement set forth in this clause (iv) shall not be applicable
to a Renewal Lease which exists as of the date hereof which by its terms is not
self-subordinating. All proposed Leases which do not satisfy the requirements
set forth in this Subsection 3.7(a) shall be subject to the prior reasonable
approval of Lender and its counsel. Borrower shall promptly deliver to Lender
(to the extent not previously delivered) copies of all Leases and Renewal 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 in all material
respects all the obligations imposed upon the lessor under the Leases; (ii)
shall promptly send copies to Lender of all notices of default which Borrower
shall send or receive under any Anchor Leases or Major Leases; (iii) shall
enforce all of the material terms, covenants and conditions contained in the
Leases upon the part of the lessee thereunder to be observed or performed; (iv)
shall not collect

                                      -15-
<PAGE>   24
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 except in
connection with the Debt; and (vi) shall not consent to any assignment of or
subletting under any Anchor Leases or Major Leases not in accordance with their
terms, without the prior written consent of Lender which shall not be
unreasonably withheld. Borrower shall deliver to Lender within five (5) Business
Days after Borrower receives or delivers the same, a copy of each notice of
default or termination that Borrower receives or delivers in connection with any
Major Lease. In addition, Borrower shall deliver to Lender upon the request of
Lender a copy of each notice of default or termination that Borrower receives or
delivers in connection with any Lease other than a Major Lease.

                  (c) Borrower may, without the consent of Lender, amend, modify
or waive the provisions of any Non-Major Lease or reduce rents under, accept a
surrender of space under, or shorten the term of, any Non-Major 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, and the planned
alternative use of the affected space) does not have a materially adverse effect
on the value of the Property 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. Borrower may without Lender's consent terminate a Non-Major Lease
for which a tenant has defaulted beyond notice and cure periods. 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.

                  (d) Notwithstanding anything contained herein to the contrary,
Borrower shall not, without the prior written reasonable consent of Lender,
enter into, renew or extend (except in accordance with the terms of the Lease),
amend, modify, waive any provisions of, terminate, reduce rents under, accept a
surrender of space under, or shorten the term of any Anchor Lease or any Major
Lease. The term "ANCHOR LEASE" shall mean (i) the Sears Lease or any Lease
covering the entire premises currently leased to Sears, and (ii) any instrument
guaranteeing or providing credit support for any Anchor Lease. The term "MAJOR
LEASE" shall mean any Lease which (A) provides for rental income representing
five percent (5%) or more of the total rental income for the Property, (B)
covers ten thousand square feet (10,000 s.f.) or more of the total leased space
at the Property, in the aggregate, or (C) provides for a lease term of more than
twenty (20) years including options to renew. Any instrument guaranteeing or
providing credit support for any Major Lease shall also be considered a Major
Lease for the purposes of this Security Instrument.

                  (e) Any fee or payment received by Borrower in connection with
a termination or surrender of all or any part of a Lease shall be paid to Lender
and held and disbursed by Lender pursuant to the terms and conditions of that
certain Tenant Improvement and Leasing Commission Reserve and Security Agreement
executed as of the date hereof between Borrower and Lender.

                  (f) Borrower shall not receive or collect, or permit the
receipt or collection of, any rental or other payments under any Lease more than
one (1) month in advance of the period

                                      -16-
<PAGE>   25
in respect of which they are to accrue, except that (i) in connection with the
execution and delivery of any Lease or of any amendment to any Lease, rental
payments thereunder may be collected and received in advance in an amount not in
excess of one (1) month's rent and a security deposit (including advance rents
as or in lieu of a security deposit) may be required thereunder (provided that
such deposits are maintained in accordance with applicable law and in accordance
with Subsection 3.7(i) hereof), and (ii) Borrower may receive and collect
escalation, percentage rent, additional rent and other charges in accordance
with the terms of each Lease.

                  (g) Borrower shall not enter into any Lease after the date
hereof that does not contain a provision whereby the tenant agrees at the
request and option of Lender either (i) that its Lease shall be subordinate to
this Security Instrument and that the tenant shall attorn under the Lease to any
entity obtaining title to the Property, which subordination and attornment may
be conditioned on delivery of a reasonable and customary nondisturbance
agreement, or (ii) that its Lease shall be senior to this Security Instrument
and that the tenant shall attorn under the Lease to any entity obtaining title
to the Property. Lender shall execute and deliver to the tenant under any Anchor
Lease or Major Lease, or, at Borrower's request, any Non-Major Lease entered
into in compliance with Section 3.7(a) which is actually approved or deemed
approved by Lender, a subordination, non-disturbance and attornment agreement
(an "SNDA") substantially in the form attached hereto as Exhibit C, with such
modifications as Lender may reasonably approve within fifteen (15) Business Days
after such tenant's execution and delivery of the same, provided, that (A)
Borrower has delivered the related Lease or Renewal Lease to Lender on or prior
to the date that the tenant thereunder delivers to Lender the SNDA executed in
connection therewith, and (B) no Event of Default exists hereunder, under the
Note or under the Other Security Documents.

                  (h) Borrower shall be responsible for all reasonable
out-of-pocket expenses incurred by Lender in connection with its review and
approval required pursuant to this Section.

                  (i) Upon the occurrence and during the continuance of an Event
of Default, to the extent permitted by law, Borrower shall promptly deposit with
Lender any and all monies actually received by Borrower as security deposits
under the Leases or credited to tenant by Borrower as a security deposit under a
Lease or sums deposited by Tenants into controlled accounts for the limited
purpose of funding Tenant improvements (the "SECURITY DEPOSITS"). Lender shall
hold the Security Deposits in accordance with the terms of the respective Lease,
and shall only release the Security Deposits in order to return a tenant's
Security Deposit to such tenant if such tenant is entitled to the return of the
Security Deposit under the terms of the Lease and is not otherwise in default
under the Lease. To the extent required by Applicable Laws (defined below),
Lender shall hold the Security Deposits in an interest bearing account selected
by Lender in its sole discretion. In the event Lender is not permitted by law to
hold the Security Deposits, Borrower shall deposit the Security Deposits into an
account with a federally insured institution as approved by Lender.

                  (j) (1) Any (A) Lease or Renewal Lease that requires Lender's
approval and (B) amendment or modification of a Lease that requires Lender's
approval pursuant to this Section 3.7, shall be sent to Lender in an envelope
labeled "PRIORITY" and shall state at the top of the first page in bold
lettering "LENDER'S RESPONSE IS REQUIRED WITHIN TEN (10) BUSINESS DAYS OF
RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A MORTGAGE BETWEEN THE
UNDERSIGNED AND LENDER". The

                                      -17-
<PAGE>   26
economic terms of such Lease, Renewal Lease, amendment or modification, as
applicable (but not the actual Lease or Renewal Lease itself) shall be deemed
approved if simultaneously with such notice Lender receives the Summary
Information (hereinafter defined) and Lender shall not have notified Borrower in
writing of its disapproval (together with a statement of the grounds of such
disapproval) within ten (10) Business Days after Lender has received such
Summary Information. For purposes of this Section 3.7, the "SUMMARY INFORMATION"
need not include the proposed Lease or Renewal Lease but shall be the following:
(i) a summary of the economic terms of such proposed Lease or Renewal Lease or
of the economic terms of an amendment or modification, as applicable, and (ii) a
copy of all written or supporting materials used by Borrower in evaluating the
creditworthiness of the proposed tenant or the requested amendment or
modification.

                  (2) Provided that Lender has approved the Summary Information
pursuant to clause (1) above, any (A) Lease or Renewal Lease that requires
Lender's approval and (B) amendment or modification of a Lease that requires
Lender's approval pursuant to this Section 3.7, shall be sent to Lender in an
envelope labeled "PRIORITY" and shall state at the top of the first page in bold
lettering "LENDER'S RESPONSE IS REQUIRED WITHIN TEN (10) BUSINESS DAYS OF
RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A MORTGAGE BETWEEN THE
UNDERSIGNED AND LENDER". Such Lease, Renewal Lease, amendment or modification
shall be deemed approved if simultaneously with such notice Lender receives the
Approval Document (hereinafter defined) and Lender shall not have notified
Borrower in writing of its disapproval (together with a statement of the grounds
of such disapproval, provided that such disapproval shall not be inconsistent
with Lender's approval of the Summary Information) within ten (10) Business Days
after Lender has received such Lease, Renewal Lease, amendment or modification,
as applicable. For purposes of this Section 3.7, the "APPROVAL DOCUMENT" shall
be the following: (i) a full and complete copy of the Lease, Renewal Lease,
amendment or modification to be approved, (ii) a copy of all written or
supporting materials used by Borrower in evaluating the creditworthiness of the
proposed tenant or the requested amendment or modification, and (iii) a copy of
the Summary Information approved by Lender.

                  (3) Any (A) Lease or Renewal Lease that requires Lender's
approval and (B) amendment or modification of a Lease that requires Lender's
approval pursuant to this Section 3.7 and for which no Summary Information has
been submitted to Lender, shall be sent to Lender in an envelope labeled
"PRIORITY" and shall state at the top of the first page in bold lettering
"LENDER'S RESPONSE IS REQUIRED WITHIN FIFTEEN (15) BUSINESS DAYS OF RECEIPT OF
THIS NOTICE PURSUANT TO THE TERMS OF A MORTGAGE BETWEEN THE UNDERSIGNED AND
LENDER". Such Lease, Renewal Lease, amendment or modification shall be deemed
approved if simultaneously with such notice Lender receives the Approval
Information (hereinafter defined) and Lender shall not have notified Borrower in
writing of its disapproval (together with a statement of the grounds of such
disapproval) within fifteen (15) Business Days after Lender has received such
Lease, Renewal Lease, amendment or modification, as applicable. For purposes of
this Section 3.7, the "APPROVAL INFORMATION" shall be the following: (i) a full
and complete copy of the document to be approved, (ii) a copy of all written or
supporting materials used by Borrower in evaluating the creditworthiness of the
proposed tenant or the requested amendment or modification, and (iii) a

                                      -18-
<PAGE>   27
summary of the economic terms of such proposed Lease or Renewal Lease or of the
terms of the amendment or modification.

                  (k) Any termination of a Lease that requires Lender's approval
pursuant to Section 3.7(d) shall be sent to Lender in an envelope labeled
"PRIORITY" and shall state at the top of the first page in bold lettering
"LENDER'S RESPONSE IS REQUIRED WITHIN TEN (10) BUSINESS DAYS OF RECEIPT OF THIS
NOTICE PURSUANT TO THE TERMS OF A MORTGAGE BETWEEN THE UNDERSIGNED AND LENDER".
Such termination request shall be deemed approved if simultaneously with such
notice Lender receives a statement from the Borrower setting forth the reasons
for such termination and Lender shall not have notified Borrower in writing of
its disapproval (together with a statement of the grounds of such disapproval)
within ten (10) Business Days after Lender has received such request for
termination.

                  Section 3.8 Maintenance 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; provided, however, that, Borrower and/or tenants
under Leases shall be permitted to make tenant improvements, and/or prepare the
premises to be demised for occupancy by a tenant, pursuant to the terms and
conditions of Leases approved by Lender or not required to be approved by Lender
pursuant to Section 3.7 hereof. Whether or not Net Proceeds (as defined herein)
are made available for a Restoration in accordance with Section 4.4 hereof,
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 which
would have a material adverse effect on the value or net operating income of the
Property; provided, however, Lender shall not withhold its consent to
subordinating the lien of this Security Instrument to such private restrictive
covenant, or other private restriction which, in Lender's sole discretion, does
not have a material adverse effect on the Property. 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 abandoned without the express written consent of Lender;
provided, however, Lender's consent shall not be required if (a) a nonconforming
use is discontinued or abandoned due to (i) a change in, or termination of, a
tenant's use of the demised premises in accordance with the terms and conditions
of the related Lease (which Lease exists as of the date hereof or is hereafter
approved or not required to be approved by Lender in accordance with Section 3.7
hereof), (ii) the expiration of a Lease in accordance with the terms and
conditions of the Lease or (iii) the discontinuance of operation by a tenant
pursuant to the terms and conditions of the related Lease (which Lease exists as
of the date hereof or is hereafter approved or not required to be approved by
Lender in accordance with Section 3.7 hereof), or (b) such discontinuance or
abandonment of the nonconforming use will not have a material adverse effect
upon the value or the net operating income of the Property.

                                      -19-
<PAGE>   28
                  Section 3.9 Waste. Borrower shall not commit any physical
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 materially and adversely 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 3.10 Compliance With Laws. (a) Subject to Borrower's
right to contest set forth in Section 3.10(e) hereof, Borrower shall comply, and
cause all tenants to comply, with all existing and future federal, state and
local laws, orders, ordinances, governmental rules and regulations or court
orders affecting the Property or the use thereof ("APPLICABLE LAWS") on or prior
to the date required thereby; provided, however, it shall not be an Event of
Default hereunder if it is the obligation of a tenant pursuant to the applicable
Lease to comply with such Applicable Laws and Borrower promptly after receiving
actual notice of any noncompliance with such Applicable Laws commences and
diligently pursues its rights against such tenant and causes such tenant to
comply with such Applicable Laws within a reasonable time and the failure to
comply with the Applicable Laws for such period of time does not (i) impose
civil or criminal liability on Borrower or Lender or (ii) materially and
adversely effect the Property or Borrower.

                  (b) Borrower shall from time to time, upon Lender's request,
provide Lender with evidence reasonably satisfactory to Lender that the Property
complies with all Applicable Laws or is exempt from compliance with Applicable
Laws or that Borrower is contesting as may be permitted under Section 3.10(e)
hereof.

                  (c) Intentionally deleted.

                  (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) if Event of Default has occurred and is
continuing, Lender shall consent to any such contest (which consent shall not be
unreasonably withheld); (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; (vi) Borrower
shall have furnished the security as may be required in the proceeding or by
Lender (without duplication) to ensure compliance by Borrower with the

                                      -20-
<PAGE>   29
Applicable Laws; and (vii) Borrower shall have furnished to Lender all other
items reasonably requested by Lender.

                  Section 3.11 Books and Records. (a) Borrower shall keep
adequate books and records of account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied and furnish to Lender:

                  (i) quarterly 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, and any other information as is
         reasonably required by Lender, within sixty (60) days after the end of
         each calendar quarter;

                  (ii) quarterly operating statements of the Property, prepared
         and certified by Borrower in substantially the same form as previously
         submitted by Borrower in connection with the closing of the Loan or
         such other form as may be reasonably acceptable to 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 that quarter and containing appropriate
         year to date information, within sixty (60) days after the end of each
         calendar quarter;

                  (iii) an audited 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 in substantially the same form as previously submitted in
         connection with the closing of the Loan or such other form as may be
         reasonably acceptable to Lender, prepared and certified by an
         independent certified public accountant reasonably acceptable to
         Lender, within one hundred twenty (120) days after the close of each
         fiscal year of Borrower;

                  (iv) an audited annual balance sheet of Borrower in
         substantially the same form as previously submitted in connection with
         the closing of the Loan or such other form as may be reasonably
         acceptable to Lender, each prepared and certified by an independent
         certified public accountant reasonably acceptable to Lender, within one
         hundred twenty (120) days after the close of each fiscal year of
         Borrower; and

                  (v) an annual operating budget 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) Intentionally Omitted.

                  (c) Borrower shall furnish Lender with such other additional
financial or management information as may, from time to time, be reasonably
required by Lender in form and substance reasonably satisfactory to Lender.

                                      -21-
<PAGE>   30
                  (d) No more than one time per any calendar year, Borrower
shall furnish to Lender and its agents, upon reasonable prior notice, convenient
facilities during normal business hours for the examination and audit of any
such books and records.

                  (e) Any reports, statements or other information required to
be delivered under this Security Instrument shall be delivered in paper form and
in the event that Lender requires financial statements in connection with
Section 3.11(f) below because the Loan together with any Affiliated Loans
(hereinafter defined) equal or exceed twenty percent (20%) of the aggregate
principal amount of all mortgage loans included in a Securitization, Borrower
shall deliver such reports, statements and other information (i) on a diskette,
and (ii) if requested by Lender and within the capabilities of Borrower's data
systems without change or modification thereto, in electronic form and prepared
using Microsoft Word for Windows or WordPerfect for Windows files (which files
may be prepared using a spreadsheet program and saved as word processing files).

                  (f) If requested by Lender, Borrower shall provide Lender with
the following financial statements if, at the time a preliminary or final
prospectus is being prepared for a public Securitization, it is expected that
the principal amount of the Loan together with any Affiliated Loans at the time
of the public Securitization may, or if the principal amount of the Loan and any
Affiliated Loans at any time during which the Loan is included in a public
Securitization does, equal or exceed twenty percent (20%) of the aggregate
principal amount of all mortgage loans included or expected to be included, as
applicable, in the public Securitization:

                  (i) Not later than forty (40) days after request by Lender, a
         balance sheet with respect to the Property for the two (2) most recent
         fiscal years, meeting the requirements of Section 210.3-01 of
         Regulation S-X of the Securities Act (as defined in the Cooperation
         Letter) and statements of income and statements of cash flows with
         respect to the Property for the three most recent fiscal years, meeting
         the requirements of Section 210.3-02 of Regulation S-X, and, to the
         extent that such balance sheet is more than one hundred thirty-five
         (135) days old as of the date of the document in which such financial
         statements are included, interim financial statements of the Property
         meeting the requirements of Section 210.3-01 and 210.3-02 of Regulation
         S-X (all of such financial statements, collectively, the "STANDARD
         STATEMENTS").

                  (ii) Not later than forty (40) days after the end of each
         fiscal quarter following the date hereof, a balance sheet of the
         Property as of the end of such fiscal quarter, meeting the requirements
         of Section 210.3-01 of Regulation S-X, and statements of income and
         statements of cash flows of the Property for the period commencing
         following the last day of the most recent fiscal year and ending on the
         date of such balance sheet and for the corresponding period of the most
         recent fiscal year, meeting the requirements of Section 210.3-02 of
         Regulation S-X.

                  (iii) Not later than eighty-five (85) days after the end of
         each fiscal year following the date hereof, a balance sheet of the
         Property as of the end of such fiscal year, meeting the requirements of
         Section 210.3-01 of Regulation S-X, and statements of income and
         statements of cash flows of the Property for such fiscal year, meeting
         the requirements of Section 210.3-02 of Regulation S-X.

                                      -22-
<PAGE>   31
                  (iv) Within ten (10) Business Days after notice from the
         Lender in connection with the public Securitization of this Loan, such
         additional financial statements, such that, as of the date (each an
         "OFFERING DOCUMENT DATE") of each Disclosure Document, Borrower shall
         have provided Lender with all financial statements as described in
         Subsection 3.11(f)(i); provided that the fiscal year and interim
         periods for which such financial statements shall be provided shall be
         determined as of such Offering Document Date.

                  (g) If requested by Lender, Borrower shall provide Lender,
promptly upon request, with summaries of the financial statements referred to in
Section 3.11(f) hereof if, at the time a preliminary or final prospectus is
being prepared for a public Securitization, it is expected that the principal
amount of the Loan and any Affiliated Loans at the time of public Securitization
may, or if the principal amount of the Loan and any Affiliated Loans at any time
during which the Loan and any Affiliated Loans are included in a public
Securitization does, equal or exceed ten percent (10%) (but is less than twenty
percent (20%)) of the aggregate principal amount of all mortgage loans included
or expected to be included, as applicable, in a public Securitization. Such
summaries shall meet the requirements for "summarized financial information," as
defined in Section 210.1-02(bb) of Regulation S-X or such other requirements as
may be determined to be necessary or appropriate by Lender.

                  (h) All financial statements provided by Borrower hereunder
pursuant to Section 3.11(f) and (g) hereof shall be prepared in accordance with
GAAP, and shall meet the requirements of Regulation S-X and other applicable
legal requirements. All financial statements referred to in Subsections
3.11(f)(i) and 3.11(f)(iii) above shall be audited by (i) a "Big Six" accounting
firm or (ii) other nationally recognized independent accountants acceptable to
Lender, in accordance with Regulation S-X and all other applicable legal
requirements, shall be accompanied by the manually executed report of the
independent accountants thereon, which report shall meet the requirements of
Regulation S-X and all other applicable legal requirements, and shall be further
accompanied by a manually executed written consent of the independent
accountants, in form and substance acceptable to Lender, to the inclusion of
such financial statements in any Disclosure Document (as defined in the
Cooperation Letter) and any Exchange Act Filing and to the use of the name of
such independent accountants and the reference to such independent accountants
as "experts" in any Disclosure Document and Exchange Act Filing (as defined
below), all of which shall be provided at the same time as the related financial
statements are required to be provided. All financial statements (audited or
unaudited) provided by Borrower under this Section 3.11 shall be certified by
the chief financial officer or administrative member of Borrower, which
certification shall state that such financial statements meet the requirements
set forth in the first sentence of this Section 3.11(h).

                  (i) If requested by Lender, Borrower shall provide Lender,
promptly upon request, with any other or additional financial statements, or
financial, statistical or operating information, as required pursuant to
Regulation S-X or any amendment, modification or replacement thereto or other
legal requirements in connection with any Disclosure Document or any filing
under or pursuant to the Exchange Act in connection with or relating to a public
Securitization (hereinafter an "EXCHANGE ACT FILING") or as shall otherwise be
reasonably requested by the Lender.

                                      -23-
<PAGE>   32
                  (j) In the event Lender determines, in connection with a
Securitization, that the financial statements required in order to comply with
Regulation S-X or other legal requirements are other than as provided herein,
then notwithstanding the provisions of Section 3.11(f), (g) and (h) hereof,
Lender may request, and Borrower shall promptly provide, Standard Statements or
such other financial statements as Lender reasonably determines to be necessary
or appropriate for such compliance.

                  (k) The term "AFFILIATED LOAN" shall mean any loan made by
Lender to a parent, subsidiary or such other entity affiliated with Borrower,
any Indemnitor or any Guarantor (hereinafter defined).

                  Section 3.12 Payment For Labor and Materials. Except for trade
payables in the ordinary course of business which are subject to the provisions
of Section 4.3(g) hereof, 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 beyond the due date
thereof (after the expiration of any applicable grace periods) 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 and the Permitted Exceptions (defined below); provided, however, after
prior written notice to Lender, Borrower, at its own expense, may contest by
appropriate legal, administrative or other 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 bill or cost or lien thereof provided
that (a) if an Event of Default has occurred and is continuing, Lender shall
consent to any such contest (which consent shall not be unreasonably withheld),
(b) such proceeding shall suspend the collection thereof from Borrower, Lender
and the Property, (c) if required by Lender, and not otherwise deposited with
the title company insuring the lien of this Security Instrument or the court
having jurisdiction over such proceeding as required thereby, the deposit with
Lender of adequate reserves in an amount not less than Borrower's obligations
being contested and any additional interest, charge or penalty arising from such
contest, (d) neither the Property nor any part thereof or interest therein would
be in any imminent danger of being sold, forfeited or lost, (e) in the case of
any instrument of record affecting the Property or any part thereof, the contest
or failure to perform under any such instrument shall not result in the placing
of any lien on the Property or any part thereof unless such lien is bonded by
Borrower in an amount not less than the amount of the lien or such other amount
as may be reasonably -required by Lender and (f) except to the extent Borrower
has deposited sufficient security pursuant to clause (c), neither the failure to
pay or perform any obligation which Borrower is permitted to contest under this
Section 3.12 nor an adverse determination of any such contest shall result in a
material adverse effect on the value or operation of the Property or any part or
interest therein. If a negotiated settlement of any tax liability or other claim
being contested pursuant to this Section 3.12 has been agreed upon by the
applicable parties or a court of competent jurisdiction has issued a
non-appealable order determining the amount of the tax liability or claim being
contested, Lender shall release any funds held with respect to such tax
liability or claim to the applicable taxing authority or claimant, as
applicable, and any remaining funds to the Borrower provided that (i) Borrower
delivers a certificate from an officer directing Lender to pay the amount
specified in the settlement or order, in each case with a copy of the

                                      -24-
<PAGE>   33
settlement or order attached and (ii) no Event of Default has occurred and is
then continuing under the Note, this Security Instrument or the Other Security
Documents.

                  Section 3.13 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 (including,
without limitation, the COREA) 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 3.14 Alterations. Borrower shall obtain Lender's prior
written consent, which consent shall not be unreasonably withheld or delayed, to
any alterations to the Improvements that may have a material adverse effect on
Borrower's financial condition, the use, operation or value of the Property or
the net operating income with respect to the Property, other than (a) tenant
improvement work performed pursuant to the terms of any Lease executed on or
before the date hereof or approved by Lender after the date hereof, (b) tenant
improvement work performed pursuant to the terms and provisions of a Lease
executed after the date hereof for which the approval of Lender is not required,
or Lender's approval is deemed given, and such improvement does not adversely
affect any structural component of any Improvements, any utility or HVAC system
contained in any Improvements or the exterior of any building constituting a
part of any Improvements, or (c) alterations performed in connection with the
restoration of the Property after the occurrence of a casualty or condemnation
in accordance with the terms and provisions of this Security Instrument. Any
approval by Lender of the plans, specifications, or working drawings for
alterations of the Property shall not create responsibility or liability on
behalf of Lender for their completeness, design, sufficiency or their compliance
with Applicable Laws. Lender may condition any such approval upon receipt of a
certificate of compliance with Applicable Laws from an independent architect,
engineer, or other person reasonably acceptable to Lender. If the total unpaid
amounts due and payable with respect to alterations to the Improvements (other
than such tenant improvement amounts set forth under the Leases which have been
approved by Lender or other amounts for tenant improvements contained in a Lease
not requiring approval or deemed approved if there is submitted to Lender for
approval the terms and provisions of the Lease pertaining to such tenant
improvement) shall at any time exceed Seven Million and 00/100 Dollars
($7,000,000.00) (the "THRESHOLD AMOUNT"), Borrower shall promptly deliver to
Lender as security for the payment of such amounts and as additional security
for Borrower's obligations under the Loan Documents any of the following: (i)
cash, (ii) U.S. Treasury securities, (iii) other securities having a rating
acceptable to Lender or that the applicable Rating Agencies have confirmed in
writing will not, in and of itself, result in a downgrade, withdrawal or
qualification of the initial, or, if higher, then current ratings assigned in
connection with any Securitization (as defined herein) or if a Securitization
has not occurred, any ratings to be assigned in connection with a
Securitization, (iv) a completion bond and performance bond or (v) a Letter of
Credit (hereinafter defined). Such security shall be in an amount equal to the
excess of the total unpaid amounts with respect to alterations to the
Improvements (other than such amounts to be paid or reimbursed by tenants under
the Leases) over the Threshold Amount (the "EXCESS AMOUNT") and shall be reduced
from time to time upon Borrower's request as the Excess Amount decreases as
determined in the reasonable discretion of Lender.

                                      -25-
<PAGE>   34
                  Section 3.15 Non-Consolidation Opinion. Borrower has complied
and will comply with each of the assumptions made with respect to its single
purpose, bankruptcy remote nature as set forth in that certain substantive
non-consolidation opinion letter, dated the date hereof, and the certificates
contained in any Borrower's certificate referenced therein, delivered by
Borrower's counsel in connection with the Loan and any subsequent
non-consolidation opinion delivered in accordance with the terms and conditions
of this Security Instrument or the Cooperation Letter (hereinafter defined) (the
"NON-CONSOLIDATION OPINION"), including, but not limited to, any exhibits
attached thereto. Each entity other than Borrower (excluding Lender parties)
with respect to which an assumption is made in the Non-Consolidation Opinion,
including, but not limited to, any exhibits attached thereto, has complied and
will comply with each of the assumptions made with respect to it in the
Non-Consolidation Opinion, including, but not limited to, any exhibits attached
thereto.

                  Section 3.16 Management. (a) The management agreement, dated
as of May 31, 2001 (the "MANAGEMENT AGREEMENT"), between Borrower and Vornado
Management Corp., or any wholly owned subsidiary of Vornado Realty L.P.
(collectively, "MANAGER") pursuant to which Manager operates the Property is in
full force and effect and there is no default or violation by any party
thereunder. The fee due under the Management Agreement, are subordinate to this
Security Instrument. Borrower shall not terminate, cancel, modify any of the
material or monetary terms of the Management Agreement, or renew or extend
(except automatic annual extensions pursuant to the terms and conditions
contained therein) the Management Agreement, or enter into any agreement for the
management of the Property without the express written consent of Lender, which
consent shall not be unreasonably withheld, conditioned or delayed. The Property
shall at all times be managed by Manager or a Qualified Manager (hereinafter
defined). Borrower shall maintain the Management Agreement, or any replacement
management agreement for the operation of the Property, in full force and
effect, or promptly enter into a new management agreement with a Qualified
Manager, if the previous management agreement is not in full force and effect.
Borrower shall timely perform all of Borrower's material obligations thereunder
and enforce performance of all material obligations of Manager or Qualified
Manager, as applicable, thereunder. Borrower will enter into and cause Manager,
as well as any subsequent Qualified Manager, to enter into an assignment and
subordination of such Management Agreement, or any replacement management
agreement, in form reasonably satisfactory to Lender. "QUALIFIED MANAGER" shall
mean a property manager (i) that on the date of determination manages (for
itself, for affiliates or for third party owners) no less than Five Million
(5,000,000) square feet in the aggregate (exclusive of the Property) which are
retail properties similar in type to the Property, (ii) that is consented to by
Lender, such consent not to be unreasonably withheld or delayed, if the change
in manager occurs at a time when the Loan is not subject to a Securitization,
and (iii) for which Borrower delivers evidence in writing from the applicable
Rating Agencies to the effect that such new manager, taken alone, will not
result in a downgrade, withdrawal or qualification of the respective ratings
then in effect for any Securities issued in connection with a Securitization, if
a change in manager occurs at a time when the Loan is subject to a
Securitization.

                  (b) Borrower has delivered to Lender a letter agreement dated
May, 2001 (together with any replacement parking management agreement, the
"PARKING MANAGEMENT AGREEMENT"), from Central Parking Corporation (together with
any replacement parking manager, the "PARKING MANAGER") pursuant to which
Parking Manager confirms that it is

                                      -26-
<PAGE>   35
operating the parking garage at the Property on month to month basis pursuant to
the terms of an expired agreement. Borrower shall use commercially reasonable
efforts to enter into a replacement parking management agreement for the
operation of the Property as soon as practicable. Such replacement Parking
Management Agreement shall be on commercially reasonable terms. Borrower
covenants and agrees to cause the parking facilities at the Property to be
operated in a commercially reasonable manner. In connection with any new Parking
Management Agreement, Borrower will cause Parking Manager to enter into an
assignment of such new Parking Management Agreement, in form reasonably
satisfactory to Lender.

                  Section 3.17 Additional Collateral/Letter of Credit. (a) The
following terms shall have the ascribed meaning:

                  (1) "LETTER OF CREDIT" shall mean an irrevocable,
         unconditional, transferable, clean sight draft letter of credit in
         favor of Lender and entitling Lender to draw thereon in New York, New
         York, issued by a domestic Approved Bank or the U.S. agency or branch
         of a foreign Approved Bank, or if there are no domestic banks or
         financial institutions with an office in New York, New York which
         qualify as an Approved Bank or U.S. agencies or branches of a foreign
         bank or financial institution with an office in New York, New York
         which qualifies as an Approved Bank then issuing letters of credit,
         then such letter of credit may be issued by any domestic bank with a
         long term unsecured debt rating that is the highest such rating then
         given by each of the Rating Agencies to a domestic commercial bank. The
         terms and provisions of any Letter of Credit delivered hereunder shall
         be acceptable to Lender in all respects.

                  (2) "APPROVED BANK" shall mean (A) First Union National Bank
         (but only for so long as First Union maintains a credit rating of "A"
         or better) and (B) a bank that (A) satisfies the Rating Criteria, and
         (B) is insured by the Federal Deposit Insurance Corporation.

                  (3) "DEBT SERVICE COVERAGE RATIO" or "DSCR" shall mean for the
         applicable period a ratio the numerator of which is the NOI (as defined
         below) for the Property and the denominator is the Debt Service
         (defined below) that would be payable under the Note for the applicable
         period, which ratio shall be calculated by Lender with adjustments
         pursuant to Lender's customary underwriting standards.

                  (4) "NOI" shall mean, with respect to the Property, for any
         given period the Gross Income (defined below) derived from the
         operation of the Property, less Expenses (defined below) attributable
         to the Property for such period, as more particularly described on the
         operating statements for the Property delivered by Borrower to Lender
         pursuant to this Security Instrument.

                  (5) "GROSS INCOME" as used herein shall mean all current
         income (on an annual basis) of a recurring nature, computed in
         accordance with GAAP, derived from the ownership and operation of the
         Property from whatever source, including, without limitation, Rents
         (with respect to Leases in place at the time of such calculation,
         adjusted for Vacancy Rate (defined below)), utility charges,
         escalations, forfeited security deposits, service fees or charges,
         license fees, laundry or concession income, parking

                                      -27-
<PAGE>   36
         fees, and other required pass-throughs, but excluding interest on
         credit accounts, sales, use and occupancy or other taxes on receipts
         required to be accounted for by Borrower to any government or
         governmental agency, refunds and uncollectible accounts, non-forfeited
         tenant security deposits, sales of furniture, fixtures and equipment,
         proceeds of casualty insurance and condemnation awards (other than
         business interruption or other loss of income insurance), and any
         disbursements to Borrower from the Escrow Fund, the Replacement
         Reserve, if applicable, or any other escrow fund established by this
         Security Instrument or the Other Security Documents, with such
         adjustment as Lender deems reasonable and consistent with its then
         current underwriting practice used for loans of a size and nature
         similar to the Loan.

                  (6) "EXPENSES" as used herein shall mean on a trailing twelve
         (12) month basis the sum of (a) the total of all expenditures, computed
         in accordance with GAAP, of whatever kind relating to the operation,
         maintenance and management of the Property that are incurred on a
         regular monthly or other periodic basis including without limitation,
         utilities, ordinary repairs and maintenance, insurance, license fees,
         Taxes and Other Charges, advertising expenses, accounting expenses,
         professional fees, management fees pursuant to a written management
         agreement providing for fees not exceeding market and approved by
         Lender, but in no event less than four percent (4%) of Gross Income,
         wages, benefits, payroll and related taxes, computer processing
         charges, operational equipment or other lease payments as approved by
         Lender and other similar costs, but excluding depreciation,
         amortization, and scheduled principal and interest payments under the
         Note and payments or contributions to the Escrow Fund, (b)
         contributions to the Replacement Reserve, and (c) normalized tenant
         improvement costs and leasing commissions in the aggregate amount equal
         to $725,000 per year, with such adjustment as Lender deems reasonable
         and consistent with its then current underwriting practice used for
         loans of a size and nature similar to the Loan.

                  (7) "DEBT SERVICE" as used herein shall mean, for any given
         period during the term of the Loan, an amount equal to payments of
         principal and interest based upon an assumed constant rate of nine
         percent (9%) per annum."

                  (8) "RATING CRITERIA" with respect to any Person, shall mean
         the long term unsecured debt obligations which are rated at least "AA"
         by Standard & Poor's Ratings Group and Fitch, Inc. and "Aa2" by Moody's
         Investors Service, Inc., in the case of accounts in which funds are
         held for more than thirty (30) days.

                  (9) "VACANCY RATE" shall mean the greatest of (i) a tenant
         vacancy rate of 5%, (ii) the actual vacancy rate at the Property or
         (iii) the market vacancy rate as reasonably determined by Lender and
         supported by Lender with appropriate market evidence.

                  (b) On the date hereof, as additional security for the Debt,
Borrower shall deliver and shall maintain in accordance with the requirements
set forth in this Section 3.17 a Letter of Credit or cash (the "ADDITIONAL
COLLATERAL") in an amount equal to $4,000,000.00. Lender shall have the right
(but not the obligation) to draw on the Additional Collateral in whole or in
part and apply the proceeds thereof to the Debt in such order and proportion as
Lender may

                                      -28-
<PAGE>   37
elect in its sole discretion after the occurrence and during the continuance of
an Event of Default and as otherwise provided in this Section 3.17.

                  (c) Provided (i) no Event of Default has occurred and is
continuing, and (ii) tenant occupancy of the Property is no less than ninety-two
(92%) percent of economic and physical occupancy, upon thirty (30) days' notice
(not exercised more frequently than once every six (6) months), Borrower may
seek a reduction and/or release of the Additional Collateral. The Additional
Collateral may be reduced and/or released in an amount equal to the result of
the following: (i) Lender shall determine the NOI and determine the amount of a
loan that the Property would support based on such NOI, a constant debt service
rate of nine percent (9%) per annum and assuming a DSCR of 1.20 to 1 is
satisfied (the "HYPOTHETICAL LOAN AMOUNT"), (ii) the Hypothetical Loan Amount
will then be deducted from the original principal balance of the Loan (the
"REDUCED AC AMOUNT"), (iii) if the Reduced AC Amount is equal to or less than
zero, the Additional Collateral will be returned to the Borrower, (iv) if the
Reduced AC Amount is equal to or greater than zero and less than the then
existing amount of the Additional Collateral, the Additional Collateral will be
reduced by Lender to an amount equal to the Reduced AC Amount and (v) if the
Reduced AC Amount is equal to or greater than the Additional Collateral, no
release and/or reductions will be made. A reduction in the amount of the
Additional Collateral may be accomplished, in the case of a Letter of Credit, by
a replacement of the existing Letter of Credit with a new Letter of Credit in
the applicable amount or by an amendment to the existing Letter of Credit,
reducing the amount of such Letter of Credit to the applicable amount. At the
time of any request by Borrower for a reduction in the Additional Collateral,
Borrower shall deliver any and all financial or other information concerning the
Property (including, but not limited to, operating statements for the
immediately preceding twelve (12) months) as may be requested by Lender in order
to make the computations required under this Section 3.17(c). A release and/or
reduction in the Additional Collateral, at the request of Lender, shall also be
subject to confirmation from the applicable Rating Agencies that such release or
reduction, taken alone, shall not result in a downgrade, qualification or
withdrawal of any current rating assigned or to be assigned in a Securitization.

                  (d) In addition to any other right Lender may have to draw
upon a Letter of Credit pursuant to the terms and conditions of this Section
3.17, Lender shall have the additional rights to draw in full upon a Letter of
Credit: (i) if Lender has not received at least thirty (30) days prior to the
date on which the then outstanding Letter of Credit is scheduled to expire, a
notice from the issuing bank that it has renewed the applicable Letter of Credit
and Borrower fails to deliver a replacement Letter of Credit within fifteen (15)
days prior to the date on which the outstanding Letter of Credit is scheduled to
expire; (ii) upon receipt of notice from the issuing bank that the applicable
Letter of Credit will be terminated; and (iii) thirty (30) days after Lender has
received notice and given notice to the Borrower that the bank issuing the
applicable Letter of Credit shall cease to be an Approved Bank and such Letter
of Credit is not replaced prior to the expiration of such thirty (30) days.

                  (e) In the event that Lender draws upon a Letter of Credit in
accordance with the provisions of this section, any and all such amounts not
otherwise expended by Lender shall be held by Lender as cash collateral in an
interest bearing account established and maintained by Lender and Lender shall
be entitled to draw upon and apply such proceeds at the time and in the manner
provided in this Security Instrument or the Other Security Documents for draws
upon the

                                      -29-
<PAGE>   38
applicable Letter of Credit. Notwithstanding anything to the contrary contained
herein, Lender is not obligated to draw on a Letter of Credit upon the happening
of an event specified in this section and shall not be liable for any losses
sustained by Borrower due to the insolvency of the bank issuing a Letter of
Credit if Lender has not drawn on the Letter of Credit. The Letter of Credit
shall be for a term of not less than one (1) year and provide that such term
shall be automatically extended for an additional one year term from the
expiration of such initial term and from the expiration of each future term
thereafter unless Lender has received thirty (30) days prior written notice that
the issuer of the Letter of Credit does not elect to extend such term.

                  Section 3.18 Ground Lease. Kings LLC shall (a) pay all rents,
additional rents and other sums required to be paid by Kings LLC, as tenant
under and pursuant to the provisions of the Ground Lease as and when such rent
or other charge is payable beyond applicable notice and cure periods, (b)
diligently perform and observe all of the terms, covenants and conditions of the
Ground Lease on the part of Kings LLC, as tenant thereunder, to be performed and
observed prior to the expiration of any applicable grace period therein
provided, and (c) promptly notify Lender of the giving of any notice by the
ground lessor to Kings LLC of any default by Kings LLC in the performance or
observance of any of the terms, covenants or conditions of the Ground Lease on
the part of Kings LLC, as tenant thereunder, to be performed or observed and
deliver to Lender a true copy of each such notice. Kings LLC shall not, without
the prior consent of Lender, surrender the leasehold estate created by the
Ground Lease or terminate or cancel the Ground Lease or modify, change,
supplement, alter or amend the Ground Lease, in any respect, either orally or in
writing, and Kings LLC hereby assigns to Lender, as further security for the
payment of the Debt and for the performance and observance of the terms,
covenants and conditions of the Note, this Security Instrument and the Other
Security Documents, all of the rights, privileges and prerogatives of Kings LLC,
as tenant under the Ground Lease, to surrender the leasehold estate created by
the Ground Lease or to terminate, cancel, modify, change, supplement, alter or
amend the Ground Lease, and any such surrender of the leasehold estate created
by the Ground Lease or termination, cancellation, modification, change,
supplement, alteration or amendment of the Ground Lease without the prior
consent of Lender shall be void and of no force and effect. Notwithstanding the
foregoing, Lender agrees that Lender will not unreasonably withhold its consent
to a request by Borrower for an amendment to the Ground Lease which would allow
the use of a waterfront restaurant on currently vacate land demised under the
Ground Lease, provided that the parking spaces for the Property are not be
reduced by the use of such land as a restaurant and the Property would not
otherwise be materially and adversely affected by such change in use. If Kings
LLC shall default beyond applicable notice and cure periods in the performance
or observance of any term, covenant or condition of the Ground Lease on the part
of Kings LLC, as tenant thereunder, to be performed or observed, then, without
limiting the generality of the other provisions of the Note, this Security
Instrument and the Other Security Documents, and without waiving or releasing
Kings LLC from any of its obligations hereunder, Lender shall have the right,
but shall be under no obligation, to pay any sums and to perform any act or take
any action as may be appropriate to cause all of the terms, covenants and
conditions of the Ground Lease on the part of Kings LLC, as tenant thereunder,
to be performed or observed or to be promptly performed or observed on behalf of
Kings LLC, to the end that the rights of Kings LLC in, to and under the Ground
Lease shall be kept unimpaired and free from default, even though the existence
of such event of default or the nature thereof be questioned or denied by Kings
LLC or by any party on behalf of Kings LLC. If Lender shall make any payment or
perform any act or take action in accordance with the preceding sentence,

                                      -30-
<PAGE>   39
Lender will notify Kings LLC of the making of any such payment, the performance
of any such act, or the taking of any such action. In any such event, subject to
the rights of tenants, subtenants and other occupants under the Leases, Lender
and any person designated by Lender shall have, and are hereby granted, the
right to enter upon the Property at any time and from time to time for the
purpose of taking any such action. Lender may pay and expend such sums of money
as Lender deems necessary for any such purpose and upon so doing shall be
subrogated to any and all rights of the ground lessor. Kings LLC hereby agrees
to pay to Lender immediately and without demand, all such sums so paid and
expended by Lender, together with interest thereon from the day of such payment
at the Default Rate. All sums so paid and expended by Lender and the interest
thereon shall be secured by the legal operation and effect of this Security
Instrument. If the ground lessor shall deliver to Lender a copy of any notice of
default sent by said ground lessor to Kings LLC, as tenant under the Ground
Lease, such notice shall constitute full protection to Lender for any action
taken or omitted to be taken by Lender, in good faith, in reliance thereon and
in accordance with the provisions hereof. Kings LLC shall exercise each
individual option, if any, to extend or renew the term of the Ground Lease upon
demand by Lender made at any time within one (1) year of the last day upon which
any such option may be exercised, and Kings LLC hereby expressly authorizes and
appointed Lender its attorney-in-fact to exercise (in the event Kings LLC fails
to properly or timely do so) any such option in the name of and upon behalf of
Kings LLC, which power of attorney shall be irrevocable and shall be deemed to
be coupled with an interest. Kings LLC will not subordinate or consent to the
subordination of the Ground Lease to any mortgage, security deed, lease or other
interest on or in the ground lessor's interest in all or any part of the
Property, unless, in each such case, the written consent of Lender shall have
been first had and obtained.

                  Section 3.19 Ground Lease Escrow Fund. On the date hereof and
on the tenth day of each calendar month hereafter, Borrower shall pay to Lender
an amount equal to one-twelfth of the annual amount of all rent and any and all
other charges which may be due by Borrower under the Ground Lease during the
following month in order to accumulate with Lender sufficient funds to pay all
sums payable under the Ground Lease at least ten (10) Business Days prior to the
date due (said amounts, hereinafter, the "GROUND LEASE ESCROW FUND"). Lender
shall apply the Ground Lease Escrow Fund to payments of rent due under the
Ground Lease prior to the delinquency thereof. The amount of such deposits by
Borrower to the Ground Lease Escrow Fund may be increased by Lender in the
amount Lender deems is necessary in it reasonable discretion based on any
increases in the rent or other charges due under the Ground Lease.

                  Section 3.20 No Merger of Fee and Leasehold Estates; Releases.
So long as any portion of the Debt shall remain unpaid, unless Lender shall
otherwise consent, the fee title to the Property and the leasehold estate
therein created pursuant to the provisions of the Ground Lease shall not merge
but shall always be kept separate and distinct, notwithstanding the union of
such estates in Borrower, Lender, or in any other person by purchase, operation
of law or otherwise. Lender reserves the right, at any time, to release portions
of the Property, including, but not limited to, the leasehold estate created by
the Ground Lease, with or without consideration, at Lender's election, without
waiving or affecting any of its rights hereunder or under the Note or the Other
Security Documents and any such release shall not affect Lender's rights in
connection with the portion of the Property not so released.

                                      -31-
<PAGE>   40
                  Section 3.21 Kings LLC's Acquisition of Fee Estate. In the
event that Kings LLC, so long as any portion of the Debt remains unpaid, shall
be the owner and holder of the fee title to the City Leased Land, the lien of
this Security Instrument shall be spread to cover Kings LLC's fee title to the
City Leased Land and said fee title shall be deemed to be included in the
Property. Kings LLC agrees, at its sole cost and expense, including without
limitation Lender's reasonable attorneys' fees, to (a) execute any and all
documents or instruments necessary to subject its fee title to the City Leased
Land to the lien of this Security Instrument; and (b) provide a title insurance
policy (in an amount equal to the fair market value of the City Leased Land
based on an appraisal to be delivered by Borrower to Lender) which shall insure
that the lien of this Security Instrument is a first lien on Kings LLC's fee
title to the City Leased Land. Notwithstanding the foregoing, if the Ground
Lease is for any reason whatsoever terminated prior to the natural expiration of
its term, and if, pursuant to any provisions of the Ground Lease or otherwise,
Lender or its designee shall acquire from the ground lessor thereunder another
lease of the City Leased Land, Kings LLC shall have no right, title or interest
in or to such other lease or the leasehold estate created thereby.

                  Section 3.22 Rejection of the Ground Lease. (a) If the Ground
Lease is terminated for any reason in the event of the rejection or
disaffirmance of the Ground Lease pursuant to the Bankruptcy Code, or any other
law affecting creditor's rights, (i) the Borrower, immediately after obtaining
notice thereof, shall give notice thereof to Lender, (ii) Borrower, without the
prior written consent of Lender, shall not elect to treat the Ground Lease as
terminated pursuant to Section 365(h) of the Bankruptcy Code or any comparable
federal or state statute or law, and any election by Borrower made without such
consent shall be void and (iii) this Security Instrument and the Other Security
Documents and all the liens, terms, covenants and conditions of this Security
Instrument and the Other Security Documents hereby extends to and covers
Borrower's possessory rights under Section 365(h) of the Bankruptcy Code and to
any claim for damages due to the rejection of the Ground Lease or other
termination of the Ground Lease. In addition, Borrower hereby assigns
irrevocably to Lender, Borrower's rights to treat the Ground Lease as terminated
pursuant to Section 365(h) of the Bankruptcy Code and to offset rents under such
Ground Lease in the event any case, proceeding or other action is commenced by
or against the Ground Lessor under the Bankruptcy Code or any comparable federal
or state statute or law, provided that Lender shall not exercise such rights and
shall permit Borrower to exercise such rights with the prior written consent of
Lender, not to be unreasonably withheld or delayed, unless an Event of Default
shall have occurred and be continuing.

                  (b) Borrower hereby assigns to Lender, Borrower's right to
reject the Ground Lease under Section 365 of the Bankruptcy Code or any
comparable federal or state statute or law with respect to any case, proceeding
or other action commenced by or against Borrower under the Bankruptcy Code or
comparable federal or state statute or law. Further, if Borrower shall desire to
so reject the Ground Lease, at Lender's request, Borrower shall assign its
interest in the Ground Lease to Lender in lieu of rejecting such Ground Lease as
described above, upon receipt by Borrower of written notice from Lender of such
request together with Lender's agreement to cure any existing defaults of
Borrower under such Ground Lease.

                  (c) Borrower hereby assigns to lender, Borrower's right to
seek an extension of the sixty (60) day period within which Borrower must accept
or reject the Ground Lease under

                                      -32-
<PAGE>   41
Section 365 of the Code or any comparable federal or state statute or law with
respect to any case, proceeding or other action commenced by or against Borrower
under the Bankruptcy Code or comparable federal or state statute or law.
Further, if Borrower shall desire to so reject the Ground Lease, at Lender's
request, Borrower shall assign its interest in the Ground Lease to Lender in
lieu of rejecting such Ground Lease as described above, upon receipt by Borrower
of written notice from Lender of such request together with Lender's agreement
to cure any existing defaults of Borrower under such Ground Lease.

                  (d) Borrower hereby agrees that if the Ground Lease is
terminated for any reason in the event of the rejection or disaffirmance of the
Ground Lease pursuant to the Bankruptcy Code or any other law affecting
creditor's rights, any property not removed by the Borrower as permitted or
required by the Ground Lease, shall at the option of Lender be deemed abandoned
by Borrower, provided that Lender may remove any such property required to be
removed by Borrower pursuant to the Ground Lease and all costs and expenses
associated with such removal shall be paid by Borrower within five (5) days of
receipt by Borrower of an invoice for such removal costs and expenses.

                  Section 3.23 Subleases. Borrower shall be permitted to sublet
any portion of the City Leased Land without prior written consent of Lender
provided such sublease is permitted (or with the consent of the ground lessor)
under the Ground Lease and otherwise complies with Section 3.7. Borrower may
also replace the existing garage management agreement with a sublease to a
garage operator at market rates provided same is permitted or with the consent
of the ground lessor under the Ground Lease. Each such Lender-approved sublease
hereafter made shall provide that (a) in the event of any action for the
foreclosure of this Security Instrument, the sublease shall not terminate or be
terminable by the subtenant by reason of the foreclosure of this Security
Instrument unless the subtenant is specifically named and joined in any such
action and unless a judgment is obtained therein against the subtenant, and (b)
the subtenant shall attorn to the Lender or to the purchaser at the sale of the
Property on such foreclosure, as the case may be.

                  Section 3.24 Principal Place of Business; State of
Organization. Borrower shall not change its principal place of business as set
forth in the introductory paragraph hereof without thirty (30) days prior
written notice. Borrower shall not change the place of its organization as set
forth in Subsection 5.22 without the consent of Lender, which consent shall not
be unreasonably withheld, conditioned or delayed. Upon Lender's request,
Borrower shall execute and deliver additional financing statements, security
agreements and other instruments which may be necessary to effectively evidence
or perfect Lender's security interest in the Property as a result of such change
of principal place of business or place of organization.

                  Section 3.25 Overhang Lease. (a) Plaza LLC shall (i) pay all
rents, additional rents and other sums required to be paid by Plaza LLC, as
tenant under and pursuant to the provisions of the Overhang Lease as and when
such rent or other charge is payable beyond applicable notice and cure periods,
(ii) diligently perform and observe all of the material terms, covenants and
conditions of the Overhang Lease on the part of Plaza LLC, as tenant thereunder,
to

                                      -33-
<PAGE>   42
be performed and observed prior to the expiration of any applicable grace period
therein provided, and (iii) promptly notify Lender of the giving of any notice
by the ground lessor to Plaza LLC of any default by Plaza LLC in the performance
or observance of any of the terms, covenants or conditions of the Overhang Lease
on the part of Plaza LLC, as tenant thereunder, to be performed or observed and
deliver to Lender a true copy of each such notice. Plaza LLC shall not, without
the prior consent of Lender, surrender the leasehold estate created by the
Overhang Lease or terminate or cancel the Overhang Lease or materially modify,
change, supplement, alter or amend the Overhang Lease, in any respect, either
orally or in writing, and Plaza LLC hereby assigns to Lender, as further
security for the payment of the Debt and for the performance and observance of
the terms, covenants and conditions of the Note, this Security Instrument and
the Other Security Documents, all of the rights, privileges and prerogatives of
Plaza LLC, as tenant under the Overhang Lease, to surrender the leasehold estate
created by the Overhang Lease or to terminate, cancel, or so modify, change,
supplement, alter or amend the Overhang Lease, and any such surrender of the
leasehold estate created by the Overhang Lease or termination, cancellation,
modification, change, supplement, alteration or amendment of the Overhang Lease
without the prior consent of Lender shall be void and of no force and effect. If
Plaza LLC shall default beyond applicable notice and cure periods in the
performance or observance of any term, covenant or condition of the Overhang
Lease on the part of Plaza LLC, as tenant thereunder, to be performed or
observed, then, without limiting the generality of the other provisions of the
Note, this Security Instrument and the Other Security Documents, and without
waiving or releasing Plaza LLC from any of its obligations hereunder, Lender
shall have the right, but shall be under no obligation, to pay any sums and to
perform any act or take any action as may be appropriate to cause all of the
terms, covenants and conditions of the Overhang Lease on the part of Plaza LLC,
as tenant thereunder, to be performed or observed or to be promptly performed or
observed on behalf of Plaza LLC, to the end that the rights of Plaza LLC in, to
and under the Overhang Lease shall be kept unimpaired and free from default,
even though the existence of such event of default or the nature thereof be
questioned or denied by Plaza LLC or by any party on behalf of Plaza LLC. If
Lender shall make any payment or perform any act or take action in accordance
with the preceding sentence, Lender will notify Plaza LLC of the making of any
such payment, the performance of any such act, or the taking of any such action.
In any such event, subject to the rights of tenants, subtenants and other
occupants under the Leases, Lender and any person designated by Lender shall
have, and are hereby granted, the right to enter upon the Property at any time
and from time to time for the purpose of taking any such action. Lender may pay
and expend such sums of money as Lender deems reasonably necessary for any such
purpose and upon so doing shall be subrogated to any and all rights of the
ground lessor. Plaza LLC hereby agrees to pay to Lender immediately and without
demand, all such sums so paid and expended by Lender, together with interest
thereon from the day of such payment at the Default Rate. All sums so paid and
expended by Lender and the interest thereon shall be secured by the legal
operation and effect of this Security Instrument. If the ground lessor shall
deliver to Lender a copy of any notice of default sent by said lessor to Plaza
LLC, as tenant under the Overhang Lease, such notice absent additional material
information in the possession of Lender shall constitute full protection to
Lender for any action taken or omitted to be taken by Lender, in good faith, in
reliance thereon and in accordance with the provisions hereof. Plaza LLC will
not subordinate or consent to the subordination of the Overhang Lease to any
mortgage, security deed, lease or other interest on or in the lessor's interest
in all or any part of the Property, unless, in each such case, the written
consent of Lender shall have been first had and obtained.

                  (b) So long as any portion of the Debt shall remain unpaid,
unless Lender shall otherwise consent, the fee title to the Property and the
leasehold estate therein created pursuant to the provisions of the Overhang
Lease shall not merge but shall always be kept separate and distinct,
notwithstanding the union of such estates in Borrower, Lender, or in any

                                      -34-
<PAGE>   43
other person by purchase, operation of law or otherwise. Lender reserves the
right, at any time, to release portions of the Property, including, but not
limited to, the leasehold estate created by the Overhang Lease, with or without
consideration, at Lender's election, without waiving or affecting any of its
rights hereunder or under the Note or the Other Security Documents and any such
release shall not affect Lender's rights in connection with the portion of the
Property not so released.

                  (c) In the event that Plaza LLC, so long as any portion of the
Debt remains unpaid, shall be the owner and holder of the fee title to the
Overhang Leased Land, the lien of this Security Instrument shall be spread to
cover Plaza LLC's fee title to the Overhang Leased Land and said fee title shall
be deemed to be included in the Property. Plaza LLC agrees, at its sole cost and
expense, including without limitation Lender's reasonable attorneys' fees, to
(a) execute any and all documents or instruments necessary to subject its fee
title to the Overhang Leased Land to the lien of this Security Instrument; and
(b) provide a title insurance policy (in an amount equal to the fair market
value of the Overhang Leased Land based on an appraisal to be delivered by
Borrower to Lender) which shall insure that the lien of this Security Instrument
is a first lien on Plaza LLC's fee title to the Overhang Leased Land.
Notwithstanding the foregoing, if the Overhang Lease is for any reason
whatsoever terminated prior to the natural expiration of its term, and if,
pursuant to any provisions of the Overhang Lease or otherwise, Lender or its
designee shall acquire from the lessor thereunder another lease of the Overhang
Leased Land, Plaza LLC shall have no right, title or interest in or to such
other lease or the leasehold estate created thereby.

                  (d) If the Overhang Lease is terminated for any reason in the
event of the rejection or disaffirmance of the Overhang Lease pursuant to the
Bankruptcy Code, or any other law affecting creditor's rights, (i) the Borrower,
immediately after obtaining notice thereof, shall give notice thereof to Lender,
(ii) Borrower, without the prior written consent of Lender, shall not elect to
treat the Overhang Lease as terminated pursuant to Section 365(h) of the
Bankruptcy Code or any comparable federal or state statute or law, and any
election by Borrower made without such consent shall be void and (iii) this
Security Instrument and the Other Security Documents and all the liens, terms,
covenants and conditions of this Security Instrument and the Other Security
Documents hereby extends to and covers Borrower's possessory rights under
Section 365(h) of the Bankruptcy Code and to any claim for damages due to the
rejection of the Overhang Lease or other termination of the Overhang Lease. In
addition, Borrower hereby assigns irrevocably to Lender, Borrower's rights to
treat the Overhang Lease as terminated pursuant to Section 365(h) of the
Bankruptcy Code and to offset rents under such Overhang Lease in the event any
case, proceeding or other action is commenced by or against the Ground Lessor
under the Bankruptcy Code or any comparable federal or state statute or law,
provided that Lender shall not exercise such rights and shall permit Borrower to
exercise such rights with the prior written consent of Lender, not to be
unreasonably withheld or delayed, unless an Event of Default shall have occurred
and be continuing.

                  (e) Borrower hereby assigns to Lender, Borrower's right to
reject the Overhang Lease under Section 365 of the Bankruptcy Code or any
comparable federal or state statute or law with respect to any case, proceeding
or other action commenced by or against Borrower under the Bankruptcy Code or
comparable federal or state statute or law. Further, if Borrower shall desire to
so reject the Overhang Lease, at Lender's request, Borrower shall assign

                                      -35-
<PAGE>   44
its interest in the Overhang Lease to Lender in lieu of rejecting such Overhang
Lease as described above, upon receipt by Borrower of written notice from Lender
of such request together with Lender's agreement to cure any existing defaults
of Borrower under such Overhang Lease. Borrower hereby assigns to lender,
Borrower's right to seek an extension of the sixty (60) day period within which
Borrower must accept or reject the Overhang Lease under Section 365 of the Code
or any comparable federal or state statute or law with respect to any case,
proceeding or other action commenced by or against Borrower under the Bankruptcy
Code or comparable federal or state statute or law. Further, if Borrower shall
desire to so reject the Overhang Lease, at Lender's request, Borrower shall
assign its interest in the Overhang Lease to Lender in lieu of rejecting such
Overhang Lease as described above, upon receipt by Borrower of written notice
from Lender of such request together with Lender's agreement to cure any
existing defaults of Borrower under such Overhang Lease. Borrower hereby agrees
that if the Overhang Lease is terminated for any reason in the event of the
rejection or disaffirmance of the Overhang Lease pursuant to the Bankruptcy Code
or any other law affecting creditor's rights, any property not removed by the
Borrower as permitted or required by the Overhang Lease, shall at the option of
Lender be deemed abandoned by Borrower, provided that Lender may remove any such
property required to be removed by Borrower pursuant to the Overhang Lease and
all costs and expenses associated with such removal shall be paid by Borrower
within five (5) days of receipt by Borrower of an invoice for such removal costs
and expenses.

                  (f) Borrower shall be permitted to sublet any portion of the
Overhang Leased Land without prior written consent of Lender provided such
Sublease is permitted (or with the consent of the lessor) under the Overhang
Lease and otherwise complies with Section 3.7. Each such Lender-approved
sublease hereafter made shall provide that (a) in the event of any action for
the foreclosure of this Security Instrument, the sublease shall not terminate or
be terminable by the subtenant, by reason of the foreclosure of this Security
Instrument unless the subtenant is specifically named and joined in any such
action and unless a judgment is obtained therein against the subtenant and (b)
the subtenant shall attorn to the Lender or to the purchaser at the sale of the
Property on such foreclosure, as the case may be.

                  Section 3.26 Reserve Funds, Generally. Borrower grants to
Lender a first-priority perfected security interest in each of the Escrow Fund
and the Ground Lease Escrow Fund (the "RESERVE FUNDS") and any and all monies
now or hereafter deposited in each Reserve Fund as additional security for
payment of the Debt. Until expended or applied in accordance herewith, the
Reserve Funds shall constitute additional security for the Debt. Upon the
occurrence of an Event of Default, Lender may, in addition to any and all other
rights and remedies available to Lender, apply any sums then present in any or
all of the Reserve Funds to the payment of the Debt in any order in its sole
discretion. The Reserve Funds shall not constitute trust funds and may be
commingled with other monies held by Lender. The Reserve Funds shall be held in
an Eligible Account (as defined in the Cash Management Agreement) and shall bear
interest at a money market rate selected by Lender. All interest on a Reserve
Fund shall be added to and become a part of such Reserve Fund and shall be
disbursed in the same manner as other monies deposited in such Reserve Fund.
Borrower shall be responsible for payment of any federal, state or local income
or other tax applicable to the interest earned on the Reserve Funds. Borrower
shall not, without obtaining the prior written consent of Lender, further
pledge, assign or grant any security interest in any Reserve Fund or the monies
deposited therein or permit any lien or encumbrance to attach thereto, or any
levy to be made thereon, or

                                      -36-
<PAGE>   45
any UCC-1 Financing Statements, except those naming Lender as the secured party,
to be filed with respect thereto. Lender shall not be liable for any loss
sustained on the investment of any funds constituting the Reserve Funds to the
extent invested in Permitted Investments (as defined in the Cash Management
Agreement). Borrower shall indemnify Lender and hold Lender harmless from and
against any and all actions, suits, claims, demands, liabilities, losses,
damages, obligations and costs and expenses (including litigation costs and
reasonable attorneys fees and expenses) arising from or in any way connected
with the Reserve Funds or the performance of the obligations for which the
Reserve Funds were established. Borrower shall assign to Lender all rights and
claims Borrower may have against all persons or entities supplying labor,
materials or other services which are to be paid from or secured by the Reserve
Funds; provided, however, that Lender may not pursue any such right or claim
unless an Event of Default has occurred and remains uncured. Lender shall have
no liability for the rate of return earned or losses incurred on the investment
of the Escrow Fund unless any such losses are caused by the gross negligence or
willful misconduct of Lender to the extent invested in Permitted Investments (as
defined in the Cash Management Agreement). Notwithstanding anything to the
contrary contained in this Security Instrument, the Reserve Funds shall be
released to Borrower when and if Borrower shall have well and truly paid to
Lender the Debt in full and shall have well and truly performed the Other
Obligations as set forth in this Security Instrument.

                                   ARTICLE IV

                                SPECIAL COVENANTS

                  Borrower covenants and agrees that:

                  Section 4.1 Property Use. The Property shall be used primarily
as a shopping center and related uses thereto, and for no other primary use
without the prior written consent of Lender, which consent may be withheld in
Lender's sole and absolute discretion.

                  Section 4.2 ERISA. (a) It shall not engage in any transaction
which would cause any obligation, or action taken or to be taken, hereunder (or
the exercise by Lender of any of its rights under the Note, this Security
Instrument and the Other 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").

                  (b) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the term of
the Security Instrument, as requested by Lender in its sole discretion, that (i)
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(3) of ERISA; (ii) Borrower is not subject to state statutes
regulating investments and fiduciary obligations with respect to governmental
plans; and (iii) one or more of the following circumstances is true:

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

                                      -37-
<PAGE>   46
                  (B) Less than twenty-five percent (25%) of each outstanding
            class of equity interests in Borrower are held by "benefit plan
            investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2);
            or

                  (C) Borrower qualifies as an "operating company" or a "real
            estate operating company" within the meaning of 29 C.F.R. Section
            2510.3-101(c) or (e) or an investment company registered under The
            Investment Company Act of 1940.

            Section 4.3 Single Purpose Entity. Borrower represents, warrants,
covenants and agrees that it has not and shall not and agrees that its general
partner(s), if Borrower is a partnership, or its managing member(s), if Borrower
is a multiple-member limited liability company, (in each case, "PRINCIPAL"), has
not and shall not:

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

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

            (c) except for the recently completed merger of Alexander's of Kings
Plaza, Inc. with Plaza LLC or as otherwise may be permitted in this Security
Instrument, merge into or consolidate with any person or entity or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise dispose of all
or substantially all of its assets or change its legal structure, without in
each case Lender's consent;

            (d) 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, 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 or similar organizational documents, as
the case may be, or of Principal's Partnership Agreement, Articles or
Certificate of Incorporation, Articles of Organization or similar organizational
documents, as the case may be, whichever is applicable;

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

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

            (g) with respect to Borrower, incur any debt, secured or unsecured,
direct or contingent (including guaranteeing any obligation), other than (i) the
Debt, (ii) trade payables in the ordinary course of its business of owning and
operating the Property, which do not in the

                                      -38-
<PAGE>   47
aggregate exceed $7,000,000 and which are not more than sixty (60) days past the
date incurred and which amounts are normal and reasonable under the
circumstances, provided such liabilities are not evidenced by a note and paid
when due, and (iii) such other liabilities that may be permitted pursuant to
this Security Instrument, and with respect to Principal, incur any debt secured
or unsecured, direct or contingent (including guaranteeing any obligations);

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

            (i) fail to maintain its records, books of account and bank accounts
separate and apart from those of the members, general partners, principals and
affiliates of Borrower or of Principal, as the case may be, the affiliates of a
member, general partner or principal of Borrower or Principal, as the case may
be, and any other person or entity, (ii) permit its assets or liabilities to be
listed as assets or liabilities on the financial statement of any other entity
or person or (iii) include the assets or liabilities of any other person or
entity on its financial statements, except that in the case of (ii) or (iii) the
assets or liabilities of Borrower or Principal may be listed on the consolidated
financial statements of Alexander's Inc. and its consolidated subsidiaries or
another person or entity if required by GAAP;

            (j) enter into any contract or agreement with any member, general
partner, principal or affiliate of Borrower or of Principal, as the case may be,
Guarantor or Indemnitor, or any member, general partner, principal or affiliate
thereof, except upon terms and conditions that are commercially reasonable,
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties other than any member, general partner,
principal or affiliate of Borrower or of Principal, as the case may be,
Guarantor or Indemnitor, or any member, general partner, principal or affiliate
thereof; (Lender acknowledges the existence of a license agreement relating to
the energy plant at the Property between Plaza LLC and Alexander's of Brooklyn,
Inc. (the "POWER PLANT LICENSE") and no violation of this Section shall be
deemed to have occurred by reason of such agreement);

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

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

            (m) guarantee or become obligated for the debts of any other entity
or person or hold itself out to be responsible for the debts of another person;

            (n) make any loans or advances to any third party, including any
member, general partner, principal or affiliate of Borrower, or of Principal, as
the case may be, or any member, general partner, principal or affiliate thereof
(except in connection with tenant improvements or leasing commissions in
connection with any Leases approved, deemed approved or not requiring approval
pursuant to Section 3.7 hereof) and shall not acquire obligations or securities
of any member, general partner, principal or affiliate of Borrower or Principal,
as the case may be, or any member, general partner, or affiliate thereof;

                                      -39-
<PAGE>   48
            (o) fail to file its own tax returns or be included on the tax
returns of any other person or entity except as required by applicable law or
with Alexander's, Inc. and its consolidated subsidiaries;

            (p) agree to, enter into or consummate any transaction which would
render Borrower or Principal, as the case may be, unable to furnish the
certification or other evidence referred to in Section 4.2(b) hereof;

            (q) fail either to hold itself out to the public as a legal entity
separate and distinct from any other entity or person or to conduct its business
solely in its own name or a name franchised or licensed to it by an entity other
than an affiliate of Borrower, and not as a division or part of any other entity
in order not (i) to mislead others as to the identity with which such other
party is transacting business, or (ii) to suggest that Borrower or Principal, as
the case may be, is responsible for the debts of any third party (including any
member, general partner, principal or affiliate of Borrower, or of Principal, as
the case may be, or any member, general partner, principal or affiliate
thereof);

            (r) file or consent to the filing of any petition, either voluntary
or involuntary, to take advantage of any applicable insolvency, bankruptcy,
liquidation or reorganization statute, or make an assignment for the benefit of
creditors;

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

            (t) with respect to Principal, or the Borrower if the Borrower is an
approved single member limited liability company, fail at any time to have at
least two (2) independent directors or managers (each, an "INDEPENDENT
DIRECTOR") that are not and have not been for at least five (5) years: (a) a
stockholder, director, officer, employee, partner, member, attorney or counsel
of Borrower or of Principal or any affiliate of either of them; (b) a customer,
supplier or other person who derives any of its profits or revenues (other than
any fee paid to such director as compensation for such director to serve as an
Independent Director) from its activities with Borrower, Principal or any
affiliate of either of them (a "BUSINESS PARTY"); (c) a person or other entity
controlling or under common control with any such stockholder, partner, member,
director, officer, attorney, counsel or Business Party; or (d) a member of the
immediate family of any such stockholder, director, officer, employee, partner,
member, attorney, counsel or Business Party. (As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of management, policies or activities of a person or entity,
whether through ownership of voting securities, by contract or otherwise);

            (u) with respect to Principal, or the Borrower if the Borrower is an
approved single member limited liability company, permit its board of directors
to take any action which, under the terms of any articles of formation,
operating agreement, certificate of incorporation, by-laws or any voting trust
agreement with respect to any common stock, requires the unanimous

                                      -40-
<PAGE>   49
vote of one hundred percent (100%) of the members of the board unless at the
time of such action there shall be at least two (2) members who are an
Independent Director.

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

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

            (x) fail to maintain a sufficient number of employees in light of
its contemplated business operations (which may be zero);

            (y) fail to provide in its (i) articles of organization, certificate
of formation, limited liability company agreement, and/or operating agreement,
as applicable, if Borrower is a limited liability company, (ii) limited
partnership agreement, if Borrower is a limited partnership or (iii) certificate
of incorporation, if Borrower is a corporation, that for so long as the Loan is
outstanding pursuant to the Note and this Security Instrument, Borrower shall
not file or consent to the filing of any petition, either voluntary or
involuntary, to take advantage of any applicable insolvency, bankruptcy,
liquidation or reorganization statute, or make an assignment for the benefit of
creditors without the affirmative vote of each Independent Director (defined
below) and of all other general partners/managing members/directors of the
Borrower;

            (z) fail to hold its assets in its own name;

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

            (bb) have any of its obligations guaranteed by an affiliate except
Alexander's, Inc. or any successor entity thereto; or

            (cc) violate or cause to be violated the assumptions made with
respect to the single purpose, bankruptcy remote nature of Borrower and
Principal in the Non-Consolidation Opinion.

Lender acknowledges as of the date hereof that Plaza LLC, Parking LLC and Kings
LLC are each an approved single member limited liability company.

            Section 4.4 Restoration. The following provisions shall apply in
connection with the Restoration of the Property:

            (a) If the Net Proceeds (defined below) shall be less than
$7,000,000 and the costs of completing the Restoration shall be less than
$7,000,000, Borrower shall have the right to settle all claims with respect to
such Net Proceeds and the Net Proceeds will be disbursed by Lender to Borrower
upon receipt, provided that all of the conditions set forth in Subsection
4.4(b)(i)(A), (D), (H) and (I) are met and Borrower delivers to Lender a written
undertaking to expeditiously commence and to satisfactorily complete with due
diligence the Restoration in accordance with the terms of this Security
Instrument.

                                      -41-
<PAGE>   50
            (b) If the Net Proceeds are equal to or greater than $7,000,000 or
the costs of completing the Restoration are equal to or greater than $7,000,000.
Borrower shall have the right to settle all claims jointly with Lender with
respect to such Net Proceeds so long as (a) there is no Event of Default, (b)
Borrower continually and with commercially reasonable diligence proceeds to
negotiate a settlement, and (c) the insurance company has not claimed that as a
result of Borrower's action Borrower is not entitled to receipt of insurance
proceeds. Lender shall make the Net Proceeds available for the Restoration in
accordance with this Section 4.4(b). The term "NET PROCEEDS" for the purposes of
this Section 4.4 shall mean: the net amount of all insurance proceeds received
by Lender pursuant to Subsections 3.3(a)(i), (iv), (vi), (vii), (viii) and, as
applicable, (x) of this Security Instrument as a result of such damage or
destruction, after deduction of the reasonable costs and expenses (including,
but not limited to, reasonable counsel fees), if any, of collecting the same
("INSURANCE PROCEEDS"), or the net amount of the Award received by Lender, after
deduction of its reasonable costs and expenses (including, but not limited to,
reasonable counsel fees), if any, in collecting same ("CONDEMNATION PROCEEDS"),
whichever the case may be.

            (i) The Net Proceeds shall be made available to Borrower for the
      Restoration to the extent the Borrower is required to restore the
      Improvements pursuant to the terms and conditions of the COREA or that
      certain lease dated January 11, 1997 with Sears Roebuck and Co., or
      provided that each of the following conditions are met:

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

                  (B) (1) in the event that the Net Proceeds are Insurance
            Proceeds, less than thirty-five percent (35%) of the total floor
            area of the Improvements has been damaged, destroyed or rendered
            unusable as a result of such fire or other casualty or (2) in the
            event that the Net Proceeds are Condemnation Proceeds, such
            condemnation or eminent domain proceeding does not render
            untenantable more than fifteen percent (15%) of the rental either of
            the Improvements or does not decrease the fair market value of the
            Property by more than fifteen percent (15%);

                  (C) Leases demising in the aggregate at least seventy-five
            percent (75%) of the total rentable space in the Property which has
            been demised under executed and delivered Leases in effect as of the
            date of the occurrence of such fire or other casualty, or taking by
            condemnation or eminent domain proceeding, shall remain in full
            force and effect during and after the completion of the Restoration;

                  (D) Borrower shall commence the Restoration as soon as
            reasonably practicable and shall diligently pursue the same to
            satisfactory completion;

                  (E) Lender shall be reasonably satisfied that any operating
            deficits which will be incurred with respect to the Property as a
            result of the occurrence of any such fire or other casualty, or
            taking by condemnation or eminent domain proceeding, will be covered
            out of (1) the Net Proceeds, (2) the insurance

                                      -42-
<PAGE>   51
            coverage referred to in Subsection 3.3(a)(iii), or (3) by other
            funds of, or available to, Borrower;

                  (F) Lender shall be reasonably satisfied that, upon the
            completion of the Restoration, the gross cash flow and the net cash
            flow of the Property will be restored to a level sufficient to cover
            all carrying costs and operating expenses of the Property,
            including, without limitation, debt service on the Note at a
            coverage ratio (after deducting all required reserves as required by
            Lender from net operating income) of at least 1.10 to 1.0, which
            coverage ratio shall be determined by Lender in its sole and
            absolute discretion on the basis of the Applicable Interest Rate (as
            defined in the Note);

                  (G) Lender shall be satisfied that the Restoration will be
            completed on or before the earliest to occur of (1) six (6) months
            prior to the Maturity Date (as defined in the Note), (2) prior to
            the expiration of the loss of rents insurance which is required to
            be maintained pursuant to Subsection 3.3(a)(iii) hereof, (3) such
            time as may be required under applicable zoning law, ordinance, rule
            or regulation in order to repair and restore the Property to
            substantially the same condition it was in immediately prior to such
            fire or other casualty, or taking by condemnation or eminent domain
            proceeding or (4) the earliest date required for such completion
            under the terms of any Leases which are required in accordance with
            the provisions of Subsection 4.4(b)(i)(C) to remain in effect
            subsequent to the occurrence of such fire or other casualty, or
            taking by condemnation or eminent domain preceding, and the
            completion of the Restoration;

                  (H) the Property and the use thereof after the Restoration
            will be in material compliance with and permitted under all
            applicable zoning laws, ordinances, rules and regulations;

                  (I) the Restoration shall be done and completed by Borrower in
            an expeditious and diligent fashion and in compliance with all
            applicable governmental laws, rules and regulations (including,
            without limitation, all applicable Environmental Laws (defined
            below)); and

                  (J) such fire or other casualty or taking, as applicable, does
            not result in a temporary loss of access to the Property or the
            Improvements which cannot be restored in connection with the
            Restoration.

            (ii) The Net Proceeds shall be held by Lender and, until disbursed
      in accordance with the provisions of this Subsection 4.4(b), shall
      constitute additional security for the Obligations. The Net Proceeds shall
      be disbursed by Lender to, or as directed by, Borrower from time to time
      during the course of the Restoration, upon receipt of evidence
      satisfactory to Lender that (A) all materials installed and work and labor
      performed (except to the extent that they are to be paid for out of the
      requested disbursement) in connection with the Restoration have been paid
      for in full (subject to applicable retainages), 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

                                      -43-
<PAGE>   52
      or encumbrances of any nature whatsoever recorded against the Property
      arising out of the Restoration which have not either been fully bonded to
      the reasonable satisfaction of Lender and discharged of record or in the
      alternative fully insured to the reasonable satisfaction of Lender by the
      title company insuring the lien of this Security Instrument.

            (iii) If the Net Proceeds are equal to or greater than $7,000,000,
      all plans and specifications (other than those setting forth the
      restoration of leasehold improvements to be performed by applicable
      tenants under Leases) required in connection with the Restoration shall be
      subject to prior review and acceptance (which shall not be unreasonably
      withheld) in all respects by Lender and the Casualty Consultant (as
      defined herein); which plans and specifications shall be deemed approved
      in the event that Lender shall not have notified Borrower in writing of
      its disapproval (together with a statement of the grounds of such
      disapproval) within thirty (30) days after Borrower has submitted such
      plans and specifications to Lender for approval. After an Event of
      Default, Lender shall have the use of the plans and specifications
      (whether or not approved in connection with the preceding sentence) and
      all permits, licenses and approvals required or obtained in connection
      with the Restoration. If the Net Proceeds are equal to or greater than
      $7,000,000, 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 (which shall not be unreasonably withheld or delayed) by Lender
      and the Casualty Consultant; which persons and contracts shall be deemed
      approved in the event that Lender shall not have notified Borrower in
      writing of its disapproval (together with a statement of the grounds of
      such disapproval) within thirty (30) days after Borrower has submitted the
      identity of such persons and such contracts to Lender for approval. Plans
      and specifications and/or identities and contracts submitted to Lender for
      its approval in accordance with this Subsection 4.4(b)(iii) shall be sent
      in an envelope labeled "PRIORITY" and shall state at the top of the first
      page in bold lettering "LENDER'S RESPONSE IS REQUIRED WITHIN THIRTY DAYS
      OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A MORTGAGE BETWEEN THE
      UNDERSIGNED AND LENDER." 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.

            (iv) In no event shall Lender be obligated to make disbursements of
      the Net Proceeds in excess of an amount equal to the costs actually
      incurred from time to time in connection with the Restoration, as
      certified by an independent consulting engineer selected by Lender (the
      "CASUALTY CONSULTANT"), minus the Casualty Retainage. The term "CASUALTY
      RETAINAGE" as used in this Section 4.4 shall mean an amount equal to ten
      percent (10%) of the costs actually incurred for work in place as part of
      the Restoration, as certified by the Casualty Consultant, until such time
      as the Casualty Consultant certifies to Lender that Net Proceeds
      representing fifty percent (50%) of the required Restoration have been
      disbursed. There shall be no Casualty Retainage with respect to costs
      actually incurred by Borrower for work in place in completing the last
      fifty percent (50%) of the required Restoration. The Casualty Retainage
      shall in no event, and notwithstanding anything to the contrary set forth
      above in this Subsection 4.4(b), be less than the amount actually held
      back by Borrower from contractors, subcontractors and

                                      -44-
<PAGE>   53
      materialmen engaged in the Restoration. The Casualty Retainage shall not
      be released until the Casualty Consultant certifies to Lender that the
      Restoration has been completed in accordance with the provisions of this
      Subsection 4.4(b) and that all approvals necessary for the re-occupancy
      and use of the Property have been obtained from all appropriate
      governmental and quasi-governmental authorities, and Lender receives
      evidence satisfactory to Lender that the costs of the Restoration have
      been paid in full or will be paid in full out of the Casualty Retainage,
      provided, however, that Lender will release the portion of the Casualty
      Retainage being held with respect to any contractor, subcontractor or
      materialman engaged in the Restoration as of the date upon which the
      Casualty Consultant certifies to Lender that the contractor, subcontractor
      or materialman has substantially completed all work and has supplied all
      materials substantially in accordance with the provisions of the
      contractor's, subcontractor's or materialman's contract, and the
      contractor, subcontractor or materialman delivers the lien waivers and
      evidence of payment in full of all sums due to the contractor,
      subcontractor or materialman as may be reasonably requested by Lender or
      by the title company insuring the lien of this Security Instrument. If
      required by Lender, the release of any such portion of the Casualty
      Retainage shall be approved by the surety company, if any, which has
      issued a payment or performance bond with respect to the contractor,
      subcontractor or materialman.

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

            (vi) 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 solely for costs actually
      incurred in connection with the Restoration on the same conditions
      applicable to the disbursement of the Net Proceeds pursuant to the terms
      and conditions of this Section 4.4, and until so disbursed pursuant to
      this Subsection 4.4(b) shall constitute additional security for the
      Obligations.

            (vii) The excess, if any, of the Net Proceeds and the remaining
      balance, if any, of the Net Proceeds Deficiency deposited with Lender
      after the Casualty Consultant certifies to Lender that the Restoration has
      been substantially completed in accordance with the provisions of this
      Subsection 4.4(b), and the receipt by Lender of evidence satisfactory to
      Lender that all costs incurred in connection with the Restoration have
      been paid in full, shall be 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.

            (c) 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 4.4(b)(vii) may 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

                                      -45-
<PAGE>   54
the discretion of Lender, the same may be paid, either in whole or in part, to
Borrower for such purposes as Lender shall designate, in its discretion. If
Lender shall receive and retain Net Proceeds, (i) the lien of this Security
Instrument shall be reduced only by the amount thereof received and retained by
Lender and actually applied by Lender in reduction of the Debt; and (ii)
notwithstanding the provisions of Section 3.3(h) and 3.6, Borrower shall not be
required to repair or restore the Property to the condition or character the
Property was in immediately prior to such casualty or condemnation so long as no
Event of Default has occurred and is continuing but Borrower shall be required
to (A) remove all debris and repair or restore the Property to ensure that the
Property is safe and not dangerous to health or other property and in compliance
with all Applicable Laws, (B) repair or restore the property such that it is a
functional commercial development similar in character to the use and operation
of the Property prior to any such casualty or condemnation, (C) use commercial
reasonable efforts to comply with the provision of Section 4.4(b) hereof to the
extent possible. In connection with any Net Proceeds applied to the payment of
the Debt, to the extent reasonable and at the cost and expense of Borrower
(including all taxes, recording fees and other charges payable in connection
with a assignment) and in compliance with all Applicable Laws, Lender shall
cooperate with Borrower to split this Security Instrument in accordance with
Section 7.6 and assign a portion of the Debt in order to save mortgage recording
tax so long as any such assignment does not have a material adverse effect on
the Property or the value of the Loan and that the Borrower complies with the
conditions to an assignment in Section 22.8(A) to (F).

                                   ARTICLE V

                         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. The following are held by Borrower: (a)
Plaza LLC possesses an unencumbered fee simple absolute estate in the Fee Land
and the Improvements thereon and an unencumbered leasehold interest in the
Overhang Land and the Improvements thereon, (b) Parking LLC possesses an
unencumbered fee simple absolute estate in the Parking Land and the Improvements
thereon, (c) Kings LLC possesses an unencumbered leasehold interest in the City
Leased Land and the Improvements thereon, and (d) Borrower owns the Property
free and clear of all liens, encumbrances and charges whatsoever, except in the
case of each of (a) to (d) above for those exceptions shown in the title
insurance policy insuring the lien of this Security Instrument (the "PERMITTED
EXCEPTIONS"), the Leases, the Power Plant License and the Overhang Lease.
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 against the claims of all persons whomsoever.

            Section 5.2 Authority. 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.

                                      -46-
<PAGE>   55
            Section 5.3 Legal Status and Authority. Borrower (a) is duly
organized, validly existing and in good standing under the laws of its state of
organization or incorporation; (b) is duly qualified to transact business and is
in good standing in the State where the Property is located; and (c) has all
necessary approvals, governmental and otherwise, and full power and authority to
own the Property and carry on its business as now conducted and proposed to be
conducted. Borrower now has and shall continue to have the full right, power and
authority to operate and lease the Property, to encumber the Property as
provided herein and to perform all of the other obligations to be performed by
Borrower under the Note, this Security Instrument and the Other Security
Documents.

            Section 5.4 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 corporate
power and authority of Borrower; (ii) have been authorized by all requisite
corporate action; (iii) have received all necessary approvals and consents,
corporate, governmental or otherwise; (iv) will not violate, conflict with,
result in a breach of or constitute (with notice or lapse of time, or both) a
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); (b) the Note, this Security Instrument and the Other Security Documents
constitute the legal, valid and binding obligations of Borrower, except as may
be limited by bankruptcy, insolvency or other similar laws affecting the rights
of creditors generally.

            Section 5.5 Litigation. Except as disclosed on Schedule I attached
hereto, there is no action, suit or proceeding, judicial, administrative or
otherwise (including any condemnation or similar proceeding), pending against or
affecting Borrower which would have a material adverse effect on the Property or
Borrower's ability to pay the Debt as and when due.

            Section 5.6 Status of Property. (a) 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.

            (b) To the best of Borrower's knowledge, after due inquiry and
investigation, Borrower has obtained all necessary certificates, licenses and
other approvals, governmental and otherwise, necessary for Borrower's 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.

                                      -47-
<PAGE>   56
            (c) To the best of Borrower's knowledge, after due inquiry and
investigation, there are no violations of any applicable zoning ordinances,
building codes, land use and Environmental Laws or other similar laws applicable
to the Property or the use and occupancy thereof which would have a material
adverse effect on the value, operation or net operating income of the Property.

            (d) The Property is served by all utilities required for the current
use thereof. All utility service is provided by public utilities (except that
electrical service is provided by an on-site electrical plant) and the Property
has accepted or is equipped to accept such utility service.

            (e) 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 are physically and legally open for use by the public.

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

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

            (h) All costs and expenses of any and all labor, materials, supplies
and equipment used in the construction or maintenance of the Improvements are
not delinquent in payment and all payment and other obligations required to be
paid to or performed by Borrower (or its predecessors) on behalf of Macy's Inc.
in connection with the renovation obligations under that certain Amended and
Restated Construction Operation and Reciprocal Easement Agreement ("COREA")
dated as of June 18, 1998 by and among Macy's Kings Plaza Real Estate, Inc.
("MACY'S"), Alexander's Kings Plaza Center, Inc. ("AKPC") and Alexander's
Department Stores of Brooklyn, Inc. ("ADSB") and/or Supplemental Agreement dated
June 18, 1998 by and among Macy's, AKPC and ADSB have been paid in full or
performed.

            (i) 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.

            (j) 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
material compliance with all Applicable Laws.

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

            Section 5.7 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, including temporary
regulations.

            Section 5.8 Separate Tax Lot. Except as otherwise disclosed to
Lender, 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,

                                      -48-
<PAGE>   57
and no other land or improvements is assessed and taxed together with the
Property or any portion thereof.

            Section 5.9 ERISA Compliance. (a) As of the date hereof and
throughout the term of this Security Instrument, (i) Borrower is not and will
not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, and (ii) the assets of Borrower do not and will not
constitute "plan assets" of one or more such plans for purposes of Title I of
ERISA; and

            (b) As of the date hereof and throughout the term of this Security
Instrument (i) Borrower is not and will not be a "governmental plan" within the
meaning of Section 3(3) of ERISA and (ii) transactions by or with Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.

            Section 5.10 Intentionally Deleted.

            Section 5.11 Financial Condition. Borrower (a) has not entered into
the transaction or executed the Note, this Security Instrument or any Other
Security Document with the actual intent to hinder, delay or defraud any
creditor, (b) is solvent, and no proceeding under Creditors Rights Laws with
respect to Borrower has been initiated, and (c) received reasonably equivalent
value in exchange for its obligations under such documents. Giving effect to the
Loan, the fair saleable value of Borrower's assets exceeds and will, immediately
following the making of the Loan, exceed Borrower's total liabilities,
including, without limitation, subordinated, unliquidated, disputed and
contingent liabilities. The fair saleable value of Borrower's assets is and
will, immediately following the making of the Loan, be greater than Borrower's
probable liabilities, including the maximum amount of its contingent liabilities
on its debts as such debts become absolute and matured. Borrower's assets do not
and, immediately following the making of the Loan will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it will,
incur debt and liabilities (including contingent liabilities and other
commitments) beyond its ability to pay such debt and liabilities as they mature
(taking into account the timing and amounts of cash to be received by Borrower
and the amounts to be payable on or in respect of obligations of Borrower).
Except as expressly disclosed to Lender in writing, no petition in bankruptcy
has been filed against Borrower, Guarantor, Indemnitor or any related entity
thereof, or any principal, general partner or member thereof, in the last seven
(7) years, and neither Borrower, Guarantor, Indemnitor nor any related entity
thereof, nor any principal, general partner or member thereof, in the last seven
(7) years has ever made an assignment for the benefit of creditors or taken
advantage of any Creditors Rights Laws.

            Section 5.12 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.

            Section 5.13 Taxes. Borrower has 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

                                      -49-
<PAGE>   58
received by them. Borrower knows of no basis for any additional assessment in
respect of any such taxes and related liabilities for prior years.

            Section 5.14 Mailing Address. Borrower's mailing address, as set
forth in the opening paragraph hereof or as changed in accordance with the
provisions hereof, is true and correct.

            Section 5.15 No Change in Facts or Circumstances. All financing
statements, rent rolls, reports, certificates and other documents submitted by
or on behalf of Borrower in connection with the closing of the Loan are
accurate, complete and correct in all material respects. There has been no
material adverse change in any condition, fact, circumstance or event that would
make any such information inaccurate, incomplete or otherwise misleading.

            Section 5.16 Non-Consolidation Opinion Assumptions. All of the
assumptions with respect to Borrower, Guarantor, Indemnitor and Manager made in
the Non-Consolidation Opinion, including, but not limited to, any exhibits
attached thereto, are true and correct.

            Section 5.17 Federal Reserve Regulations. No part of the proceeds of
the Loan will be used for the purpose of purchasing or acquiring any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or for any other purpose which would be inconsistent with
such Regulation U or any other Regulations of such Board of Governors, or for
any purposes prohibited by Legal Requirements or by the terms and conditions of
this Security Instrument, the Note or the Other Security Documents.

            Section 5.18 Illegal Activity. No portion of the Property has been
or will be purchased with proceeds of any illegal activity.

            Section 5.19 Contracts. All contracts, agreements, consents,
waivers, documents and writings of every kind or character at any time to which
Borrower is a party to be delivered to Lender pursuant to any of the provisions
of this Security Instrument are valid and enforceable against Borrower and, to
the best knowledge of Borrower, are enforceable against all other parties (with
the exception of Lender) thereto, and, to Borrower's actual knowledge, in all
respects are what they purport to be and, to the best knowledge of Borrower, to
the extent that any such writing shall impose any obligation or duty on the
party thereto or constitute a waiver of any rights which any such party might
otherwise have, said writing shall be valid and enforceable against said party
in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally.

            Section 5.20 Investment Company Act. Borrower is not (a) an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended; (b) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (c)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.

                                      -50-
<PAGE>   59
            Section 5.21 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 5.22 Principal Place of Business; State of Organization.
Borrower's principal place of business as of the date hereof is the address set
forth in the introductory paragraph hereof. The Borrower is organized under the
laws of the state of Delaware.

            Section 5.23 Illegal Activity/Forfeiture. (a) 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.

            (b) There has not been and shall never be committed by Borrower or
any other person in occupancy of or involved with the operation or use of the
Property any act or omission affording the federal government or any state or
local government the right of forfeiture as against the Property or any part
thereof or any monies paid in performance of Borrower's obligations under the
Note, this Security Instrument or the Other Security Documents. Borrower hereby
covenants and agrees not to commit, permit or suffer to exist any act or
omission affording such right of forfeiture.

            Section 5.24 Permitted Exceptions. None of the Permitted Exceptions,
individually or in the aggregate, materially interferes with the benefits of the
security intended to be provided by the Security Instrument, the Note, and the
Other Security Documents, materially and adversely affects the value of the
Property, impairs the use or the operation of the Property or impairs Borrower's
ability to pay its obligations in a timely manner.

            Section 5.25 Ground Lease.

            (a) Recording; Modification. The Ground Lease has been duly
recorded, the Ground Lease permits the interest of Borrower to be encumbered by
this Security Instrument or the lessor under the Ground Lease (the "GROUND
Lessor") has approved and consented to the encumbrance of the Property by this
Security Instrument and except as set forth on Schedule I, there have not been
amendments or modifications to the terms of the Ground Lease since recordation
thereof. The Ground Lease may not be canceled, terminated, surrendered or
amended without the prior written consent of Lender.

            (b) No Liens. Except for the Permitted Exceptions, Borrower's
interest in the Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, this Security Instrument other than
Ground Lessor's related fee interest.

            (c) Ground Leases Assignable. Borrower's interest in the Ground
Lease is assignable to Lender upon notice to, but without the consent of, the
Ground Lessor (or, if any such consent is required, it has been obtained prior
to the Closing Date). The Ground Lease is further assignable by Lender, its
successors and assigns without Ground Lessor's consent or such consent shall
have been received pursuant to an estoppel letter received by Lender from the
lessor under the Ground Lease.

                                      -51-
<PAGE>   60
            (d) Default. As of the date hereof, the Ground Lease is in full
force and effect and no default has occurred under the Ground Lease and there is
no existing condition which, but for the passage of time or the giving of
notice, could result in a default under the terms of the Ground Lease.

            (e) Notice. The Ground Lease requires Ground Lessor to give notice
of any default by Borrower to Lender. The Ground Lease, or estoppel letter
received by Lender from Ground Lessor, further provides that notice of
termination given under the Ground Leases is not effective against Lender unless
a copy of the notice has been delivered to Lender in the manner described in the
Ground Lease.

            (f) Cure. Lender is permitted the opportunity (including, where
necessary, sufficient time to gain possession of the interest of Borrower under
the Ground Lease) to cure any default under the Ground Lease, which is curable
after the receipt of notice of any such default before the Ground Lessor may
terminate the Ground Lease.

            (g) Term. The Ground Lease has a term (upon the exercise of the
renewal options set forth in the Ground Lease) which extends not less than
twenty (20) years beyond the Maturity Date.

            (h) New Leases. The Ground Lease requires Ground Lessor to enter
into a new lease upon termination of the Ground Lease by reason of any default
by Borrower or the bankruptcy or insolvency of Borrower, including rejection of
the Ground Lease in a bankruptcy proceeding.

            (i) Insurance and Condemnation Proceeds. (i) Under the terms of this
Security Instrument, the Ground Lease and the estoppel letter received by Lender
from Ground Lessor, any related insurance proceeds allocable under the Ground
Lease to Borrower's leasehold improvements located on the Property pursuant to
the provisions contained therein will be applied either to the repair or
restoration of all or part of the Property, with Lender having the right,
subject to the provisions contained herein, to hold and disburse the proceeds as
the repair or restoration progresses, or to the payment of the outstanding
principal balance of the Loan together with any accrued interest thereon.

            (ii) Under the terms of this Security Instrument, the Ground Lease
and the estoppel letter received by Lender from Ground Lessor, taken together,
any related condemnation proceeds allocable to Borrower's leasehold improvements
located on the Property will be paid, subject to the provisions contained
therein, to the Ground Lessor and Borrower.

            (j) Subleasing. The Ground Lease does not impose any commercially
unreasonable restrictions on subleasing except that such subleasing shall be
subject to the consent of Ground Lessor.

            Section 5.26 Overhang Lease.

            A Memorandum of Overhang Lease has been duly recorded, the Overhang
Lease permits the interest of Borrower to be encumbered by this Security
Instrument and there have not been amendments or modifications to the terms of
the Overhang Lease since recordation. The

                                      -52-
<PAGE>   61
Overhang Lease may not be canceled, terminated, surrendered or amended without
the prior written consent of Lender as a successor holder of the Leasehold
Mortgage (as defined in the Overhang Lease). Except for the Permitted
Exceptions, Borrower's interest in the Overhang Lease is not subject to any
liens or encumbrances superior to, or of equal priority with, this Security
Instrument other than Overhang Lessor's related fee interest. Borrower's
interest in the Overhang Lease is assignable to Lender as a successor holder of
the Leasehold Mortgage (as defined in the Overhang Lease) upon notice to, but
without the consent of, the Overhang Lessor. The Overhang Lease is further
assignable by Lender, its successors and assigns as a successor holder of the
Leasehold Mortgage (as defined in the Overhang Lease) without the Overhang
Lessor's consent. As of the date hereof, the Overhang Lease is in full force and
effect and no default has occurred under the Overhang Lease and there is no
existing condition which, but for the passage of time or the giving of notice,
could result in a default under the terms of the Overhang Lease. The Lease
requires Lessor to give notice of any default by Borrower to Lender provided
that the Lender duly notifies the Overhang Lessor that it is the successor
Leasehold Mortgagee. The Overhang Lease has a term which extends not less than
twenty (20) years beyond the Maturity Date.

                                   ARTICLE VI

                            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, leasing 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. (a) 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.

            (b) By accepting or approving anything required to be observed,
performed or fulfilled or to be given to Lender pursuant to this Security
Instrument, the Note or the Other 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 (other than for purposes of
funding the Loan) and such acceptance or approval thereof shall not constitute
any warranty or affirmation with respect thereto by Lender.

                                      -53-
<PAGE>   62
            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 VII

                               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, upon the written request of Lender, will cause
this Security Instrument and any of the Other Security Documents creating a lien
or security interest or evidencing the lien hereof upon the Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect and perfect the lien or security
interest hereof upon, and the interest of Lender in, the Property. Borrower will
pay all taxes, filing, registration or recording fees, and all expenses incident
to the preparation, execution, acknowledgment and/or recording of the Note, this
Security Instrument, the Other Security Documents, any note or 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 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, mortgages, assignments,
notices of assignments, transfers and assurances as Lender shall, from time to
time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Lender the property and rights hereby
mortgaged, 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, provided, that such
action shall not alter the material terms of the Loan Documents. Borrower, on
demand, will execute and deliver and hereby authorizes Lender to execute in the
name of Borrower or without the signature of Borrower to the extent

                                      -54-
<PAGE>   63
Lender may lawfully do so, one or more financing statements, chattel mortgages
or other instruments, to evidence more effectively the security interest of
Lender in the Property.

            Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws.
(a) If any law is enacted or adopted or amended after the date of this Security
Instrument which deducts the Debt from the value of the Property for the purpose
of taxation or which imposes a tax, either directly or indirectly, on the Debt
or Lender's interest in the Property, Borrower will pay the tax, with interest
and penalties thereon, if any. If Lender is advised by counsel chosen by it that
the payment of tax by Borrower would be unlawful or taxable to Lender or
unenforceable or provide the basis for a defense of usury, then Lender shall
have the option upon written notice to Borrower of not less than ninety (90)
days to declare the Debt immediately due and payable.

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

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

            Section 7.4 Estoppel Certificates. (a) After request by Lender,
which request shall not be made more than one per calendar year, unless an Event
of Default has occurred and is continuing, Borrower, within ten (10) days, shall
furnish Lender or any proposed assignee with a statement, duly acknowledged and
certified, setting forth (i) the amount of 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, to Borrower's knowledge 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 have not been modified or if
modified, giving particulars of such modification, and (viii) to the best of
Borrower's knowledge, whether any offsets, defenses or counterclaims exist
against the obligations secured hereby and, if any are alleged to exist, a
detailed description thereof.

            (b) Borrower shall request and use its reasonable efforts to deliver
to Lender, promptly upon request, but not more often than once per twelve (12)
month period, duly executed estoppel certificates from any one or more lessees
as required by Lender attesting to such facts regarding the Lease as Lender may
reasonably require, including but not limited to attestations that each Lease
covered thereby is in full force and effect with, to the best of their knowledge
no defaults thereunder on the part of any party (except as set forth therein),
that none of the Rents have been paid more than one month in advance, and that
the lessee claims no defense or offset against the full and timely performance
of its obligations under the Lease

                                      -55-
<PAGE>   64
(except as set forth therein); provided, however, that Borrower shall not be
required to deliver to Lender an estoppel certificate from a tenant requiring
more information than such tenant is obligated to provide pursuant to the terms
and conditions of the related Lease.

            (c) Upon any transfer or proposed transfer contemplated by Section
19.1 hereof, at Lender's request, Borrower shall provide an estoppel certificate
to the Investor (defined in Section 19.1), or any prospective Investor who has
committed to purchase, 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)(vii).

            Section 7.6 Splitting of Security Instrument. This Security
Instrument and the Note shall, at any time until the same shall be fully paid
and satisfied, at the sole election and expense of Lender, be split or divided
into two or more notes and two or more security instruments, each of which shall
cover all or a portion of the Property to be more particularly described
therein. To that end, Borrower, upon written request of Lender, shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered by
the then owner of the Property, to Lender and/or its designee or designees
substitute notes and security instruments in such principal amounts, aggregating
not more than the then unpaid principal amount of this Security Instrument, and
containing the same effective terms, provisions and clauses as those contained
herein and in the Note, and such other documents and instruments as may be
reasonably required by Lender.

            Section 7.7 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 (i) with respect to any Other Security Document,
Borrower will issue, in lieu thereof, a replacement Other Security Document,
dated the date of such lost, stolen, destroyed or mutilated Other Security
Document in the same principal amount thereof and otherwise of like tenor and
(ii) with respect to the Note, Borrower will execute a reaffirmation of the Debt
as evidenced by such Note, acknowledging that the Note was lost, stolen,
destroyed, or mutilated, and that such Debt continues to be an obligation and
liability of Borrower as set forth in the Note, a copy of which shall be
attached to such reaffirmation.

                                  ARTICLE VIII

                             DUE ON SALE/ENCUMBRANCE

            Section 8.1 Transfer Definitions. For purposes of this Article 8, an
"AFFILIATED MANAGER" shall mean any managing agent of the Property in which
Borrower, Guarantor or Indemnitor has, directly or indirectly, any legal,
beneficial or economic interest; a "RESTRICTED PARTY" shall mean Borrower,
Guarantor, Indemnitor or any Affiliated Manager or any shareholder, partner,
member or non-member manager, any direct or indirect legal or beneficial owner
of Borrower, Guarantor, Indemnitor, any Affiliated Manager or any non-member

                                      -56-
<PAGE>   65
manager; and a "SALE OR PLEDGE" shall mean a voluntary or involuntary sale,
conveyance, transfer or pledge of a legal or beneficial interest.

            Section 8.2 No Sale/Encumbrance. (a) Except to the extent otherwise
set forth in this Article 8, Borrower shall not (i) sell, convey, mortgage,
grant, bargain, encumber, pledge, assign, grant purchase options with respect
to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) the Property or any part thereof or any legal or
beneficial interest therein or (ii) permit a Sale or Pledge of an interest in
any Restricted Party (collectively a "TRANSFER"), other than pursuant to Leases
of space in the Improvements to tenants in accordance with the provisions of
Section 3.7, without the prior written consent of Lender.

            (b) A Transfer shall include, but not be limited to, (i) an
installment sales agreement wherein Borrower agrees to sell the Property or any
part thereof for a price to be paid in installments; (ii) an agreement by
Borrower leasing all or a substantially all of the Property for other than
actual occupancy by a space tenant thereunder or a sale, assignment or other
transfer of, or the grant of a security interest in, Borrower's right, title and
interest in and to any Leases or any Rents; (iii) if a Restricted Party is a
corporation, any merger, consolidation or Sale or Pledge of such corporation's
stock or the creation or issuance of new stock; (iv) if a Restricted Party is a
limited or general partnership or joint venture, any merger or consolidation or
the change, removal, resignation or addition of a general partner or the Sale or
Pledge of the partnership interest of any general partner or any profits or
proceeds relating to such partnership interest, or the Sale or Pledge of limited
partnership interests or any profits or proceeds relating to such limited
partnership interest or the creation or issuance of new limited partnership
interests; (v) if a Restricted Party is a limited liability company, any merger
or consolidation or the change, removal, resignation or addition of a managing
member or non-member manager (or if no managing member, any member) or the Sale
or Pledge 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 Sale or Pledge of non-managing membership interests or the
creation or issuance of new non-managing membership interests; (vi) if a
Restricted Party is a trust or nominee trust, any merger, consolidation or the
Sale or Pledge of the legal or beneficial interest in a Restricted Party or the
creation or issuance of new legal or beneficial interests; or (vii) the removal
or the resignation of the managing agent (including, without limitation, an
Affiliated Manager) other than in accordance with Section 3.16.

            (c) Lender's consent to a Transfer as required under Section 8.2(a)
above (and to the release of the Guarantor or Indemnitor in connection
therewith) will not be unreasonably withheld, conditioned or delayed if:

            (i) no Event of Default shall have occurred and remain uncured;

            (ii) the proposed transferee ("TRANSFEREE") and its principals
      (owning directly or indirectly 20% or more of Transferee's equity
      interests) shall be a reputable entity or person of good character,
      creditworthy, with sufficient financial worth considering the obligations
      assumed and undertaken, as evidenced by financial statements and other
      information reasonably requested by Lender;

                                      -57-
<PAGE>   66
            (iii) the Property shall be managed by a Qualified Manager;

            (iv) if the Loan is the subject of a Securitization, Lender shall
      have received confirmation in writing from the Rating Agencies to the
      effect that such transfer will not result in a downgrade, qualification or
      withdrawal of any current rating assigned or to be assigned in a
      Securitization;

            (v) Lender shall have received evidence satisfactory to it (which
      shall include a legal non-consolidation opinion acceptable to Lender) that
      the single purpose nature and bankruptcy remoteness of Borrower following
      such transfers are in accordance with the standards of the Rating
      Agencies;

            (vi) if the Property is transferred to the Transferee, (i) the
      Transferee shall have executed and delivered to Lender an assumption
      agreement in form and substance reasonably acceptable to Lender,
      evidencing such Transferee's agreement to abide and be bound by the terms
      of the Note, the Security Instrument and the Other Security Documents,
      together with such legal opinions and title insurance endorsements as may
      be reasonably requested by Lender, and (ii) prior to any requested release
      of the Guarantor or Indemnitor, a substitute guarantor and/or indemnitor
      reasonably acceptable to Lender shall have assumed the existing Other
      Security Documents executed by Guarantor and/or Indemnitor or executed
      replacement documents reasonably satisfactory to Lender; and

            (vii) Lender shall have received on or prior to the date of the
      Transfer (A) an assumption fee equal to Seventy-Five Thousand Dollars and
      00/100 ($75,000) and a processing fee equal to Twenty-Five Thousand
      Dollars and 00/100 ($25,000), (B) a rating confirmation fee for each of
      the Rating Agencies delivering a confirmation pursuant to clause (iv)
      above, which confirmation fees shall be equal to the then customary fees
      charged by each applicable Rating Agency for such a confirmation, and (C)
      the payment of all out-of-pocket costs and expenses reasonably incurred by
      Lender and the Rating Agencies in connection with such assumption
      (including reasonable attorneys' fees and costs). All expenses incurred by
      Lender and the $25,000 processing fee shall be payable by Borrower whether
      or not Lender consents to the Transfer and such processing shall be paid
      at the time of such request.

            Section 8.3 Permitted Transfers. (a) Notwithstanding anything to the
contrary in this Article 8, and provided that no Event of Default has occurred
and is continuing, Lender's prior written consent shall not be required with
respect to (a) Transfers of interests in Borrower between and among Borrower's
partners, members or shareholders, (b) Transfers of direct or indirect interests
in Borrower's partners, members or shareholders between and among the partners,
members or shareholders thereof, (c) Transfers of direct or indirect interests
of Borrower or in Borrower's partners, members or shareholders to an immediate
family member (which shall be limited to a spouse, parent, child and grandchild)
of such partner, member or shareholder or to trusts formed for the benefit of
immediate family members of such partner, member or shareholder, (d) direct or
indirect Transfers by devise or descent or by operation of law upon the death of
a partner, member or shareholder, (e) Transfers of limited partnership
interests, non-managing membership interests or shareholder interests in
Borrower up to an aggregate of 49% of such interest in Borrower; provided,
however, that, in each such case,

                                      -58-
<PAGE>   67
(i) Lender must receive (except in the case of (d) above) thirty (30) days prior
written notice of any Transfer pursuant to this Section 8.3 (a), (ii)
Alexander's, Inc. must retain at least a 51% direct ownership interest in
Borrower or Lender must receive the prior written confirmation that such
Transfer, in and of itself, will not result in a downgrade, withdrawal or
qualification of the then current ratings assigned in connection with any
Securitization or if a Securitization has not occurred, any ratings to be
assigned in connection with any Securitization is obtained, (iii) such transfer
shall not result in a change of control of Borrower or in the management of the
Property, (iv) if requested by Lender, Lender shall have received evidence
satisfactory to it (which shall include a legal non-consolidation opinion
acceptable to Lender) that the single purpose nature and bankruptcy remoteness
of Borrower, its shareholders, partners or members, as the case may be,
following such transfers are in accordance with the standards of the Rating
Agencies and (v) all reasonable costs and expenses of Lender and all costs, fees
and expenses of the Rating Agencies must be paid by Borrower.

            (b) Notwithstanding anything to the contrary contained in this
Article 8 (including Section 8.3(e)) and in addition to the permitted transfers
under Section 8.3(a):

            (i) for so long as the stock of Alexander's Inc. continues to be
      listed on the New York Stock Exchange or such other nationally recognized
      stock exchange, nothing this Section 8 shall prohibit a transfer of any
      direct or indirect interests in Alexander's Inc. (or in any entities
      holding such direct or indirect interests);

            (ii) Lender's prior written consent shall not be required (and no
      transfer fees shall be charged by Lender) with respect to (a) a merger or
      consolidation between Alexander's Inc. and Vornado Realty Trust, Vornado
      Realty LP or a Vornado Affiliate (defined below) (collectively, "VORNADO")
      or (b) a transfer of the Property to Vornado, provided that, among other
      things, in each such case (1) Lender must receive sixty (60) days prior
      written notice of any such transfer, (2) the transferee is a single
      purpose, bankruptcy-remote entity and a non-consolidation opinion
      acceptable to Lender has been delivered, (3) all reasonable out-of-pocket
      costs and expenses of Lender have been paid by Borrower and (4) whichever
      of Vornado Realty Trust or Alexander's Inc. is the surviving entity in a
      merger or consolidation, shall continue after such merger, consolidation
      or transfer to be listed on the New York Stock Exchange or another
      nationally recognized exchange; and

            (iii) nothing in this Section 8 shall prohibit a transfer of direct
      or indirect interests in any Vornado Realty Trust, Vornado Realty LP or
      any Vornado Affiliate (or in any entities holding such direct or indirect
      interests) for so long as the stock of Vornado Realty Trust continues to
      be listed on the New York Stock Exchange or other nationally recognized
      stock exchange and Vornado Realty Trust continues to directly or
      indirectly own and control the Manager or any Affiliated Manager, or, in
      the event of a transfer pursuant to clause (b) (ii) occurs, the Borrower.

            (c) Borrower shall be responsible for all costs and expenses of
Lender (including the legal fees and expense of Lender) and all costs, expenses
and fees of the Rating Agencies in connection with any transfer permitted under
this Section 8.3.

                                      -59-
<PAGE>   68
            (d) For purposes of this Section 8.3, (i) the term "VORNADO
AFFILIATE" means with respect to such Person, such Person is controlled by or is
under common control with Vornado Realty Trust or Vornado Realty LP and either
Vornado Realty Trust or Vornado Realty LP owns, directly or indirectly, fifty
percent (50%) or more of the equitable and beneficial interests of such other
Person, (ii) the term "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities or other
beneficial interest, by contract or otherwise; and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.

            (e) Unless otherwise expressly permitted under this Article 8,
Alexander's, Inc. must at all times control Borrower and own at least a
fifty-one (51%) percent interest in Borrower, unless (1) prior to a
Securitization, Lender has consented, or (2) if the Loan is the subject of a
Securitization, Lender shall have received confirmation in writing from the
Rating Agencies to the effect that such transfer will not result in a downgrade,
qualification or withdrawal of any current rating assigned or to be assigned in
a Securitization.

            Section 8.4 Lender's Rights. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Debt immediately due and payable upon
a Transfer without Lender's consent. This provision shall apply to every
Transfer regardless of whether voluntary or not, or whether or not Lender has
consented to any previous Transfer. Notwithstanding anything to the contrary
contained in this Article 8, in the event any transfer (whether or not such
transfer shall constitute a Transfer) results in any entity or party owning in
excess of forty-nine percent (49%) of the ownership interest in a Restricted
Party, Borrower shall, prior to such transfer, deliver a substantive
non-consolidation opinion to Lender, which opinion shall be in form, scope and
substance acceptable in all respects to Lender and the Rating Agencies.

                                   ARTICLE IX

                                   PREPAYMENT

            Section 9.1 Prepayment. The Debt may be prepaid only in strict
accordance with the express terms and conditions of the Note.

            Section 9.2 Prepayment on Casualty or Condemnation. Provided no
Event of Default has occurred and is continuing under the Note, this Security
Instrument or the Other Security Documents, in the event of any prepayment of
the Debt pursuant to the terms of Sections 3.3, 3.6 or 4.4 hereof, no fee or
other premium or consideration, including any Default Consideration, shall be
due in connection therewith, but Borrower shall be responsible for all interest
which would have accrued on the principal balance of the Note after the
prepayment date to and including the next occurring ninth day of the calendar
month following the prepayment date, if such prepayment occurs on a date which
is not the tenth day of a month, and all other amounts due and payable under the
Note, this Security Instrument and the Other Security Documents.

                                      -60-
<PAGE>   69
                                   ARTICLE X

                                     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 is not paid on or prior to the date
the same is due and payable 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 prior to the
date any interest, penalties or additional fees are due in connection with such
non-payment, 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
certified copies of the Policies are not delivered to Lender promptly upon
request by Lender;

            (d) if Borrower, or its principal, if applicable, violates or does
not comply with any of the provisions of Section 4.3 or Article 8; provided,
however, that in the event of a breach of Section 4.3, such a breach shall not
constitute an Event of Default so long as (i) such violation or breach is
inadvertent, immaterial and non-recurring, (ii) if such violation or breach is
curable, Borrower shall promptly cure such breach, and (iii) within fifteen (15)
Business Days of the request of Lender, Borrower delivers to Lender an
additional Non-Consolidation Opinion, or a modification of the Non-Consolidation
Opinion, to the effect that such breach or violation shall not in any way
impair, negate or amend the opinions rendered in the Non-Consolidation Opinion,
which opinion or modification and any counsel delivering such opinion or
modification shall be acceptable to Lender in its reasonable discretion;

            (e) if any representation or warranty of, or with respect to,
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"), made herein or in the Note or Other Security
Documents or in any certificate, report, financial statement or other instrument
or document furnished to Lender by Borrower, Guarantor or Manager and upon which
Lenders has relied shall have been false or misleading in any material respect
when made;

            (f) if (i) Borrower, Guarantor, Indemnitor or any managing member or
general partner of Borrower, if applicable, 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, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to its debts or debtors ("CREDITORS
RIGHTS LAWS"), 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 Borrower, Guarantor,

                                      -61-
<PAGE>   70
Indemnitor or any managing member or general partner of Borrower, if applicable,
shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against Borrower, Guarantor, Indemnitor or any managing
member or general partner of Borrower, if applicable, 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 one hundred twenty
(120) days; or (iii) there shall be commenced against the Borrower, or any
managing member or general partner of Borrower, if applicable, 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 one hundred twenty (120) days from the entry thereof; or (iv) Borrower,
Guarantor, Indemnitor or any managing member or general partner of Borrower, if
applicable, 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) Borrower, Guarantor, Indemnitor or any managing
member or general partner of Borrower, if applicable, shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due provided, however, to avoid such Event of Default, Borrower
shall have the right to replace Guarantor with another guarantor reasonably
acceptable to Lender, provided, further that the Rating Agencies have confirmed
in writing that such replacement will not, in and of itself, result in a
down-grade, withdrawal or qualification of the initial, or if higher, then
current ratings assigned in connection with any Securitization;

            (g) if Borrower shall be in default beyond notice and cure 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 recorded mechanic's,
materialman's or other lien other than (i) as provided in Section 3.12 hereof or
(ii) a lien for any Taxes not then due and payable (subject to applicable grace
periods for payment), 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 managing
member or general partner of Borrower, if applicable, or the Property or against
Guarantor or Indemnitor (and such lien has or will have a material adverse
effect on Guarantor's or Indemnitor's creditworthiness), and same is not
discharged of record within thirty (30) days after same is filed;

            (j) if (i) Borrower fails to timely provide Lender with the written
certification and evidence referred to in Section 4.2 hereof upon thirty (30)
days written notice from Lender, or (ii) Borrower consummates a transaction
which would cause the Security Instrument or Lender's exercise of its rights
under this Security Instrument, the Note or the Other Security Documents to
constitute a nonexempt prohibited transaction under ERISA or result in a
violation of a state statute regulating governmental plans, subjecting Lender to
liability for a violation of ERISA or a state statute; provided, however, with
respect to this subsection (ii) above, such transaction shall not constitute an
Event of Default if such prohibition or violation is curable and Borrower cures
such prohibition or violation within thirty (30) days of Borrower obtaining
knowledge of such prohibition or violation;

                                      -62-
<PAGE>   71
            (k) if Borrower shall fail to deliver to Lender, (i) the statements
referred to in Section 3.11(f) hereof in accordance with the terms thereof or
(ii) any statements referred to in Section 3.11, other than those referred to in
Section 3.11(f) hereof, within thirty (30) days after request by Lender upon
Borrower's failure to provide such statements as required pursuant to Section
3.11 hereof;

            (l) if Borrower defaults in any material respects under the
Management Agreement or any replacement management agreement relating to the
Property beyond the expiration of applicable notice and grace periods, if any,
thereunder or if the Management Agreement or any replacement management
agreement is canceled, terminated or surrendered or expires pursuant to its
terms, unless in each such case Borrower cures the default or enters into a new
management agreement on fair market terms and conditions with a Qualified
Manager in accordance with Section 3.16 of the Security Instrument and Section 5
of the Conditional Assignment of Management Agreement;

            (m) if any of the assumptions contained in the Non-Consolidation
Opinion, including, but not limited to, any exhibits attached thereto, were not
true and correct in all material respects as of the date of such
Non-Consolidation Opinion or thereafter shall become untrue or incorrect in any
material respect;

            (n) if for more than ten (10) days after notice from Lender,
Borrower shall continue to be in default under any other term, covenant or
condition of the Note, this Security Instrument or the Other Security Documents
(including, without limitation, the Cooperation Letter) not otherwise set forth
in this Section 10.1, 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 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, Borrower shall be permitted such
additional time 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 one hundred twenty (120) days;

            (o) if Borrower shall fail in the payment of any rent, additional
rent or other charge mentioned in or made payable by the Ground Lease when said
rent or other charge is due and payable (subject to applicable notice, grace and
cure periods) except if sums sufficient to pay such amounts have been deposited
in escrow with Lender; or

            (p) if there shall occur any default by Borrower, as tenant under
the Ground Lease, in the observance or performance of any term, covenant or
condition of the Ground Lease on the part of Borrower to be observed or
performed and said default is not cured following the expiration of any
applicable grace and notice periods therein provided, or if the leasehold estate
created by the Ground Lease shall be surrendered or the Ground Lease shall be
terminated or cancelled for any reason or under any circumstances whatsoever, or
if, without Lender's consent any of the terms, covenants or conditions of the
Ground Lease shall in any manner be modified, changed, supplemented, altered, or
amended without the consent of Lender.

                                      -63-
<PAGE>   72
            Section 10.2 Late Payment Charge. If any monthly installment of
principal and interest is not paid on or prior to the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid portion of the outstanding monthly installment of
principal and interest then due or the maximum amount permitted by applicable
law (but without duplication of any amounts paid to Lender pursuant to Section
10.3 hereof), to defray the expense incurred by Lender in handling and
processing such delinquent payment and to compensate Lender for the loss of the
use of such delinquent payment, and such amount shall be secured by this
Security Instrument and the Other Security Documents.

            Section 10.3 Default Interest. Borrower will pay, from the date of
an Event of Default through the earlier of the date upon which the Event of
Default is cured or the date upon which the Debt is paid in full, interest on
the unpaid principal balance of the Note at a per annum rate equal to the lesser
of (a) four percent (4%) plus the Applicable Interest Rate (as defined in the
Note), and (b) the maximum interest rate which Borrower may by law pay or Lender
may charge and collect (the "DEFAULT RATE").

                                   ARTICLE XI

                               RIGHTS AND REMEDIES

            Section 11.1 Remedies. Upon the occurrence of any Event of Default,
Borrower agrees that Lender 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 may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Lender:

            (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, including, but not limited to, in accordance with the terms and
provisions of Article 14 of the New York Real Property Actions and Proceedings
Law;

            (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, as an entirety or in parcels, at such time and place, upon such
terms and after such notice thereof as may be required or permitted by law;

                                      -64-
<PAGE>   73
            (e) subject to Article 15 hereof, 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) 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,
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 rent rolls, leases (including the
form lease and amendments and exhibits), subleases (including the form sublease
and amendments and exhibits) and rental and license agreements with the tenants,
subtenants and licensees, in possession of the Property or any part or parts
thereof; tenants', subtenants' and licensees' money deposits or other property
(including, without limitation, any letter of credit) given to secure tenants',
subtenants' and licensees' obligations under leases, subleases or licenses,
together with a list of the foregoing; all lists pertaining to current rent and
license fee arrears; any and all architects' plans and specifications, licenses
and permits, documents, books, records, accounts, surveys and property which
relate to the management, leasing, operation, occupancy, ownership, insurance,
maintenance, or service of or construction upon the Property and Borrower agrees
to surrender possession thereof and of the Property to Lender upon demand, and
thereupon Lender may (i) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Property and
conduct the business thereat; (ii) complete any construction on the Property in
such manner and form as Lender deems advisable; (iii) make alterations,
additions, renewals, replacements and improvements to or on the Property; (iv)
exercise all rights and powers of Borrower with respect to the Property, whether
in the name of Borrower or otherwise, including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand,
sue for, collect and receive all Rents of the Property and every part thereof;
(v) 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
Premiums and other expenses in connection with the Property, as well as just and
reasonable compensation for the services of Lender, its counsel, agents and
employees;

                                      -65-
<PAGE>   74
            (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 and other UCC Collateral or any part thereof, and to take
such other measures as Lender may deem necessary for the care, protection and
preservation of the Personal Property and other UCC Collateral, and (ii) request
Borrower at its expense to assemble the Personal Property and other UCC
Collateral and make it available to Lender at a convenient place acceptable to
Lender. Any notice of sale, disposition or other intended action by Lender with
respect to the Personal Property and other UCC Collateral sent to Borrower in
accordance with the provisions hereof at least ten (10) days prior to such
action, shall constitute commercially reasonable notice to Borrower;

            (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 uncontrolled 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) After acquisition of the Property by foreclosure or deed-in-lieu
of foreclosure, 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 unearned Insurance Premiums;

            (l) pursue such other remedies as Lender may have under applicable
law; or

            (m) 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.

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

                                      -66-
<PAGE>   75
            Section 11.2 Application of Proceeds. The purchase money, proceeds
and avails of any disposition of the Property, or any part thereof, or any other
sums collected by Lender pursuant to the Note, this Security Instrument or the
Other Security Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.

            Section 11.3 Right to Cure Defaults. Upon the occurrence of any
Event of Default, 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 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, and the cost and expense thereof
(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 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, 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. After an Event of Default,
Lender has the right to appear in and defend any action or proceeding brought
with respect to the Property and to bring any action or proceeding, in the name
and on behalf of Borrower upon notice to Borrower, which Lender, in its
reasonable 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 payable, and without prejudice
to the right of Lender thereafter to bring an action of foreclosure, or any
other action, for a default or defaults by Borrower existing at the time such
earlier action was commenced.

            Section 11.6 Examination of Books and Records. Lender, its agents,
accountants and attorneys shall have the right to examine and audit, during
reasonable business hours and upon reasonable notice, the records, books,
management and other papers of Borrower, Guarantor or Indemnitor which pertain
to their financial condition or the income, expenses and operation of the
Property, at the Property or at any office regularly maintained by Borrower, its
affiliates or of 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 to insist
upon strict performance of any term hereof shall not be deemed to be a waiver of
any term of this Security

                                      -67-
<PAGE>   76
Instrument. Borrower shall not be relieved of Borrower's obligations hereunder
by reason of (i) the failure of Lender to comply with any request of Borrower,
Guarantor or 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. Subject to applicable law, Lender may take action to recover the
Debt, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Lender thereafter to foreclose this Security
Instrument. Subject to applicable law, the rights of Lender under this Security
Instrument shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Lender shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Lender shall not be limited exclusively to the rights and remedies
herein stated but shall be entitled 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. Subject to Borrower's right to
contest pursuant to Section 3.10(e), if the Property is not in compliance with
Applicable Laws which in Lender's discretion would have a material adverse
effect on the Borrower or the Property, Lender may impose additional
requirements upon Borrower in connection herewith including, without limitation,
monetary reserves or financial equivalents except that such additional
requirements shall not give the Lender the right to duplicate any reserve,
escrow or holdback in Lender's possession at the time of such determination.

            Section 11.10 Recourse and Choice of Remedies. Notwithstanding any
other provision of this Security Instrument, including but not limited to
Article 15 hereof, Lender and

                                      -68-
<PAGE>   77
other Indemnified Parties (defined in Section 13.1 below) are entitled to
enforce the obligations of Borrower contained in Sections 13.2 and 13.3 without
first resorting to or exhausting any security or collateral and without first
having recourse to the Note or any of the Property, through foreclosure or
acceptance of a deed in lieu of foreclosure or otherwise, and in the event
Lender commences a foreclosure action against the Property, Lender is entitled
to pursue a deficiency judgment with respect to such obligations against
Borrower. The provisions of Sections 13.2 and 13.3 are exceptions to any
non-recourse or exculpation provisions in the Note, this Security Instrument or
the Other Security Documents, and Borrower is fully and personally liable for
the obligations pursuant to Sections 13.2 and 13.3. The liability of Borrower is
not limited to the original principal amount of the Note. Notwithstanding the
foregoing, subject to applicable law, nothing herein shall inhibit or prevent
Lender from foreclosing pursuant to this Security Instrument or exercising any
other rights and remedies pursuant to the Note, this Security Instrument and the
Other Security Documents, whether simultaneously with foreclosure proceedings or
in any other sequence. A separate action or actions may be brought and
prosecuted against Borrower, whether or not action is brought against any other
person or entity or whether or not any other person or entity is joined in the
action or actions. In addition, Lender shall have the right but not the
obligation to join and participate in, as a party if it so elects, any
administrative or judicial proceedings or actions initiated in connection with
any matter addressed in Article 12.

            Section 11.11 Right of Entry. Lender and its agents shall have the
right to enter and inspect the Property at all reasonable times upon reasonable
notice.

                                  ARTICLE XII

                              ENVIRONMENTAL HAZARDS

            Section 12.1 Environmental Representations and Warranties. Borrower
represents and warrants, based upon an environmental assessment of the Property
and information that Borrower knows or should reasonably have known, that except
as disclosed to Lender in the Environmental Report (herein defined): (a) there
are no Hazardous Substances (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 if required pursuant to said
Environmental Laws, have permits issued pursuant thereto and (ii) other than
Hazardous Substances that consist of cleaning or other products commonly used in
connection with the routine maintenance and repair of the Property or the
ordinary use of the Property as a shopping center, or otherwise fully disclosed
to Lender in writing pursuant to the written reports resulting from the
environmental assessments of the Property and other documentation delivered to
Lender (collectively, the "ENVIRONMENTAL REPORT"); (b) there are no past,
present or threatened Releases (defined below) of Hazardous Substances in
violation of any Environmental Law and which would require Remediation (defined
below) in, on, under or from the Property except as described in the
Environmental Report; (c) there is no threat of any Release of Hazardous
Substances 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

                                      -69-
<PAGE>   78
communication from any person or entity (including but not limited to a
governmental entity) relating to Hazardous Substances or Remediation at,
adjacent to, or in connection with, the Property, of possible liability of any
person or entity pursuant to any Environmental Law at, adjacent to, or in
connection with, the Property, other environmental conditions in connection with
the Property, or any actual or threatened administrative or judicial proceedings
in connection with any of the foregoing; and (f) Borrower has provided to
Lender, in writing, any and all material information relating to environmental
conditions in, on, under or from the Property that is known to Borrower and that
is contained in Borrower's files and records, including but not limited to any
reports relating to Hazardous Substances in, on, under or from the Property
and/or to the environmental condition of the Property. "ENVIRONMENTAL LAW" means
any applicable present and future (during the term of this Security Instrument)
federal, state, municipal, and local laws, statutes, ordinances, rules and
regulations, as well as common law, relating to the protection of the
environment, relating to Hazardous Substances, relating to liability for or
costs of Remediation or prevention of Releases of Hazardous Substances or
relating to liability for or costs of other actual or threatened danger to the
environment. "ENVIRONMENTAL LAW" includes, but is not limited to, the following
statutes, as amended, any successor thereto, and any regulations promulgated
pursuant thereto, and any state or local statutes, ordinances, rules,
regulations and the like addressing similar issues: the Comprehensive
Environmental Response, Compensation and Liability Act; the Emergency Planning
and Community Right-to-Know Act; the Hazardous Substances Transportation Act;
the Resource Conservation and Recovery Act (including but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act;
the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the
Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal
Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Endangered Species Act; the National Environmental Policy Act; and the
Rivers and Harbors Appropriation Act. "ENVIRONMENTAL LAW" also includes, but is
not limited to, any applicable present and future (during the term of the
Security Instrument) federal, state and local laws, statutes, ordinances, rules
and regulations, as well as common law: conditioning transfer of property upon a
negative declaration or other approval of a governmental authority of the
environmental condition of the property; requiring notification or disclosure of
Releases of Hazardous Substances or other environmental condition of the
Property requiring notification or disclosure of Releases of Hazardous
Substances or other environmental condition of the Property to any governmental
authority or other person or entity, whether or not in connection with transfer
of title to or interest in property; and imposing conditions or requirements in
connection with permits or other authorization for lawful activity relating to
environmental matters. "HAZARDOUS SUBSTANCES" means any chemical, material, gas,
vapor, energy, radiation or substance (i) the presence of which requires or may
hereafter require notification, investigation or remediation under any
applicable Environmental Law; (ii) which is or becomes defined as a "hazardous
waste", "hazardous material" or "hazardous substance" or "controlled industrial
waste" or "pollutant" or "contaminant" under any present or future Environmental
Law; (ii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any Governmental Authority; (iv) the presence of which on the
Property poses a hazard to the Property or to the health or safety of persons or
property on or about any Property; (v) without limitation, which contains
gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic
compounds; (vi) without limitation, which contains PCBs or asbestos or urea
formaldehyde foam insulation; or (vii)

                                      -70-
<PAGE>   79
without limitation, which contains or emits radioactive particles, waves or
material, including radon gas in amounts the presence of which poses or
threatens to pose a hazard to the Property or to the health or safety of persons
or property on or about the Property. "RELEASE" of any Hazardous Substance means
any release, deposit, discharge, emission, leaking, leaching, spilling, seeping,
migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Substances that is not in compliance with
applicable Environmental Laws or a valid permit issued pursuant thereto.
"REMEDIATION" means any response, remedial, removal, or corrective action, any
activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any
Hazardous Substance, any actions to prevent, cure or mitigate any Release of any
Hazardous Substance, any action to comply with any Environmental Laws or with
any permits issued pursuant thereto, any inspection, investigation, study,
monitoring, assessment, audit, sampling and testing, laboratory or other
analysis, or evaluation relating to any Hazardous Substances or to anything
referred to in Article 12.

            Section 12.2 Environmental Covenants. Borrower covenants and agrees
that: (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
Substances in, on, under or from the Property; (c) there shall be no Hazardous
Substances in, on, or under the Property, except those that are both (i) in
compliance with all Environmental Laws and with permits issued pursuant thereto
and (ii) other than Hazardous Substances that consist of cleaning or other
products used in connection with the routine maintenance and repair of the
Property or the ordinary use of the Property as a shopping center, or otherwise
fully disclosed to 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 reasonably
relevant information and making knowledgeable persons available for reasonable
interviews; (f) Borrower shall, at its sole cost and expense, perform any
environmental site assessment or other investigation of environmental conditions
relating to the Property (an "ENVIRONMENTAL ASSESSMENT"), pursuant to any
reasonable written request of Lender (including but not limited to sampling,
testing and analysis of soil, water, air, building materials and other materials
and substances whether solid, liquid or gas), and share with Lender the reports
and other results thereof, and Borrower shall use commercially reasonable
efforts to cause the consultant to agree that Lender and other Indemnified
Parties shall be entitled to rely on such reports and other results thereof;
provided, however, that Borrower shall be responsible for the cost of such an
Environmental Assessment no more often than once per twelve (12) month period
unless Lender shall have a reasonable basis to believe that an environmental
condition exists that is reasonably likely to result in a violation of
Environmental Laws or the imposition of liability thereunder; (g) Borrower
shall, at its sole cost and expense, comply with all reasonable written requests
of Lender to (i) reasonably effectuate Remediation of any condition (including
but not limited to a Release of a Hazardous Substance) in, on, under or from the
Property; (ii) comply with any Environmental Law; (iii) comply with any
directive from any governmental authority; provided, that, in any such event, if
Borrower meets the Contest Requirements (as defined herein), Borrower shall have
the right, at is own expense, to defend against or challenge any such
governmental directives or requirements in accordance with applicable law; and
(iv) take any other reasonable action necessary or appropriate for protection

                                      -71-
<PAGE>   80
of the environment; provided, that, in any such event, Borrower shall have the
right to defend against or challenge any such governmental directives or
requirements in accordance with applicable law; (h) Borrower shall not do or
allow any tenant or other user of the Property to do any act that materially
increases the dangers to the environment, poses an unreasonable risk of harm to
any person or entity (whether on or off the Property), impairs or may impair the
value of the Property, is contrary to any requirement of any insurer,
constitutes a public or private nuisance, constitutes waste, or violates any
covenant, condition, agreement or easement applicable to the Property; and (i)
Borrower shall promptly notify Lender in writing of (A) any presence or Releases
or threatened Releases of Hazardous Substances in, on, under, from or migrating
towards the Property of which it has knowledge; (B) any non-compliance with any
Environmental Laws related in any way to the Property; (C) any threatened, or
the imposition of any actual, Environmental Lien; (D) any Remediation of
environmental conditions relating to the Property required or proposed by any
governmental regulatory entity; and (E) any written or oral notice or other
communication which Borrower becomes aware from any source whatsoever (including
but not limited to a governmental entity) relating in any way to Hazardous
Substances or Remediation thereof, possible liability of any person or entity
pursuant to any Environmental Law, or other environmental conditions, in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with environmental matters relating to the
Property. For the purposes of this Security Instrument, the term "CONTEST
REQUIREMENTS" shall mean: (i) Borrower has delivered prior written notice to
Lender of its intention to contest such directive, (ii) no Event of Default has
occurred and is continuing under the Note, this Security Instrument or any of
the Other Security Documents; (iii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting
the Property; (iv) 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; (v) 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; (vi) non-compliance with the directive shall not
impose civil or criminal liability on Borrower or Lender; (vii) in the event
that cost of compliance with the governmental directives or requirements will
equal or exceed $1,000,000 in the reasonable discretion of Lender, Borrower
shall have furnished the security as may be required by Lender to ensure
compliance by Borrower with the directive; and (viii) Borrower shall have
furnished to Lender all other items reasonably requested by Lender.

            Section 12.3 Lender's Rights. If an Event of Default exists or in
the event that Borrower shall have failed to undertake the Environmental
Assessment reasonably requested by Lender pursuant to Subsection 12.2(f) above,
then Lender and any other person or entity designated by Lender, including but
not limited to any receiver, 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 and absolute discretion) and taking samples of soil,
groundwater or other water, air, or building materials, and conducting other
invasive testing using a nationally recognized environmental consultant
reasonably acceptable to Borrower. Borrower shall cooperate with and provide
access to Lender and any such person or entity designated by Lender.

                                      -72-
<PAGE>   81
                                  ARTICLE XIII

                                 INDEMNIFICATION

            Section 13.1 General Indemnification. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against 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, punitive damages,
foreseeable and unforeseeable consequential damages, of whatever kind or nature
(including but not limited to attorneys' fees and other costs of defense) (the
"LOSSES") imposed upon or incurred by or asserted against any Indemnified
Parties and arising out of or in any way relating to any one or more of the
following: (a) ownership of this Security Instrument, the Property or any
interest therein or receipt of any Rents; (b) any amendment to, or restructuring
of, the Debt, and the Note, this Security Instrument, or any Other Security
Documents; (c) any and all lawful action that may be taken by Lender in
connection with the enforcement of the provisions of this Security Instrument or
the Note or any of the Other Security Documents, whether or not suit is filed in
connection with same, or in connection with Borrower and/or any member, partner,
joint venturer or shareholder thereof becoming a party to a voluntary or
involuntary federal or state bankruptcy, insolvency or similar proceeding; (d)
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;
(e) 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; (f) any failure on the part of Borrower to
perform or be in compliance with any of the terms of this Security Instrument;
(g) performance of any labor or services or the furnishing of any materials or
other property in respect of the Property or any part thereof; (h) the failure
of any person to file timely with the Internal Revenue Service an accurate Form
1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter
Exchange Transactions, which may be required in connection with the Security
Instrument, or to supply a copy thereof in a timely fashion to the recipient of
the proceeds of the transaction in connection with which this Security
Instrument is made; (i) any failure of the Property to be in compliance with any
Applicable Laws; (j) the enforcement by any Indemnified Party of the provisions
of this Article 13; (k) 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; (l) the payment of any commission, charge or brokerage
fee to anyone which may be payable in connection with the funding of the Loan
evidenced by the Note and secured by this Security Instrument; or (m) any
misrepresentation made by Borrower in this Security Instrument or any Other
Security Document; provided, however, that Borrower shall not be liable to an
Indemnified Party for any Losses caused by the gross negligence or willful
misconduct of such Indemnified Party. Any amounts payable to Lender by reason of
the application of this Section 13.1 shall become immediately due and payable
and shall bear interest at the Default Rate from the date loss or damage is
sustained by Lender until paid. For purposes of this Article 13, the term
"INDEMNIFIED PARTIES" means Lender and any person or entity who is or will have
been involved in the origination of the Loan, any person or entity who is or
will have been involved in the servicing of the Loan, any person or entity in
whose name the encumbrance created by this Security Instrument is or will have
been recorded, persons and

                                      -73-
<PAGE>   82
entities who may hold or acquire or will have held a full or partial interest in
the Loan (including, but not limited to, Investors or prospective Investors in
the Securities, as well as custodians, trustees and other fiduciaries who hold
or have held a full or partial interest in the Loan for the benefit of third
parties) as well as the respective directors, officers, shareholders, partners,
members, employees, agents, servants, representatives, contractors,
subcontractors, affiliates, subsidiaries, participants, successors and assigns
of any and all of the foregoing (including but not limited to any other person
or entity who holds or acquires or will have held a participation or other full
or partial interest in the Loan or the Property, whether during the term of the
Loan or as a part of or following a foreclosure of the Loan and including, but
not limited to, any successors by merger, consolidation or acquisition of all or
a substantial portion of Lender's assets and business).

            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 ERISA Indemnification. 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 (including, without
limitation, attorneys' fees and costs incurred in the investigation, defense,
and settlement of Losses incurred in correcting any prohibited transaction or in
the sale of a prohibited loan, and in obtaining any individual prohibited
transaction exemption under ERISA that may be required, in Lender's sole
discretion) that Lender may incur, directly or indirectly, as a result of a
default under Sections 4.2 or 5.9.

            Section 13.4 Environmental Indemnity. Simultaneously with this
Security Instrument, Borrower and Alexander's, Inc. (collectively "INDEMNITOR")
have executed and delivered that certain Environmental Indemnity Agreement dated
the date hereof to Lender (the "ENVIRONMENTAL INDEMNITY"), which Environmental
Indemnity is not secured by this Security Instrument.

            Section 13.5 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 reasonably 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; provided, however, (a) the fees and
expenses of such attorneys and other professionals shall be at the expense of
such Indemnified Party unless (i) the employment thereof has been specifically
authorized by Borrower; or (ii) in such claim or proceeding there is, in the
reasonable opinion of independent counsel, a conflict of interest concerning any
material issue between the position of Borrower and such Indemnified Party, (b)
if the Indemnified Party decides to engage their own attorneys and other
professionals due to a conflict of interest, then such Indemnified Party shall
keep Borrower reasonably informed of the claim or action, and (c) no Indemnified
Party or their independently engaged attorneys shall settle any such suit or
claim without the approval of Borrower, which approval shall not be unreasonably
withheld, conditioned or delayed. Upon demand, Borrower shall pay or, in the
sole

                                      -74-
<PAGE>   83
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 required under
this Section 13.3 to be paid by Borrower in connection therewith.

                                  ARTICLE XIV

                                     WAIVERS

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

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

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

            Section 14.4 Waiver of Foreclosure Defense. Borrower hereby waives
any defense Borrower might assert or have by reason of Lender's failure to make
any tenant or lessee of the Property a party defendant in any foreclosure
proceeding or action instituted by Lender.

            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 and absolute discretion of Lender and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein.

            Section 14.6 Survival. The indemnifications made pursuant to
Subsection 13.3 shall continue indefinitely in full force and effect and shall
survive and shall in no way be impaired by any satisfaction or other termination
of this Security Instrument, any assignment or other transfer of all or any
portion of this Security Instrument or Lender's interest in the Property

                                      -75-
<PAGE>   84
(but, in such case, shall benefit both Indemnified Parties and any assignee or
transferee), any exercise of Lender's rights and remedies pursuant hereto,
including, but not limited to, foreclosure or acceptance of a deed in lieu of
foreclosure, any exercise of any rights and remedies pursuant to the Note or any
of the Other Security Documents, any transfer of all or any portion of the
Property (whether by Borrower or by Lender following foreclosure or acceptance
of a deed in lieu of foreclosure or at any other time), any amendment to this
Security Instrument, the Note or the Other Security Documents, and any act or
omission that might otherwise be construed as a release or discharge of Borrower
from the obligations pursuant hereto. The representations and warranties,
covenants, and other obligations arising under Article 12, shall continue until
the satisfaction of the Debt; provided, however, that, Borrower shall not be
responsible for environmental conditions arising after the point in time that
Lender takes actual possession of the Property by foreclosure or a deed in lieu
thereof.

            SECTION 14.7 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 XV

                                   EXCULPATION

            Section 15.1 Exculpation. The provisions of Article 14 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 XVI

                                     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 sender, (ii) one (1)
Business Day 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 as follows:

                                      -76-
<PAGE>   85
            If to Borrower:   Alexander's Kings Plaza, LLC and
                              Alexander's of Kings, LLC
                              c/o Vornado Realty Trust
                              210 Route 4 East
                              Paramus, New Jersey 07652
                              Attention:  Chief Financial Officer
                              Facsimile No.: (201) 708-6210

            With a copy to:   Winston & Strawn
                              200 Park Avenue
                              New York, New York 10166
                              Attention:  Peter J. Korda, Esq.
                              Facsimile No.: (212) 294-4700

                                       and

                              Vornado Realty Trust
                              210 Route 4 East
                              Paramus, New Jersey 07652
                              Attention:  Vice President for Real Estate
                              Facsimile No.:  (201) 708-6207

            If to Lender:     Morgan Guaranty Trust Company of New York
                              Commercial Mortgage Finance Group
                              60 Wall Street
                              New York, New York  10260
                              Attention:  Nancy Alto
                              Facsimile No.:  (212) 648-5274

                              and

                              Morgan Guaranty Trust Company of New York
                              Legal Department
                              270 Park Avenue, 39th Floor
                              New York, New York 10017
                              Attention:  Ronald A. Wilcox, Esq.
                              Facsimile No.: (212) 270-2934

            With a copy to:   Cadwalader, Wickersham & Taft
                              100 Maiden Lane
                              New York, New York 10038
                              Attention:  William P. McInerney, Esq.
                              Facsimile No.: (212) 504-6666

or addressed as such party may from time to time designate by written notice to
the other parties.

                                      -77-
<PAGE>   86
            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 XVII

                               SERVICE OF PROCESS

            Section 17.1 Consent to Service. (a) Borrower will maintain a place
of business or an agent for service of process in New York, New York and give
prompt notice to Lender of the address of such place of business and of the name
and address of any new agent appointed by it, as appropriate. Borrower further
agrees that the failure of its agent for service of process to give it notice of
any service of process will not impair or affect the validity of such service or
of any judgment based thereon. If, despite the foregoing, there is for any
reason no agent for service of process of Borrower available to be served, and
if it at that time has no place of business in New York, New York, then Borrower
irrevocably consents to service of process by registered or certified mail,
postage prepaid, to it at its address given in or pursuant to the first
paragraph hereof.

            (b) Borrower initially and irrevocably designates its Chief
Financial Officer, with offices on the date hereof at c/o Vornado Realty Trust,
210 Route 4 East, Paramus, New Jersey 07652, to receive for and on behalf of
Borrower service of process in New York, New York with respect to this Security
Instrument.

            Section 17.2 Submission to Jurisdiction. With respect to any claim
or action arising hereunder or under the Note or the Other Security Documents,
Borrower (a) irrevocably submits to the nonexclusive jurisdiction of the courts
of the State of New York and the United States District Court located in the
Borough of Manhattan in New York, New York, and appellate courts from any
thereof, and (b) irrevocably waives any objection which it may have at any time
to the laying on venue of any suit, action or proceeding arising out of or
relating to this Security Instrument brought in any such court, irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.

            Section 17.3 Jurisdiction Not Exclusive. Nothing in this Security
Instrument will be deemed to preclude Lender from bringing an action or
proceeding with respect hereto in any other jurisdiction.

                                  ARTICLE XVIII

                                 APPLICABLE LAW

            Section 18.1 Choice of Law. THIS SECURITY INSTRUMENT SHALL BE DEEMED
TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND
SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF

                                      -78-
<PAGE>   87
NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION,
PRIORITY AND ENFORCEMENT OF THE LIEN OF THIS SECURITY INSTRUMENT, AND THE
DETERMINATION OF DEFICIENCY JUDGMENTS, THE LAWS OF THE STATE WHERE THE PROPERTY
IS LOCATED SHALL APPLY.

            Section 18.2 Usury Laws. This Security Instrument and the Note are
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the holder of
the Note to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Note shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.

            Section 18.3 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 law. If any term of this Security Instrument or any application
thereof shall be invalid or unenforceable, the remainder of this Security
Instrument and any other application of the term shall not be affected thereby.

                                   ARTICLE XIX

                                SECONDARY MARKET

            Section 19.1 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").

            Section 19.2 Cooperation. Borrower, Guarantor and Indemnitor agree
to cooperate with Lender in connection with any transfer made or any Securities
created pursuant to this Article 19 in accordance with the terms and conditions
of that certain letter agreement, dated the date hereof, by and among Lender,
Borrower and Guarantor (the "Cooperation Letter").

            Section 19.3 Reserves/Escrows. In the event that Securities are
issued in connection with the Loan, all funds held by Lender in escrow or
pursuant to reserves in

                                      -79-
<PAGE>   88
accordance with this Security Instrument or the Other Security Documents shall
be deposited in eligible accounts at eligible institutions as then defined and
required by the Rating Agencies and shall continue to be governed in all
respects by the provisions of this Security Instrument and the Other Security
Documents.

            Section 19.4 Servicer. At the option of Lender, the Loan may be
serviced by a servicer/trustee (the "SERVICER") selected by Lender and Lender
may delegate all or any portion of its responsibilities under the Note, this
Security Instrument and the Other Security Documents to the Servicer pursuant to
a servicing agreement (the "SERVICING AGREEMENT") between Lender and Servicer.

                                   ARTICLE XX

                                      COSTS

            Section 20.1 Performance at Borrower's Expense. Borrower
acknowledges and confirms that Lender shall impose certain administrative
processing fees in connection with (a) the extension, renewal, modification,
amendment and termination of the Loan, (b) the release or substitution of
collateral therefor, or (c) obtaining certain material consents, waivers and
approvals with respect to the Property, (the occurrence of any of the above
shall be called an "EVENT"). Such fees shall be the reasonable and customary
fees that the Lender would charge for other first class properties located in
the City of New York and comparable to the Property and Borrower further
acknowledges and confirms that it shall be responsible for the payment of all
reasonable costs of reappraisal of the Property or any part thereof when
required by law, regulation, or any governmental or quasi-governmental
authority. Borrower hereby acknowledges and agrees to pay within ten (10) days
after demand therefor all such reasonable fees (as the same may be increased or
decreased from time to time), and any additional reasonable out of pocket costs
and expenses which may be incurred by Lender from time to time upon the
occurrence of any Event. Wherever it is provided for herein that Borrower pay
any costs and expenses, such costs and expenses shall include, but not be
limited to, all reasonable legal fees and disbursements of Lender.

            Section 20.2 Attorney's 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 20.1 above, and (b) Borrower
shall pay to Lender on demand any and all expenses, including reasonable legal
expenses and attorneys' fees, incurred or paid by Lender in protecting its
interest in the Property or Personal Property or in collecting any amount
payable under the Note, this Security Instrument or the Other Security
Documents, or in enforcing its rights hereunder with respect to the Property or
Personal Property, whether or not any legal proceeding is commenced hereunder or
thereunder and whether or not any default or Event of Default shall have
occurred and is continuing, together with interest thereon at the Default Rate
from the date paid or incurred by Lender until such expenses are paid by
Borrower.

                                      -80-
<PAGE>   89
                                   ARTICLE XXI

                                   DEFINITIONS

            Section 21.1 General Definitions. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Security Instrument may be used interchangeably in singular
or plural form and the word "Borrower" shall mean "each Borrower and any
subsequent owner or owners of the Property or any part thereof or any interest
therein," the word "Lender" shall mean "Lender and any subsequent holder of the
Note," the word "Note" shall mean "the Note and any other evidence of
indebtedness secured by this Security Instrument," the word "person" or "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.

                                  ARTICLE XXII

                            MISCELLANEOUS PROVISIONS

            Section 22.1 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 22.2 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 22.3 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 22.4 Headings, Etc. The headings and captions of various
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.

            Section 22.5 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

                                      -81-
<PAGE>   90
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 22.6 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.

            Section 22.7 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.

            Section 22.8 Future Assignment of Mortgage. (a) If a Defeasance is
to occur under the Note and this Security Instrument and Borrower has specified
in the notice delivered pursuant to the Note that it intends to effectuate the
Defeasance in a manner which will permit the assignment of the Note and this
Security Instrument, or the Parking Note (as defined in the Note) and a portion
of this Security Instrument, to a new lender providing a portion of the monies
necessary to acquire the Defeasance Collateral in order to save mortgage
recording tax, Borrower and Lender shall cooperate to effect such proposed
assignment in the manner herein provided and, in the case of a Parking Release
(as defined in the Note), such cooperation shall include the amendment,
severance and/or substitution of this Security Instrument into two security
instruments, one of which will cover the Parking Land and one of which will
cover the remaining portion of the Property. To that end, Borrower, shall
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered to Lender substitute security instruments in the amount of the Parking
Note and the remainder of the outstanding principal balance of the Note and
otherwise complying with the provisions of Article 5 of the Note for a Parking
Defeasance. Lender shall assign the Note and this Security Instrument, or the
Parking Note and the severed portion of this Security Instrument, each without
recourse, covenant or warranty of any nature, express or implied, to such new
lender designated by Borrower provided that Borrower or an affiliate of Borrower
(i) has caused to be delivered to such new lender a substitute note executed by
Borrower to be secured by the Defeasance Collateral pursuant to the Defeasance
Security Agreement between Borrower and such new lender (such substitute note to
have the same term, interest rate, unpaid principal balance and all other
material terms and conditions of the Note, or the Parking Note, as applicable,
which substitute note, together with the Defeasance Security Agreement and the
rights of such new lender in and to the Defeasance Collateral, shall be assigned
by such new lender to Lender simultaneously with the assignment of the Note and
this Security Instrument by Lender, or the Parking Note and the severed portion
of the Security Instrument, and (ii) has complied with all other provisions of
the Note and this Security Instrument to the extent not inconsistent with this
Section 22.8. In addition, any such assignment shall be conditioned on the
following: (A) payment by Borrower of (I) Lender's then customary administrative
fee for processing assignments of mortgage; (II) the reasonable expenses of
Lender incurred in connection therewith; and (III) Lender's reasonable
attorney's

                                      -82-
<PAGE>   91
fees for the preparation, delivery and performance of such an assignment and the
transactions contemplated hereby; (B) Borrower shall have caused the delivery of
an executed Statement of Oath under Section 275 of the New York Real Property
Law; (C) such new lender shall materially modify the Note or the Parking Note,
as applicable, such that it shall be treated as a new loan for federal tax
purposes; (D) such an assignment is not then prohibited by any federal, state or
local law, rule, regulation, order or by any other governmental authority; (E)
such assignment and the activities described above do not constitute a
prohibited transaction for any REMIC Trust formed pursuant to a Securitization
and will not disqualify such REMIC Trust as a "real estate mortgage investment
conduit" within the meaning of Section 860D of the IRS Code as a result of such
assignment and the Defeasance, and an opinion of counsel to Borrower to that
effect is delivered to Lender in a form that would be reasonably satisfactory to
a prudent lender; and (F) Borrower shall provide such other opinions, items,
information and documents which a prudent lender would reasonably require to
effectuate such assignment. Borrower shall be responsible for all taxes,
recording fees and other charges payable in connection with any such assignment.
Borrower agrees that the assignment of the Note and this Security Instrument, or
the Parking Note and the severed portion of the Security Instrument, to a new
lender and the assignment of the substitute note, the Defeasance Collateral and
the Defeasance Security Agreement by the new lender to Lender shall be
accomplished by an escrow closing conducted through an escrow agent reasonably
satisfactory to Lender and pursuant to an escrow agreement reasonably
satisfactory to Lender in form and substance.

            (b) Upon written request of Borrower at a time when prepayment is
permitted under the Note, Lender shall, within thirty (30) days of such request,
assign the Note and this Mortgage, each without recourse, covenant or warranty
of any nature, express or implied, to a new lender designated by Borrower upon
Borrower's payment in full of the Debt and satisfaction in full of any and all
other liabilities and obligations set forth in the Loan Documents and payment of
all customary fees (including reasonable attorney fees) for any assignment of
this Security Instrument.

            Section 22.9 Brokers. Lender hereby represents that it has dealt
with no broker in connection with this transaction.

            Section 22.10 Withholdings. If, pursuant to the terms of this
Security Agreement, the Loan is transferred to any transferee which is organized
under the laws of any jurisdiction other than the United States or any state
thereof, the transferor shall cause such transferee, concurrently with the
effectiveness of such transfer, (a) to furnish to the transferor and Borrower
the applicable United States Internal Revenue Service Form (wherein such
transferee claims entitlement to complete exemption from United States federal
withholding tax on all interest payments hereunder) and (b) to agree, for the
benefit of the transferor and Borrower, to provide the transferor and Borrower a
new applicable United States Internal Revenue Service Form upon the expiration
or obsolescence of any previously delivered form and comparable statements in
accordance with applicable United States laws and regulations and amendments
duly executed and completed by such transferee, and to comply from time to time
with all applicable United States laws and regulations with regard to such
withholding tax exemption. However, in the event that any change in law, rule,
regulation, treaty or directive, or in the interpretation or application thereof
(a "LAW CHANGE"), has occurred prior to the date on which any delivery pursuant
to the preceding sentence would otherwise be required which renders such

                                      -83-
<PAGE>   92
forms inapplicable, or which would prevent such transferee from duly completing
and delivering any such forms, such transferee shall not be obligated to deliver
such forms but shall, promptly following such Law Change, but in any event prior
to the time the next payment hereunder is due following such Law Change, advise
Borrower in writing whether it is capable of receiving payments without any
deduction withholding of taxes.

                                  ARTICLE XXIII

                         ADDITIONAL NEW YORK PROVISIONS

            Section 23.1 Controlling Provisions. In the event of any
inconsistencies between the terms and conditions of Articles 1-22 of this
Security Instrument and Article 23, the terms of Article 23 shall control and be
binding.

            Section 23.2 Commercial Property. Borrower represents that this
Security Instrument does not encumber real property principally improved or to
be improved by one or more structures containing in the aggregate not more than
six residential dwelling units, each having its own separate cooking facilities.

            Section 23.3 Maximum Principal Indebtedness. Notwithstanding
anything to the contrary contained herein, the maximum amount of principal
indebtedness secured by the Security Instrument or which under any contingency
may be secured by the Security Instrument is $223,000,000.

            Section 23.4 Insurance Proceeds. In the event of any conflict,
inconsistency or ambiguity between the provisions of Sections 3.3 and 4.4 hereof
and the provisions of Subsection 4 of Section 254 of the Real Property Law of
New York covering the insurance of buildings against loss by fire, the
provisions of Sections 3.3 and 4.4 hereof shall control.

            Section 23.5 Trust Fund. Pursuant to Section 13 of the lien law of
New York, Borrower shall receive the advances secured hereby and shall hold the
right to receive such advances as a trust fund to be applied first for the
purpose of paying the cost of any improvement and shall apply such advances
first to the payment of the cost of any such improvement on the Property before
using any part of the total of the same for any other purpose.

            Section 23.6 Section 291-f Agreement. This Security Agreement is
intended to be, and shall operate as, the agreement described in Section 291-f
of the Real Property Law of the State of New York and shall be entitled to the
benefits afforded thereby. Borrower shall (unless such notice is contained in
such tenant's Lease) deliver notice of this Security Agreement in form and
substance acceptable to Lender, to all present and future holders of any
interest in any Lease, by assignment or otherwise, and shall take such other
action as may now or hereafter be reasonably required to afford Lender the full
protections and benefits of Section 291-f. Borrower shall request the recipient
of any such notice to acknowledge the receipt thereof.

                         [NO FURTHER TEXT ON THIS PAGE]

                                      -84-
<PAGE>   93
                                   DEFINITIONS

            The terms set forth below are defined in the following Sections of
this Security Instrument:

            (a)         Additional Collateral: Article 3, Subsection 3.17(b);

            (b)         ADSB: Article 5, Subsection 5.6(h);

            (c)         Affiliated Loan: Article 3, Subsection 3.11(k);

            (d)         Affiliated Manager: Article 8, Section 8.1;

            (e)         AKPC: Article 5, Subsection 5.6(h);

            (f)         Anchor Lease: Article 3, Subsection 3.7(d);

            (g)         Applicable Laws: Article 3, Subsection 3.10(a);

            (h)         Approved Bank: Article 3, Subsection 3.17(a)(2);

            (i)         Approved Document: Article 3, Subsection 3.7(j)(2);

            (j)         Approved Information: Article 3, Subsection 3.7(j)(2);

            (k)         Award: Article 3, Section 3.6;

            (l)         Borrower: Preamble, and Article 21, Section 21.1;

            (m)         Business Day: Article 16, Section 16.1;

            (n)         Business Party: Article 4, Subsection 4.3(t);

            (o)         Cash Management Agreement: Article 1, Subsection 1.1(p);

            (p)         Casualty Consultant: Article 4, Subsection 4.4(b)(iv);

            (q)         Casualty Restoration: Article 3, Subsection 3.3(h);

            (r)         Casualty Retainage: Article 4, Subsection 4.4(b)(iv);

            (s)         City Leased Land: Recitals;

            (t)         Condemnation Proceeds: Article 4, Section 4.4(b);

            (u)         Condemnation Restoration: Article 3, Subsection 3.6;

            (v)         Contest Requirements: Article 12, Section 12.2;

                                      -85-
<PAGE>   94

            (w)         Cooperation Letter: Article 19, Section 19.2;

            (x)         COREA: Article 5, Subsection 5.6(h);

            (y)         Creditors Rights Laws: Article 10, Subsection 10.1(f);

            (z)         Debt: Article 2, Section 2.1;

            (aa)        Debt Service: Article 3, Subsection 3.17(a)(7);

            (bb)        Debt Service Coverage Ratio or DSCR: Article 3,
                        Subsection 3.17(a)(2);

            (cc)        Default Rate: Article 10, Section 10.3;

            (dd)        Environmental Assessment: Article 12, Section 12.2;

            (ee)        Environmental Indemnity: Article 13, Section 13.4;

            (ff)        Environmental Law: Article 12, Section 12.1;

            (gg)        Environmental Liens: Article 12, Section 12.2;

            (hh)        Environmental Report: Article 12, Section 12.1;

            (ii)        ERISA: Article 4, Subsection 4.2(a);

            (jj)        Escrow Fund: Article 3, Section 3.5;

            (kk)        Event: Article 20, Section 20.1;

            (ll)        Event of Default: Article 10, Section 10.1;

            (mm)        Excess Amount: Article 3; Section 3.14;

            (nn)        Exchange Act Filing: Article 3, Subsection 3.11(i);

            (oo)        Expenses: Article 3, Subsection 3.17(a)(6);

            (pp)        Fee Land: Recitals;

            (qq)        Flood Insurance Acts: Article 3, Subsection 3.3(a)(vii);

            (rr)        Full Replacement Cost: Article 3, Subsection
                        3.3(a)(i)(A);

            (ss)        GAAP: Article 3, Subsection 3.11(a);

            (tt)        Gross Income: Article 3, Subsection 3.17(a)(5);

            (uu)        Ground Lease: Recitals, and Article 1, Subsection
                        1.1(a);

                                      -86-
<PAGE>   95
            (vv)        Ground Lease Escrow Fund: Article 3, Section 3.19;

            (ww)        Ground Lessor: Article 5, Subsection 5.25(a);

            (xx)        Guarantor: Article 10, Subsection 10.1(e);

            (yy)        Hazardous Substances: Article 12, Subsection 12.1(f);

            (zz)        Hypothetical Loan Amount: Article 3, Subsection 3.17(c);

            (aaa)       Improvements: Article 1, Subsection 1.1(e);

            (bbb)       Indemnified Parties: Article 13, Section 13.1;

            (ccc)       Indemnitor: Article 13, Section 13.4;

            (ddd)       Independent Director: Article 4, Subsection 4.3(t);

            (eee)       Insurance Premiums: Article 3, Subsection 3.3(b);

            (fff)       Insurance Proceeds: Article 4, Section 4.4(b);

            (ggg)       Kings Plaza LLC: Preamble;

            (hhh)       Land: Article 1, Subsection 1.1(c);

            (iii)       Law Change: Article 22, Section 22.10;

            (jjj)       Leases: Article 1, Subsection 1.1(h);

            (kkk)       Lender: Preamble and Article 21, Section 21.1;

            (lll)       Letter of Credit: Article 3, Subsection 3.17(1);

            (mmm)       Loan: Article 5, Subsection 5.12;

            (nnn)       Losses: Article 13, Section 13.1;

            (ooo)       Macy's: Article 5, Subsection 5.6(h);

            (ppp)       Major Lease: Article 3, Subsection 3.7(d);

            (qqq)       Management Agreement: Article 3, Subsection 3.16(a);

            (rrr)       Manager: Article 3, Subsection 3.16(a);

            (sss)       Net Proceeds: Article 4, Subsection 4.4(b);

            (ttt)       Net Proceeds Deficiency: Article 4, Subsection
                        4.4(b)(vi);

                                      -87-
<PAGE>   96
            (uuu)       New Mortgage: Recitals;

            (vvv)       New Note: Recitals;

            (www)       NOI: Article 3, Subsection 3.17(a)(4);

            (xxx)       Non-Consolidation Opinion: Article 3, Subsection 3.15;

            (yyy)       Non-Major Lease: Article 3, Subsection 3.7(a);

            (zzz)       Note: Article 21, Section 21.1;

            (aaaa)      Obligations: Article 2, Section 2.3;

            (bbbb)      Offering Document Date: Article 3, Subsection
                        3.11(f)(iv);

            (cccc)      Original Mortgages: Recitals;

            (dddd)      Original Notes: Recitals;

            (eeee)      Other Charges: Article 3, Subsection 3.4(a);

            (ffff)      Other Obligations: Article 2, Section 2.2;

            (gggg)      Other Security Documents: Article 3, Section 3.2;

            (hhhh)      Overhang Lease: Recitals;

            (iiii)      Overhang Leased Land: Recitals;

            (jjjj)      Parking Land: Recitals;

            (kkkk)      Parking LLC: Preamble;

            (llll)      Parking Management Agreement: Article 3, Subsection
                        3.16(b);

            (mmmm)      Parking Manager: Article 3, Subsection 3.16(b);

            (nnnn)      Participations: Article 19, Section 19.1;

            (oooo)      Permitted Exceptions: Article 5, Section 5.1;

            (pppp)      Personal Property: Article 1, Subsection 1.1(g);

            (qqqq)      Plaza LLC: Preamble;

            (rrrr)      Policies/Policy: Article 3, Subsection 3.3(b);

            (ssss)      Power Plant License: Article 4, Subsection 4.3(j);

                                      -88-
<PAGE>   97
            (tttt)      Principal: Article 4, Section 4.3;

            (uuuu)      Property: Article 1, Section 1.1 and Article 21, Section
                        21.1;

            (vvvv)      Qualified Insurer: Article 3, Subsection 3.3(b);

            (wwww)      Qualified Manager: Article 3, Subsection 3.16(a);

            (xxxx)      Rating Agency: Article 3, Subsection 3.3(b);

            (yyyy)      Rating Criteria: Article 3, Subsection 3.17(a)(8);

            (zzzz)      Reduced AC Amount: Article 3, Subsection 3.17(c);

            (aaaaa)     Release: Article 12, Section 12.1;

            (bbbbb)     Remediation: Article 12, Section 12.1;

            (ccccc)     Renewal Lease: Article 3, Subsection 3.7(a);

            (ddddd)     Rents: Article 1, Subsection 1.1(h);

            (eeeee)     Reserve Funds: Section 3.26;

            (fffff)     Restoration: Article 3, Subsection 3.6;

            (ggggg)     Restricted Party: Article 8; Section 8.1;

            (hhhhh)     Sale or Pledge: Article 8, Section 8.1;

            (iiiii)     Securities: Article 19, Section 19.1;

            (jjjjj)     Security Deposits: Article 3, Subsection 3.7(i);

            (kkkkk)     Security Instrument: Preamble;

            (lllll)     Servicer: Article 19, Section 19.4

            (mmmmm)     Servicing Agreement: Article 19, Section 19.4

            (nnnnn)     SNDA: Article 3, Subsection 3.7(g);

            (ooooo)     Standard Statements: Article 3, Subsection 3.11(f)(i);

            (ppppp)     Summary Information: Article 3, Subsection 3.7(j);

            (qqqqq)     Taxes: Article 3, Subsection 3.4(a);

            (rrrrr)     Threshold Amount: Article 3, Section 3.14;

                                      -89-
<PAGE>   98
            (sssss)     Transfer: Article 8, Subsection 8.2(a);

            (ttttt)     Transferee: Article 8, Subsection 8.2(c)(ii);

            (uuuuu)     UCC Collateral: Article 1, Section 1.3;

            (vvvvv)     Uniform Commercial Code: Article 1, Subsection 1.1(g);

            (wwwww)     Vacancy Rate: Article 3, Subsection 3.17(a)(9);

            (xxxxx)     Vornado: Article 8, Subsection 8.3(b)(ii); and

            (yyyyy)     Vornado Affiliate: Article 8, Subsection 8.3(d).

                                      -90-
<PAGE>   99
            IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by
Borrower the day and year first above written.

                                    BORROWER:

                                    ALEXANDER'S KINGS PLAZA, LLC, a Delaware
                                       limited liability company

                                       By: /s/ Joseph Macnow
                                          --------------------------------------
                                       Name:  Joseph Macnow
                                       Title: Executive President

                                    ALEXANDER'S OF KINGS, LLC, a Delaware
                                       limited liability company

                                       By: /s/ Joseph Macnow
                                          --------------------------------------
                                       Name:  Joseph Macnow
                                       Title: Executive President

                                    KINGS PARKING, LLC, a Delaware limited
                                       liability company

                                       By: /s/ Joseph Macnow
                                          --------------------------------------
                                       Name:  Joseph Macnow
                                       Title:  Executive President
<PAGE>   100
                                     LENDER:

                                    MORGAN GUARANTY TRUST COMPANY OF NEW
                                       YORK, a New York banking corporation

                                       By: /s/ Steven Z. Schwartz
                                          --------------------------------------
                                       Name: Steven Z. Schwartz
                                       Title: Managing Director
<PAGE>   101
STATE OF NEW YORK       )
                        )  ss.:
COUNTY OF NEW YORK      )

            On the 25 day of May, 2001, before me, the undersigned, personally
appeared Joseph Macnow, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

                                       /s/ Saralyn Vasile
                                      ------------------------------------------
                                      Signature and Office of individual
                                      taking acknowledgment

                                               SARALYN VASILE
                                      NOTARY PUBLIC, State of New York
                                               No. 43-4992597
                                         Qualified in Suffolk County
                                         Commission Expires: 4/3/02

STATE OF NEW YORK       )
                        )  ss.:
COUNTY OF NEW YORK      )

            On the 25 day of May, 2001, before me, the undersigned, personally
appeared Joseph Macnow, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

                                       /s/ Saralyn Vasile
                                      ------------------------------------------
                                      Signature and Office of individual
                                      taking acknowledgment

                                               SARALYN VASILE
                                      NOTARY PUBLIC, State of New York
                                               No. 43-4992597
                                         Qualified in Suffolk County
                                         Commission Expires: 4/3/02
<PAGE>   102
STATE OF NEW YORK       )
                        )  ss.:
COUNTY OF NEW YORK      )

            On the 25 day of May, 2001, before me, the undersigned, personally
appeared Joseph Macnow, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.

                                       /s/ Saralyn Vasile
                                      ------------------------------------------
                                      Signature and Office of individual
                                      taking acknowledgment

                                               SARALYN VASILE
                                      NOTARY PUBLIC, State of New York
                                               No. 43-4992597
                                         Qualified in Suffolk County
                                         Commission Expires: 4/3/02
<PAGE>   103
                            (Lender's Acknowledgment)

STATE OF NEW YORK       )
                        )  ss.:
COUNTY OF NEW YORK      )

            On the 31st day of May, 2001, before me, the undersigned, personally
appeared Steven Z. Schwartz, personally known to me or proved to me on the basis
of satisfactory evidence to be the individual(s) whose name(s) is (are)
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their capacity(ies), and that by his/her/their
signature(s) on the instrument, the individual(s), or the person upon behalf of
which the individual(s) acted, executed the instrument.

                                       /s/ Barbara Lau
                                      ------------------------------------------
                                      Signature and Office of individual
                                      taking acknowledgment

                                               BARBARA LAU
                                      Notary Public, State of New York
                                               No. 01LA6054795
                                         Qualified in Queens County
                                      Commission Expires Feb. 12, 2003
<PAGE>   104
                                    EXHIBIT A

                                   EXHIBIT A-1

                                    FEE LAND
AS TO PARCEL I

ALL that certain plot, piece or parcel of land with the building and
improvements thereon erected, situate, lying and being in the Borough of
Brooklyn, County of Kings, City and State of New York, bounded and described as
follows:

BEGINNING at the corner formed by the intersection of the southeasterly side of
Avenue U (80 feet wide) with the northeasterly side of Flatbush Avenue (200 feet
wide);

RUNNING THENCE northeasterly along the southeasterly side of Avenue U, 930 feet;

THENCE southeasterly at 90 degrees to said Avenue U, 859.02 feet to the
Conditional United States Pierhead & Bulkhead Line;

THENCE southerly along the Conditional United States Pierhead & Bulkhead Line
and forming an interior angle of 125 degrees 54 minutes 14.6 seconds with the
last mentioned course 827.16 feet;

THENCE northwesterly forming an interior angle of 54 degrees 5 minutes 45.4
seconds with the last mentioned course, 644.08 feet to a point on a line drawn
parallel with Avenue U (80 feet wide) and 700 feet southeasterly therefrom;

THENCE southwesterly parallel with said Avenue U and 90 degrees to the last
mentioned course 171.76 feet to a point on the prolongation of the centerline of
former Hinsdale Avenue;

THENCE northwesterly along said prolongation of the center line of former
Hinsdale Avenue and forming an interior angle of 92 degrees 14 minutes 48
seconds with the last mentioned course, 425.33 feet to a point on a line drawn
parallel with Avenue U (80 feet wide) and 275 feet southwesterly therefrom;

THENCE southwesterly parallel with said Avenue U and forming an exterior angle
of 92 degrees 14 minutes 48 seconds with the last mentioned course 71.59 feet to
northeasterly side of Flatbush Avenue (100 feet wide);

THENCE northwesterly along the said northeasterly side of Flatbush Avenue 275
feet to the point or place of BEGINNING.

EXCEPTING and excluding therefrom the following described premises: ALL those
certain plots, pieces or parcels of land, situate, lying and being in the
Borough of Brooklyn, County of Kings, City and State of New York, bounded and
described as follows:

                                     A-1-1
<PAGE>   105
BEGINNING at an interior angle on a line drawn at right angles to Avenue U
through a point thereon distant 713 feet 2 inches northeasterly from the corner
formed by the intersection of the southeasterly side of Avenue U (80 feet wide)
with the northeasterly side of Flatbush Avenue (100 feet wide), said point being
25 feet southeasterly from the southeasterly side of Avenue U (80 feet wide)
measured along said line;

RUNNING THENCE northeasterly parallel with Avenue U, 239 feet;

THENCE southeasterly 90 degrees to the last mentioned course, 377 feet 10
inches;

THENCE southwesterly at 90 degrees to the last mentioned course, 239 feet;

THENCE northwesterly at 90 degrees to the last mentioned course, 170 feet 6
inches;

THENCE southwesterly at 90 degrees to the last mentioned course, 28 feet 3
inches;

THENCE northwesterly at 90 degrees to the last mentioned course, 66 feet;

THENCE northeasterly at 90 degrees to the last mentioned course, 28 feet 3
inches;

THENCE northwesterly at 90 degrees to the last mentioned course, 141 feet 4
inches to the point or place of BEGINNING.

                                      A-1-2
<PAGE>   106
                                   EXHIBIT A-2

                              OVERHANG LEASED LAND

AS TO PARCEL III:

That certain leasehold estate created under and existing by virtue of that
certain lease made between Flatbrook Properties Corp., as landlord, and Kings
Plaza Shopping Center of Flatbush Avenue, Inc., and Kings Plaza Shopping Center
of Avenue U, Inc., as tenants in common, dated as of February 1, 1970 and
recorded May 27, 1970 in Reel 413 page 158, as assigned to Alexander's
Department Stores of Brooklyn, Inc., by Assignment and Assumption of Tenant's
Interest in the Overhang Leases from Kings Plaza Shopping Center of Avenue U,
Inc., dated June 18, 1998 and recorded July 31, 1998 in Reel 4251 page 1506, as
assigned to Alexander's Kings Plaza Center, Inc., by Assignment and Assumption
of Overhang Leases from Alexander's Department Stores of Brooklyn, Inc., dated
as of June 18, 1998 and recorded July 31, 1998 in Reel 4251 page 1533, which
lease as assigned was memorialized by Memorandum of Macy's Overhang Lease made
between Macy's Kings Plaza Real Estate, Inc., as landlord, and Alexander's Kings
Plaza Center, Inc., as tenant, dated June 18, 1998 and recorded July 31, 1998 in
Reel 4251 page 1543.

AS TO PARCEL IIIA:

ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Brooklyn, County of Kings, City and State of New York, bounded and
described as follows:

BEGINNING at an interior point on a line drawn at right angles to Avenue U
through a point thereon distant 713 feet 2 inches northeasterly from the corner
formed by the intersection of the southeasterly side of Avenue U (80 feet wide)
with the northeasterly side of Flatbush Avenue (100 feet wide); said point being
232 feet 4 inches southeasterly from the southeasterly side of Avenue U (80 feet
wide) measured along said line;

RUNNING THENCE southeasterly at 90 degrees to said Avenue U, 166 feet 10-1/2
inches more or less to the southeasterly face of a wall which is the extension
southwesterly of the southeasterly wall of Landlord's department store building;

THENCE northeasterly at approximately 90 degrees to the last mentioned course
and along the said southeasterly face of said wall, 21 feet 6 inches more or
less to the southwesterly face of another wall;

THENCE northwesterly at approximately 90 degrees to the last mentioned course
and along the said southwesterly face to the last mentioned wall, 171 feet 1/2
inch more or less to the southeasterly face of another wall;

THENCE southwesterly at approximately 90 degrees to the last mentioned course
and along the said southeasterly face of the said last mentioned wall, 45 feet
more or less to the southwesterly face of the signband at the front of the
southeasterly building leased hereunder;

                                      A-2-1
<PAGE>   107
THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the southwesterly face of the said signband 4 feet 2 inches more or
less to a point distant 232 feet 4 inches southeasterly from said Avenue U
measured along a line drawn at right angles thereto;

THENCE northeasterly at 90 degrees to the last mentioned line, 23 feet 6 inches
more or less to the point or place of BEGINNING.

NOTE: Flatbush Avenue having been widened to 200 feet.

AS TO PARCEL IIIB:

Upper Level

BEGINNING at an interior point on a line drawn at right angles to Avenue U
through a point thereon distant 713 feet 2 inches northeasterly from the corner
formed by the intersection of the southeasterly side of Avenue U (80 feet wide)
with the northeasterly side of Flatbush Avenue (100 feet wide), said point being
at the intersection of said line with the southeasterly face of a wall which is
approximately 59 feet 11 inches southeasterly from the southeasterly side of
Avenue U (80 feet wide) measured along said line;

THENCE northeasterly at approximately 90 degrees to said line and along the said
southeasterly face of said wall, 18 feet 9-1/2 inches more or less to the
southwesterly face of another wall;

THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the said southwesterly face of said last mentioned wall, 33 feet 7
inches more or less to the southeasterly face of another wall;

THENCE northeasterly at approximately 90 degrees to the last mentioned course
and along the said southeasterly face of said wall 2 feet 8-1/2 inches more or
less to the southwesterly face of another wall;

THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the southwesterly face of said wall, 76 feet 11 inches more or less to
the northwesterly face of another wall;

THENCE southwesterly at approximately 90 degrees to the last mentioned course
and along the said northwesterly face of said last mentioned wall, 43 feet 11
inches more or less to the southwesterly face of another wall;

THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the southwesterly face of said last mentioned wall and the extension
thereof southeasterly 8 feet 11 inches to the southeasterly face of the signband
at the front of the upper level of the northwesterly building leased hereunder;

                                      A-2-2
<PAGE>   108
THENCE southwesterly at approximately 90 degrees to the last mentioned course
and along the said southeasterly face of the said signband 5 feet 10 inches more
or less to a point on a line drawn at right angles to said Avenue U from a point
on said Avenue U distant 684 feet 11 inches northeasterly from the corner of
Avenue U and Flatbush Avenue;

THENCE northwesterly along said line 13 feet more or less to a point distant 166
feet 4 inches southeasterly from said Avenue U measured along said line;

THENCE northeasterly at 90 degrees to the last mentioned course, 28 feet 3
inches;

THENCE northwesterly at 90 degrees to the last mentioned course, 106 feet 5
inches more or less to the point or place of BEGINNING.

EXCEPTING from Parcel II (Upper Level) so much thereof as lies below the lower
surface of the second floor slab situated below said premises.

NOTE: Flatbush Avenue having been widened to 200 feet.

AS TO PARCEL IIIC:

Lower Level

BEGINNING at an interior point on a line drawn at right angles to Avenue U
through a point thereon distant 713 feet 2 inches northeasterly from the corner
formed by the intersection of the southeasterly side of Avenue U (80 feet wide)
with the northeasterly side of Flatbush Avenue (100 feet wide), said point being
at the intersection of said line with the southeasterly face of a wall which is
approximately 59 feet 11 inches southeasterly from the southeasterly side of
Avenue U (80 feet wide) measured along said line;

THENCE northeasterly at approximately 90 degrees to said line and along the said
southeasterly face of said wall 18 feet 9-1/2 inches more or less to the
southwesterly face of another wall;

THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the said southwesterly face of said mentioned wall, 27 feet more or
less to the southeasterly face of another wall;

THENCE northeasterly at approximately 90 degrees to the last mentioned course
and along the said southeasterly face of said wall, 2 feet 8-1/2 inches more or
less to the southwesterly face of another wall;

THENCE southeasterly at approximately 90 degrees to the last mentioned course
and along the southwesterly face of said wall 83 feet 7 inches more or less to
the northwesterly face of another wall;

                                     A-2-3
<PAGE>   109
THENCE southwesterly at approximately 90 degrees to the last mentioned course
and along the said northwesterly face of said last mentioned wall, 45 feet more
or less to the southwesterly face of the signband at the front of the lower
level of the northwesterly building leased hereunder;

THENCE northwesterly at approximately 90 degrees to the last mentioned course
and along the said southwesterly face of the said signband 4 feet 2 inches more
or less to a point distant 166 feet 4 inches southeasterly from said Avenue U
measured along a line drawn at right angles thereto;

THENCE northeasterly at 90 degrees to the last mentioned line, 23 feet 6 inches
more or less to a point distant 166 feet 4 inches southeasterly from said Avenue
U measured along the line drawn at right angles thereto from a point thereon
distant 713 feet 2 inches northeasterly from the corner of Avenue U and Flatbush
Avenue;

THENCE northwesterly at 90 degrees to said Avenue U, 106 feet 5 inches more or
less to the point or place of BEGINNING.

EXCEPTING from Parcels IIIA, IIIB (Upper Level) and IIIC so much thereof as lies
above the lower surface of the third floor slab situated over said premises;

TOGETHER with the right to affix to the above mentioned second and third floor
slabs and to the above mentioned walls portion of the buildings leased hereunder
and pipes, ducts, conduits and other installations therein.

TOGETHER also with so much of the land of Landlord outside the exterior walls of
the said department store building and the buildings leased hereunder as is
occupied on the southwesterly side thereof by the Covered Mall structure and a
sidewalk of the Kings Plaza Shopping Center, said land being in each case a
strip approximately 5 feet in width.

NOTE: Flatbush Avenue having been widened to 200 feet.

                                      A-2-4
<PAGE>   110
                                   EXHIBIT A-3

                                CITY LEASED LAND

AS TO PARCEL IV:

That certain leasehold estate created under and existing by virtue of that
certain lease made by the City of New York, acting by its Commissioner of Marine
and Aviation, as landlord, and U&F Realty Corp., as tenant, dated November 29,
1967 and recorded June 10, 1970 in Reel 416 page 286 as amended, as assigned to
Kings Plaza Shopping Center of Flatbush Avenue, Inc., and Kings Plaza Shopping
Center of Avenue U, Inc., by Assignment and Assumption Agreement of U&F Realty
Corp., dated as of January 27, 1970 and recorded June 10, 1970 in Reel 416 page
354, as assigned to Alexander's Department Stores of Brooklyn, Inc., by
Assignment and Assumption of City Lease, dated as of June 18, 1998 and recorded
July 31, 1998 in Reel 4251 page 1500.

AS TO PARCEL IV:

ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Brooklyn, County of Kings, City and State of New York, bounded and
described as follows:

BEGINNING at a point on the northeasterly side of Flatbush Avenue, (200 feet
wide) distant 275 feet southeasterly from the corner formed by the intersection
of the southeasterly side of Avenue U (80 feet wide) with the northeasterly side
of Flatbush Avenue;

RUNNING THENCE northeasterly parallel with Avenue U, 71.59 feet to the
prolongation of the center line of former Hinsdale Avenue;

THENCE southeasterly along the prolongation of the center line of former
Hinsdale Avenue, 425.33 feet to a point on a line drawn parallel with and
distant 700 feet southeasterly from the southeasterly side of Avenue U and 88.29
feet northeasterly from the northwesterly side of Flatbush Avenue measured along
said line;

THENCE northeasterly parallel with Avenue U, 171.76 feet to the prolongation of
the center line of the block between East 52nd Street and East 53rd Street;

THENCE southeasterly along the prolongation of said center line of the block,
644.08 feet to the conditional United States Pierhead and Bulkhead Line approved
by the Secretary of War, May 1, 1911;

THENCE southerly along said Pierhead and Bulkhead Line, 247.03 feet;

THENCE northwesterly along a line 60 feet northeasterly from and parallel with
Flatbush Avenue, 470.95 feet;

                                      A-3-1
<PAGE>   111
THENCE southwesterly parallel with Avenue U, 60 feet to the northeasterly side
of Flatbush Avenue; and

THENCE northwesterly along the northeasterly side of Flatbush Avenue, 743 feet
to the point or place of BEGINNING.

ALL of the above Parcels I - IV together with all right, title, interest and
easements as set out in that certain Construction, Operation and Reciprocal
Easement Agreement and all Assignments and Amendments thereto as shown in
Exception 4 of Schedule B, hereto.

                                      A-3-2
<PAGE>   112
                                   EXHIBIT A-4

                                  PARKING LAND
AS TO PARCEL V:

ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Brooklyn, County of Kings, City and State of New York, bounded and
described as follows:

BEGINNING at a point on the southeasterly side of Avenue U, 80 feet wide,
distant 1,030 feet northeasterly from the intersection of the southeasterly side
of said Avenue U with the former northeasterly side of Flatbush Avenue, 100 feet
wide, said point of beginning also being 960 feet northeasterly from the corner
formed by the intersection of the southeasterly side of Avenue U, 110 feet wide
as on Present City Map, with the northeasterly side of Flatbush Avenue 200 feet
wide as on Present City Map, as measured along the southeasterly and
northeasterly sides of Avenue U as on said Present City Map;

THENCE southeasterly at right angles to said Avenue U, 859.02 feet to the U.S.
Pierhead & Bulkhead line of Mill Basin approved by the Secretary of War
5/1/1911;

THENCE northerly along said Pierhead & Bulkhead line 358.42 feet to a bend
therein;

THENCE northeasterly still along the Pierhead & Bulkhead line and parallel with
Avenue U, 61.30 feet;

THENCE northwesterly at right angles to Avenue U, 650 feet to the southeasterly
side of Avenue U;

THENCE southwesterly along the southeasterly side of Avenue U, 350 feet to the
point or place of BEGINNING.

NOTE: Flatbush Avenue having been widened to 200 feet.
<PAGE>   113
                                    EXHIBIT B

                           (Description of Mortgages)

(1) Building Loan Mortgage dated June 27, 1969, in the amount of TWENTY THREE
MILLION FIVE HUNDRED THOUSAND and 00/100 Dollars ($23,500,000.00) made by Kings
Plaza Shopping Center of Flatbush Avenue Inc., and Kings Plaza Shopping Center
of Avenue U, Inc. to R.H. Macy & Co., Inc. & Alexander's Inc. and recorded in
the Kings County Clerk's Office on June 30, 1969, in Reel 344 page 153
("MORTGAGE 1").

(2) Mortgage dated as of March 15, 1995 in the amount of THIRTY MILLION ONE
HUNDRED and 00/100 Dollars ($30,000,100.00) made by Alexander's Inc. to First
Fidelity Bank, National Association recorded in the Kings County Clerk's Office
on March 17, 1995 in Reel 3481 page 1507 ("MORTGAGE 2");

(3) Spread Mortgage dated December 15, 1925, in the amount of ONE MILLION and
00/100 Dollars ($1,000,000.00) made by United Cigar Stores Company of America to
New York Title & Mortgage Company and recorded in the Kings County Clerk's
Office on December 18, 1925 in Liber 3648 page 59 ("MORTGAGE 3");

(4) Mortgage dated February 6, 1928, in the amount of FIVE HUNDRED FIFTY
THOUSAND and 00/100 Dollars ($550,000.00) made by 164 E.59 St. Corporation to
United Stores Realty Corporation recorded in the Kings County Clerk's Office on
February 10, 1928 in Liber 3852 page 400 ("MORTGAGE 4");

(5) Mortgage dated December 15, 1961, in the amount of FIVE HUNDRED FIFTY
THOUSAND FIVE HUNDRED EIGHTY THREE AND 16/100 Dollars ($550,583.16) made by
Tillie Feldman to Equitable Life Assurance Society of the United States and
recorded in the Kings County Clerk's Office on December 20, 1961, in Liber 6019
page 392 ("MORTGAGE 5")

(6) Mortgage dated as of December 21, 1971, in the amount of TWO HUNDRED NINETY
SEVEN THOUSAND TWO HUNDRED FIFTY SEVEN AND 43/100 Dollars ($297,257.43) made by
Grugo Equities, Inc. to United Mutual Savings Bank and recorded in the Kings
County Clerk's Office on December 23, 1971, in Reel 226 page 13 ("MORTGAGE 6");

(7) Mortgage dated February 10, 1982, in the amount of FOUR HUNDRED TWO THOUSAND
TWENTY NINE AND 96/100 Dollars ($402,029.96) made by Gogru Realty Corp. to
Harlem Savings Bank and recorded in the Kings County Clerk's Office on February
22, 1982 in Reel 607 page 1532 ("MORTGAGE 7");
<PAGE>   114
(8) Mortgage dated December 30, 1994 in the amount of TWENTY TWO MILLION ONE
HUNDRED NINETY FOUR THOUSAND FORTY SEVEN AND 8/100 Dollars ($22,194,047.08) by
Seven Thirty One Limited Partnership to Emanuel Gruss, Riane Gruss and Elizabeth
Goldberg, dated December 30, 1994, and recorded in the Kings County Clerk's
Office on January 12, 1995 in Reel 2173 page 123 ("MORTGAGE 8");

(9) Term Loan Fee and Leasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated June 18, 1998, in the amount of FIFTY MILLION EIGHT
HUNDRED EIGHTY THREE THOUSAND EIGHT HUNDRED THIRTY SEVEN AND 37/100 Dollars
($50,883,837.37) made by Alexander's King Plaza Center, Inc., Kings Plaza Corp.
and Alexander's Department Stores of Brooklyn, Inc. to Union Bank of Switzerland
(New York Branch) and recorded in the Kings County Clerk's Office on July 31,
1998, in Reel 4251 page 1759 ("MORTGAGE 9");

       Mortgages 1 through 9 were consolidated to form a single lien of
$90,000,000.00 pursuant to a Mortgage Consolidation, Modification and Spreader
Agreement dated June 19, 1998 and recorded in the Kings County Clerk's Office on
July 31, 1998 in Reel 4251 page 1809;

(10) Building Loan Fee and Leasehold Mortgage, Assignment of Leases and Rents
and Security Agreement dated as of August 9, 1999, in the amount of NINETEEN
MILLION FIVE HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED and 00/100 Dollars
($19,567,800.00) made by Alexander's King Plaza Center, Inc., Kings Plaza Corp.
and Alexander's Department Stores of Brooklyn, Inc. to UBS AG, Stamford Branch,
as administrative agent for lenders and recorded in the Kings County Clerk's
Office on September 17, 1999 in Reel 4587 page 956 ("MORTGAGE 10").

(11) Project Loan Fee and Leasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated as of August 9, 1999, in the amount of TEN MILLION FOUR
HUNDRED THIRTY TWO THOUSAND TWO HUNDRED and 00/100 Dollars ($10,432,200.00) made
by Alexander's King Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to UBS AG, Stamford Branch, as
administrative agent for lenders and recorded in the Kings County Clerk's Office
on September 17, 1999 in Reel 4587 page 1006 ("MORTGAGE 11").

<PAGE>   115
                                   EXHIBIT C
                                   ---------

-------------------------------------------------------------------------------

                   MORGAN GUARANTY TRUST COMPANY OF NEW YORK
                                             (Lender)

                                    - and -

                           -------------------------
                                             (Tenant)

                      ------------------------------------

                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT

                      ------------------------------------

                      Dated:

                      Location:

                      Section:
                      Block:
                      Lot:
                      County:

                      PREPARED BY AND UPON
                      RECORDATION RETURN TO:

                      Messrs. Cadwalader, Wickersham & Taft
                      100 Maiden Lane
                      New York, New York 10038
                      Attention:

                      File No.:       41853.017

                      Title No.:

-------------------------------------------------------------------------------

                                      C-1

<PAGE>   116
            SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

     THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the
"AGREEMENT") is made as of the            day of                , 2001 by and
between MORGAN GUARANTY TRUST COMPANY OF NEW YORK, having an address at 60 Wall
Street, New York, New York 10260-0060 ("LENDER") and
                                            , having an address at
("TENANT").

                                   RECITALS:

     A.   Lender is the present owner and holder of a certain mortgage and
security agreement (the "SECURITY INSTRUMENT"), dated                 , 2001,
given by Landlord (defined below) to Lender which encumbers the           estate
of Landlord in certain premises described in Exhibit A attached hereto (the
"PROPERTY") and which secures the payment of certain indebtedness owed by
Landlord to Lender evidenced by a certain promissory note, dated
          , 2001, given by Landlord to Lender (the "NOTE");

     B.   Tenant is the holder of a leasehold estate in a portion of the
Property under and pursuant to the provisions of a certain lease
dated                        ,        between                       , as
landlord ("LANDLORD") and Tenant, as tenant (the "LEASE"); and

     C.   Tenant has agreed to subordinate the Lease to the Security Instrument
and to the lien thereof and Lender has agreed to grant non-disturbance to
Tenant under the Lease on the terms and conditions hereinafter set forth.

                                   AGREEMENT:

     For good and valuable consideration, Tenant and Lender agree as follows:

     1.   Subordination. Tenant agrees that the Lease and all of the terms,
          covenants and provisions thereof and all rights, remedies and options
          of Tenant thereunder are and shall at all times continue to be subject
          and subordinate in all respects to the Security Instrument and to the
          lien thereof including without limitation all renewals, increases,
          modifications, spreaders, consolidations, replacements and extensions
          thereof and to all sums secured thereby with the same force and effect
          as if the Security Instrument had been executed, delivered and
          recorded prior to the execution and delivery of the Lease.

     2.   Non-Disturbance. Lender agrees that if any action or proceeding is
          commenced by Lender for the foreclosure of the Security Instrument or
          the sale of the Property, Tenant shall not be named as a party therein
          unless such joinder shall be required by law, provided, however, such
          joinder shall not result in the termination of the Lease or disturb
          the Tenant's possession or use of the premises demised thereunder, and
          the sale of the Property in any such action or proceeding and the
          exercise by

                                      C-2
<PAGE>   117
          Lender of any of its other rights under the Note or the Security
          Instrument shall be made subject to all rights of Tenant under the
          Lease, provided that at the time of the commencement of any such
          action or proceeding or at the time of any such sale or exercise of
          any such other rights (a) the term of the Lease shall have commenced
          pursuant to the provisions thereof, (b) Tenant shall be in possession
          of the premises demised under the Lease, (c) the Lease shall be in
          full force and effect and (d) Tenant shall not be in default under any
          of the terms, covenants or conditions of the Lease or of this
          Agreement on Tenant's part to be observed or performed.

     3.   Attornment. Lender and Tenant agree that if Lender shall become the
          owner of the Property by reason of the foreclosure of the Security
          Instrument or the acceptance of a deed or assignment in lieu of
          foreclosure or otherwise, and the conditions set forth in Section 2
          above have been met at the time Lender becomes owner of the Property,
          the Lease shall not be terminated or affected thereby but shall
          continue in full force and effect as a direct lease between Lender and
          Tenant upon all of the terms, covenants and conditions set forth in
          the Lease and in the event, Tenant agrees to attorn to Lender and
          Lender agrees to accept such attornment, provided, however, that the
          provisions of the Security Instrument shall govern with respect to the
          disposition of any casualty insurance proceeds or condemnation awards
          and Lender shall not be (a) obligated to complete any construction
          work required to be done by Landlord pursuant to the provisions of the
          Lease or to reimburse Tenant for any construction work done by Tenant,
          (b) liable (i) for Landlord's failure to perform any of its
          obligations under the Lease which have accrued prior to the date on
          which Lender shall become the owner of the Property, or (ii) for any
          act or omission of Landlord, whether prior to or after such
          foreclosure or sale, (c) required to make any repairs to the Property
          or to the premises demised under the Lease required as a result of
          fire, or other casualty or by reason of condemnation unless Landlord
          shall be obligated under the Lease to make such repairs and shall have
          received sufficient casualty insurance proceeds or condemnation awards
          to finance the completion of such repairs, (d) required to make any
          capital improvements to the Property or to the premises demised under
          the Lease which Landlord may have agreed to make, but had not
          completed, or to perform or provide any services not related to
          possession or quiet enjoyment of the premises demised under the Lease,
          (e) subject to any offsets, defenses, abatements or counterclaims
          which shall have accrued to Tenant against Landlord prior to the date
          upon which Lender shall become the owner of the Property, (f) liable
          for the return of rental security deposits, if any, paid by Tenant to
          Landlord in accordance with the Lease unless such sums are actually
          received by Lender, (g) bound by any payment of rents, additional
          rents or other sums which Tenant may have paid more than one (1) month
          in advance to any prior Landlord unless (i) such sums are actually
          received by Lender or (ii) such prepayment shall have been expressly
          approved of by Lender, (h) bound to make any payment to Tenant which
          was required

                                      C-3
<PAGE>   118
     under the Lease, or otherwise, to be made prior to the time Lender
     succeeded to Landlord's interest, (i) bound by any agreement amending,
     modifying or terminating the Lease made without Lender's prior written
     consent prior to the time Lender succeeded to Landlord's interest or
     (j) bound by any assignment of the Lease or sublease of the Property, or
     any portion thereof, made prior to the time Lender succeeded to Landlord's
     interest other than if pursuant to the provisions of the Lease.

4.   Notice to Tenant.  After notice is given to Tenant by Lender that the
     Landlord is in default under the Note and the Security Instrument and that
     the rentals under the Lease should be paid to Lender pursuant to the terms
     of the assignment of leases and rents executed and delivered by Landlord to
     Lender in connection therewith, Tenant shall thereafter pay to Lender or as
     directed by the Lender, all rentals and all other monies due or to become
     due to Landlord under the Lease and Landlord hereby expressly authorizes
     Tenant to make such payments to Lender and hereby releases and discharges
     Tenant from any liability to Landlord on account of any such payments.

5.   Lender's Consent.  Tenant shall not, without obtaining the prior written
     consent of Lender, (a) enter into any agreement amending, modifying or
     terminating the Lease, (b) prepay any of the rents, additional rents or
     other sums due under the Lease for more than one (1) month in advance of
     the due dates thereof, (c) voluntarily surrender the premises demised under
     the Lease or terminate the Lease without cause or shorten the term thereof,
     or (d) assign the Lease or sublet the premises demised under the Lease or
     any part thereof other than pursuant to the provisions of the Lease; and
     any such amendment, modification, termination, prepayment, voluntary
     surrender, assignment or subletting, without Lender's prior consent, shall
     not be binding upon Lender.

6.   Representations and Warranties.  Tenant hereby represents and warrants to
     Lender that as of the date hereof (a) Tenant is the owner and holder of the
     tenant's interest under the Lease, (b) the Lease has not been modified or
     amended, (c) the Lease is in full force and effect and the term thereof
     commenced on ________________, ____, pursuant to the provisions thereof,
     (d) the premises demised under the Lease have been completed and Tenant has
     taken possession of the same on a rent paying basis, (e) neither Tenant nor
     Landlord is in default under or in breach of any of the terms, covenants or
     provisions of the Lease and Tenant to the best of its knowledge knows of no
     event which but for the passage of time or the giving of notice or both
     would constitute an event of default or breach by Tenant or Landlord under
     the Lease, (f) neither Tenant nor Landlord has commenced any action or
     given or received any notice for the purpose of terminating the Lease, (g)
     all rents, additional rents and other sums due and payable under the Lease
     have been paid in full and no rents, additional rents or other sums payable
     under the Lease have been paid for more than

                                      C-4

<PAGE>   119
     one (1) month in advance of the due dates thereof, (h) there are no offsets
     or defenses to the payment of the rents, additional rents, or other sums
     payable under the Lease, (i) Tenant has no option or right of first refusal
     to purchase the premises demised under the Lease or any portion thereof or
     any right or option for additional space with respect to the premises
     demised, (j) no action, whether voluntary or otherwise, is pending against
     Tenant under the bankruptcy, insolvency or similar laws of the United
     States or any state thereof, and (k) Tenant has deposited the security
     deposit set forth in the Lease with Landlord.

7.   Lender to Receive Notices. Tenant shall provide Lender with copies of all
     written notices sent to Landlord pursuant to the Lease simultaneously with
     the transmission of such notices to the Landlord. Tenant shall notify
     Lender of any default by Landlord under the Lease which would entitle
     Tenant to cancel the Lease or to an abatement of the rents, additional
     rents or other sums payable thereunder, and agrees that, notwithstanding
     any provisions of the Lease to the contrary, no notice of cancellation
     thereof or of such an abatement shall be effective unless Lender shall have
     received notice of default giving rise to such cancellation or abatement
     and shall have failed within sixty (60) days after receipt of such notice
     to cure such default, or if such default cannot be cured within sixty (60)
     days, shall have failed within sixty (60) days after receipt of such notice
     to commence and thereafter diligently pursue any action necessary to cure
     such default.

8.   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 sender, (ii) one (1)
     Business Day (hereinafter defined) 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 as follows:

If to Tenant: ______________________
     ____________________________
     ____________________________
     Attention: _________________
     Facsimile No. ______________

to Lender:  Morgan Guaranty Trust Company of New York
     60 Wall Street
     New York, New York 10260-0060
     Attention: Mr. Jon E. Rickert, Jr./Mr. Michael Mesard
     Facsimile No. (212) 648-5138

                                      C-5
<PAGE>   120
               and

               JP MorganChase
               Legal Department
               270 Park Avenue
               39th Floor
               New York, New York 10017

               Attention: ----------------
               Facsimile No. -------------

          With a copy to:      Cadwalader, Wickersham & Taft
               100 Maiden Lane
               New York, New York 10038
               Attention: William P. McInerney, Esq.
               Facsimile No. (212) 504-6666

or addressed as such party may from time to time designate by written notice to
the other parties. For purposes of this Section, the term "Business Day" shall
mean a day on which commercial banks are not authorized or required by law to
close in New York, New York.

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

          9.   Joint and Several Liability. If Tenant consists of more than one
               person, the obligations and liabilities of each such person
               hereunder shall be joint and several. This Agreement shall be
               binding upon and inure to the benefit of Lender and Tenant and
               their respective successors and assigns.

          10.  Definitions. The term "Lender" as used herein shall include the
               successors and assigns of Lender and any person, party or entity
               which shall become the owner of the Property by reason of a
               foreclosure of the Security Instrument or the acceptance of a
               deed or assignment in lieu of foreclosure or otherwise. The term
               "Landlord" as used herein shall mean and include the present
               landlord under the Lease and such landlord's predecessors and
               successors in interest under the Lease, but shall not mean or
               include Lender. The term "Property" as used herein shall mean the
               Property, the improvements now or hereafter located thereon and
               the estates therein encumbered by the Security Instrument.

          11.  No Oral Modifications. This Agreement may not be modified in any
               manner or terminated except by an instrument in writing executed
               by the parties hereto.

          12.  Governing Law. This Agreement shall be deemed to be a contract
               entered into pursuant to the laws of the State where the Property
               is located and shall in all respects be governed, construed,
               applied and enforced in accordance with the laws of the State
               where the Property is located.

                                      C-6

<PAGE>   121
13.  Inapplicable Provisions. If any term, covenant or condition of this
     Agreement is held to be invalid, illegal or unenforceable in any respect,
     this Agreement shall be construed without such provision.

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

15.  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.

16.  Transfer of Loan. Lender may sell, transfer and deliver the Note and assign
     the Security Instrument, this Agreement and the other documents executed in
     connection therewith in the secondary mortgage market. In connection with
     such sale, Lender may retain or assign responsibility for servicing the
     loan, including the Note, the Security Instrument, this Agreement and the
     other documents executed in connection therewith, or may delegate some or
     all of such responsibility and/or obligations to a servicer including, but
     not limited to, any subservicer or master servicer. All references to
     Lender herein shall refer to and include any such servicer to the extent
     applicable.

17.  Further Acts. Tenant will, at the cost of Tenant, and without expense to
     Lender, do, execute, acknowledge and deliver all and every such further
     acts and assurances as Lender shall, from time to time, require, for the
     better assuring and confirming unto Lender the property and rights hereby
     intended now or hereafter so to be, or for carrying out the intention or
     facilitating the performance of the terms of this Agreement or for filing,
     registering or recording this Agreement, or for complying with all
     applicable laws.

18.  Limitations on Lender's Liability. Tenant acknowledges that Lender is
     obligated only to Landlord to make the Loan only upon the terms and subject
     to the conditions set forth in the Security Instrument between Lender and
     Landlord pertaining to the Loan. In no event shall Lender or any purchaser
     of the Property at foreclosure sale or any grantee of the Property named in
     a deed-in-lieu of foreclosure, nor any heir, legal representative,
     successor, or assignee of Lender or any such purchaser or grantee
     (collectively the Lender, such purchaser, grantee, heir, legal
     representative, successor or assignee, the "SUBSEQUENT LANDLORD") have

                                      C-7

<PAGE>   122
any personal liability for the obligations of Landlord under the Lease and
should the Subsequent Landlord succeed to the interests of the Landlord under
the Lease, Tenant shall look only to the estate and property of any such
Subsequent Landlord in the Property for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) requiring the
payment of money in the event of any default by any Subsequent Landlord as
landlord under the Lease, and no other property or assets of any Subsequent
Landlord shall be subject to levy, execution or other enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to the Lease;
provided, however, that the Tenant may exercise any other right or remedy
provided thereby or by law in the event of any failure by Landlord to perform
any such material obligation.

                                      C-8
<PAGE>   123
     IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as
of the date first above written.

                                             LENDER:

                                             ___________________________________
                                                a ______________________________

                                             By:

                                                Name:
                                                Title:

                                            TENANT:

                                             ___________________________________
                                                a ______________________________

                                             By:

                                                Name:
                                                Title:

The undersigned accepts and agrees to
the provisions of Section 4 hereof:

LANDLORD:

_________________________, a
______________________________________

By:
   Name:
   Title:

                                      C-9

<PAGE>   124
                                ACKNOWLEDGMENTS

                                (To be attached)
<PAGE>   125
                                   Exhibit A
                                   ---------

                           (Description of Property)
<PAGE>   126
                                   SCHEDULE I
                                   ----------
                                  (LITIGATION)

                                      NONE

                                    SCH. I-1<PAGE>   1
                                                                Exhibit 10(v) A2

               AMENDED, RESTATED AND CONSOLIDATED PROMISSORY NOTE

$223,000,000.00                                               New York, New York
                                                                    May 31, 2001

         THIS AMENDED, RESTATED AND CONSOLIDATED PROMISSORY NOTE (as may be
modified, amended, restated or substituted this "NOTE") is made this 31st day of
May, 2001, by and between ALEXANDER'S KINGS PLAZA, LLC, a Delaware limited
liability company, ALEXANDER'S OF KINGS, LLC, a Delaware limited liability
company, and KINGS PARKING, LLC, a Delaware limited liability company, each
having its principal place of business at c/o Vornado Realty Trust, 210 Route 4
East, Paramus, New Jersey 07652 (collectively, "BORROWER"), and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, a New York banking corporation, having an address at
60 Wall Street, New York, New York 10260 (the "LENDER").

                                 R E C I T A L S

         WHEREAS, Lender is the owner and holder of certain mortgages as more
particularly described in Exhibit A attached hereto (hereinafter referred to as
the "ORIGINAL MORTGAGES") and of the notes, bonds or other obligations secured
thereby (hereinafter referred to as the "ORIGINAL NOTES");

         WHEREAS, there is now owing on the Original Notes and the Original
Mortgages the unpaid principal sum of $115,209,592.00, together with interest;

         WHEREAS, in connection with the making of a loan by Lender to Borrower,
Borrower has made that certain Mortgage Note, dated the date hereof in the
principal amount of $107,790,408.00 in favor of Lender (the "NEW NOTE"), which
New Note has an outstanding principal balance of $107,790,408.00 and is secured
by that certain Mortgage and Security Agreement, dated the date hereof given by
Borrower to Lender (the "NEW MORTGAGE");

         WHEREAS, in connection with the making of a loan to the Borrower in the
principal amount of $223,000,000.00 (the "LOAN"), Borrower has agreed to (i)
continue its obligations under the Original Notes and the New Note and has
requested that Lender consolidate the Original Notes and the New Note and amend
and restate the terms and provisions of the Original Notes and the New Note into
this Note, and (ii) continue its obligations under the Original Mortgages and
the New Mortgage and has requested that Lender spread, consolidate and modify
the Original Mortgages and the New Mortgage into that certain Amended, Restated
and Consolidated Mortgage and Security Agreement of even date herewith (the
"SECURITY INSTRUMENT").

         NOW, THEREFORE, in consideration of the premises, the agreements
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby covenant
and agree as follows, effective as of the date first above written:
<PAGE>   2
A. The Original Notes and the New Note are hereby combined and consolidated so
that together they shall hereafter constitute in law but one note evidenced
solely by this Note in the aggregate principal amount of Two Hundred and Twenty
Three Million and No/100 Dollars $223,000,000.00, together with interest thereon
as hereinafter provided.

B. The Original Notes and the New Note are hereby amended, restated and
consolidated in their entirety to read as follows:

                                 PROMISSORY NOTE

$223,000,000.00                                               New York, New York
                                                                    May 31, 2001

                  FOR VALUE RECEIVED, ALEXANDER'S KINGS PLAZA, LLC, a Delaware
limited liability company, ALEXANDER'S OF KINGS, LLC, a Delaware limited
liability company, and KINGS PARKING, LLC, each as maker and having its
principal place of business at c/o Vornado Realty Trust, 210 Route 4 East,
Paramus, New Jersey 07652 (collectively, "BORROWER"), hereby unconditionally
promises to pay to the order of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New
York banking corporation, as payee, having an address at 60 Wall Street, New
York, New York 10260 ("Lender"), or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of Two Hundred and
Twenty Three Million and No/100 Dollars ($223,000,000.00), in lawful money of
the United States of America with interest thereon to be computed from the date
of this Note at the Applicable Interest Rate (defined below), and to be paid in
installments as follows:

                            ARTICLE 1: PAYMENT TERMS

                  (a) A payment of interest only on June 10, 2001, (b) a
constant payment of $1,601,607.36 on July 10, 2001 and on the tenth (10th) day
of each calendar month thereafter up to and including the tenth (10th) day of
May, 2011 (each, a "MONTHLY DEBT SERVICE PAYMENT"), each of such payments to be
applied (i) first, to the payment of interest computed at the Applicable
Interest Rate and (ii) second, toward the reduction of the principal sum, and
(c) an amount equal to the balance of the principal sum, all interest thereon
and all other amounts due hereunder, under the Security Instrument and the Other
Security Documents shall be due and payable on the tenth (10th) day of June,
2011 (the "MATURITY DATE"). "MONTHLY PAYMENT DATE" shall mean the tenth day of
each calendar month prior to the Maturity Date. Interest on the principal sum of
this Note shall be calculated by multiplying the actual number of days elapsed
in the applicable period by a daily rate based on a three hundred sixty (360)
day year. The first interest accrual period hereunder shall commence on and
include the date that principal is advanced hereunder and shall end on and
include the next ninth (9th) day of a calendar month; unless principal is
advanced on the ninth (9th) day of a month, in which case the first interest
accrual period shall consist only of such ninth (9th) day. Each interest accrual
period thereafter shall commence on the tenth (10th) day of each calendar month
during the term of this Note and shall end on and include the ninth (9th) day of
the next occurring calendar month.

                                      -2-
<PAGE>   3
                              ARTICLE 2: INTEREST

                  The term "APPLICABLE INTEREST RATE" as used in the Security
Instrument (hereinafter defined) and this Note shall mean an interest rate equal
to seven and four hundred sixty-two thousandths percent (7.462%) per annum.

                      ARTICLE 3: DEFAULT AND ACCELERATION

                  (a) The whole of the principal sum of this Note, (b) interest,
default interest, late charges and other sums, as provided in this Note, the
Security Instrument or the Other Security Documents (defined below), (c) all
other monies agreed or provided to be paid by Borrower in this Note, the
Security Instrument (defined below) or the Other Security Documents, (d) all
sums advanced pursuant to the Security Instrument to protect and preserve the
Property (defined below) and the lien and the security interest created thereby,
and (e) all sums advanced and costs and expenses incurred by Lender in
connection with the Debt (defined below) 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 (all the sums referred to in (a) through (e)
above shall collectively be referred to as the "DEBT") shall without notice
become immediately due and payable at the option of Lender if an Event of
Default (as defined in the Security Instrument) has occurred.

                           ARTICLE 4: DEFAULT INTEREST

                  Borrower does hereby agree that upon the occurrence of an
Event of Default, Lender shall be entitled to receive and Borrower shall pay
interest on the entire unpaid principal sum at a rate equal per annum to the
lesser of (a) four percent (4%) plus the Applicable Interest Rate and (b) the
maximum interest rate which Borrower may by law pay (the "DEFAULT RATE"). The
Default Rate shall be computed from the occurrence of the Event of Default until
the earlier of the date upon which the Event of Default is cured or the date
upon which the Debt is paid in full. Interest calculated at the Default Rate
shall be added to the Debt, and shall be deemed secured by the Security
Instrument. This clause, however, shall not be construed as an agreement or
privilege to extend the date of the payment of the Debt, nor as a waiver of any
other right or remedy accruing to Lender by reason of the occurrence of any
Event of Default.

                        ARTICLE 5: REPAYMENT; DEFEASANCE

                  (a) The principal balance of this Note may not be prepaid in
whole or in part prior to the Maturity Date except as expressly permitted
pursuant to Section 5(l) hereof.

                  (b) Subject to compliance with and satisfaction of the terms
and conditions of this Article 5, Borrower may elect, after the Lockout Period
Expiration Date (defined below), to either (i) defease all of the outstanding
principal balance of this Note (a "COMPLETE DEFEASANCE"), or (ii) defease a
portion of this Note (a "PARKING DEFEASANCE"; together with a Complete
Defeasance hereinafter, a "DEFEASANCE") in an amount equal to the Parking
Release Amount (defined below). If Borrower has elected a Complete Defeasance,
Borrower shall be

                                      -3-
<PAGE>   4
entitled to a release (a "COMPLETE RELEASE") of the Property from the lien of
the Security Instrument and a return of all escrows held by or on behalf of
Lender with respect to the Loan upon delivery to Lender as security for the
payment of all interest and principal due and to become due pursuant to this
Note throughout the term hereof (including the immediately succeeding Monthly
Payment Date and assuming this Note is paid in full three (3) months prior to
the Maturity Date) Defeasance Collateral (defined below) sufficient to generate
the Scheduled Defeasance Payments (defined below). If the Borrower has elected a
Parking Defeasance, Borrower shall be entitled to a partial release (the
"PARKING RELEASE") of the Parking Land (as defined in the Security Instrument)
from the lien of the Security Instrument (a "PARKING RELEASE"; together with a
Complete Release, a "RELEASE") upon delivery to Lender as security for the
payment of all interest and principal due and to become due pursuant to the
Parking Note (defined below) throughout the term thereof (including the
immediately succeeding Monthly Payment Date and assuming the Parking Note is
paid in full three months prior to the Maturity Date) Defeasance Collateral
sufficient to generate the Scheduled Defeasance Payments. "LOCKOUT PERIOD
EXPIRATION DATE" shall mean the earlier to occur of (i) June 10, 2004, or (ii)
the second anniversary of the "startup day" within the meaning of Section
860G(a)(9) of the IRS Code (defined below) of a REMIC Trust (defined below).
"PARKING RELEASE AMOUNT" shall mean an amount equal to Nine Million One Hundred
Seventy-Nine Thousand and No/100 Dollars ($9,179,000.00).

                  (c) As a condition precedent to a Defeasance, and prior to any
Release, Borrower shall have complied with all of the following:

                           (i) Borrower shall provide not less than thirty (30)
days prior written notice to Lender of the Monthly Payment Date upon which it
intends to effect a Defeasance hereunder (the "DEFEASANCE DATE"), which notice
shall state whether such Defeasance is for a Complete Defeasance or a Parking
Defeasance;

                           (ii) All accrued and unpaid interest and all other
sums due and payable under this Note, the Security Instrument and the Other
Security Documents up to the Defeasance Date shall be paid in full on or prior
to the Defeasance Date;

                           (iii) This Note or the Parking Note, as applicable,
shall thereafter be secured by the Defeasance Collateral delivered in connection
with the Defeasance. After a Complete Defeasance of this Note or a Parking
Defeasance, this Note or the Parking Note, as applicable, shall not be prepaid
in whole or in part or be the subject of any further Defeasance. In the event of
a Parking Defeasance, Borrower shall prepare all necessary documents to modify,
amend and restate this Note in the reduced amount and issue a substitute note
for a portion of the outstanding principal balance of this Note in an amount
equal to Parking Release Amount (the "PARKING NOTE"). The Parking Note shall
otherwise have terms identical to this Note other than as may be necessary to
reflect the Parking Defeasance. In connection with any such Parking Defeasance,
the Monthly Debt Service Payment Amount due under this Note (as amended) and
under the Parking Note shall be recomputed at the Applicable Interest Rate and
the outstanding principal balance of this Note, and the Parking Note, as
applicable, remaining following such Parking Defeasance, based upon an
amortization schedule of twenty-seven (27) years less the

                                      -4-
<PAGE>   5
period (a) from the first day of the calendar month following the date of the
advance of the proceeds hereunder to the date of such Parking Defeasance, or (b)
if the date of the advance hereunder is the tenth day of a calendar month, from
date of the advance of the proceeds hereunder to the date of such Parking
Defeasance.

                           (iv) Borrower shall execute and deliver to Lender any
and all certificates, opinions, documents or instruments that may be required by
a prudent lender in connection with the Defeasance and Release, including,
without limitation, a pledge and security agreement satisfactory to a prudent
lender creating a first priority lien on the Defeasance Collateral (a
"DEFEASANCE SECURITY AGREEMENT");

                           (v) Borrower shall have delivered to Lender an
opinion of Borrower's counsel in form and substance that would be satisfactory
to a prudent lender stating (A) that the Defeasance Collateral and the proceeds
thereof have been duly and validly assigned and delivered to Lender and that
Lender has a valid, perfected, first priority lien and security interest in the
Defeasance Collateral delivered by Borrower and the proceeds thereof, and (B)
that if the holder of this Note or the Parking Note shall at the time of the
Release be a REMIC (defined below), (1) the Defeasance Collateral has been
validly assigned to the REMIC Trust which holds this Note (the "REMIC TRUST"),
(2) the Defeasance has been effected in accordance with the requirements of
Treasury Regulation 1.860(g)-2(a)(8) (as such regulation may be amended or
substituted from time to time) and will not be treated as an exchange pursuant
to Section 1001 of the IRS Code and (3) the tax qualification and status of the
REMIC Trust as a REMIC will not be adversely affected or impaired as a result of
the Defeasance. The term "REMIC" shall mean a "real estate mortgage investment
conduit" within the meaning of Section 860D of the IRS Code. "IRS CODE" shall
mean the United States Internal Revenue Code of 1986, as amended, and the
related Treasury Department regulations, including temporary regulations;

                           (vi) Borrower shall have delivered to Lender in
connection with a Complete Defeasance only written confirmation from the Rating
Agencies (defined in the Security Instrument) that such Defeasance will not
result in a withdrawal, downgrade or qualification of the then current ratings
by the applicable Rating Agencies of the Securities (defined in the Security
Instrument). If required by the Rating Agencies or Lender, Borrower shall, at
Borrower's expense, also deliver or cause to be delivered a non-consolidation
opinion with respect to the Defeasance Obligor (as defined below) in form and
substance satisfactory to Lender and the Rating Agencies;

                           (vii) Borrower shall have delivered to Lender a
certificate that would be satisfactory to a prudent lender given by Borrower's
independent certified public accountant (which accountant shall be satisfactory
to Lender) certifying that the Defeasance Collateral shall generate monthly
amounts equal to or greater than the Scheduled Defeasance Payments; and

                           (viii) With respect to a Parking Defeasance, the
following additional provisions and conditions shall apply:

                                      -5-
<PAGE>   6
                           (A)      At the time Borrower requests such Parking
                                    Release and at the time such Parking Release
                                    is granted, no Event of Default has occurred
                                    and is continuing;

                           (B)      Borrower shall submit to Lender, not less
                                    than fifteen (15) days prior to the date of
                                    such release, a release of such Parking Land
                                    from the lien of the Security Instrument for
                                    execution by Lender. Such release shall be
                                    in a form appropriate in the jurisdiction in
                                    which the Parking Land is located and
                                    contain standard provisions protecting the
                                    rights of the releasing lender. In addition,
                                    Borrower shall provide all other
                                    documentation Lender reasonably requires to
                                    be delivered by Borrower in connection with
                                    such Release, together with an officer's
                                    certificate certifying that such
                                    documentation (i) is in compliance with
                                    applicable law, (ii) will effect such
                                    release in accordance with the terms of this
                                    Note and the Security Instrument, and (iii)
                                    will not impair or otherwise adversely
                                    affect the remaining real property or other
                                    collateral covered by the Security
                                    Instrument or the liens, security interests
                                    and other rights of Lender under this Note
                                    and the Security Instrument or any Lease (as
                                    defined in the Security Instrument); and

                           (C)      All requirements under all laws, statutes,
                                    rules and regulations applicable to the
                                    Parking Land necessary to accomplish the
                                    release shall have been fulfilled, and
                                    evidence thereof has been delivered to the
                                    Lender.

                  (d) In connection with any Defeasance hereunder, Borrower
shall (unless otherwise agreed to in writing by Lender), at Borrower's expense,
establish or designate a successor entity, which shall be a single purpose,
bankruptcy remote entity acceptable to a prudent lender, as such entity is
described in Section 4.3 of the Security Instrument (the "DEFEASANCE OBLIGOR")
and Borrower shall transfer and assign all obligations, rights and duties under
and to this Note or the Parking Note, as applicable, together with the pledged
Defeasance Collateral to such Defeasance Obligor. Such Defeasance Obligor shall
assume the obligations under this Note or the Parking Note, as applicable, and
any Defeasance Security Agreement, and Borrower shall be relieved of its
obligations under such documents except with respect to any provisions of this
Note, the Security Instrument or the Other Security Documents which by their
terms expressly survive payment of the Debt in full.

                  (e) Each of the obligations of the United States of America or
other government securities that are part of the Defeasance Collateral shall be
duly endorsed by the holder thereof as directed by Lender or accompanied by a
written instrument of transfer in form and substance that would be satisfactory
to a prudent lender (including, without limitation, such instruments as may be
required by the depository institution holding such securities or by the issuer
thereof, as the case may be, to effectuate book-entry transfers and pledges
through the

                                      -6-
<PAGE>   7
book-entry facilities of such institution) in order to perfect upon the delivery
of the Defeasance Collateral a first priority security interest therein in favor
of the Lender in conformity with all applicable state and federal laws governing
the granting of such security interests. Borrower shall authorize and direct
that the payments received from such obligations shall be made directly to
Lender or Lender's designee and applied to satisfy the obligations of Borrower
or, if applicable, the Defeasance Obligor, under this Note.

                  (f) The Defeasance Collateral shall generate payments on or
prior to, but as close as possible to, the Business Day prior to each successive
Monthly Payment Date after the date of the Defeasance upon which payments are
required under this Note, in the case of a Complete Defeasance, or the Parking
Note, in the case of a Parking Defeasance, and in amounts equal to or greater
than the payments due on such dates (including, without limitation scheduled
payments of principal, interest, and any other regularly scheduled amounts)
together with the outstanding principal amount of this Note or the Parking Note,
as applicable, which would be outstanding on the Monthly Payment Date that is
three (3) months prior to the Maturity Date (the "SCHEDULED DEFEASANCE
PAYMENTS"). Provided no Event of Default has occurred and is continuing, any
portion of such monthly amounts generated by the Defeasance Collateral in excess
of the Scheduled Defeasance Payments shall be remitted to Borrower.

                  (g) Notwithstanding any release of the Security Instrument
granted pursuant to this Article 5 or any Defeasance hereunder, the Defeasance
Obligor shall, and hereby agrees to be bound by and obligated under Sections
3.1, 7.2, 7.4(a) (excluding items (ix) through (xii) inclusive and those
portions of xiii that relate to the Property), 11.2, and Articles 13 and 15 of
the Security Instrument; provided, however, that all references therein to
"Property" or "Personal Property" shall be deemed to refer only to the
Defeasance Collateral delivered to Lender.

                  (h) Any costs or expenses incurred or to be incurred in
connection with the Defeasance and any revenue, documentary stamp or intangible
taxes or any other tax or charge due in connection with the transfer of this
Note, or otherwise required to accomplish the Defeasance shall be paid by
Borrower simultaneously with the occurrence of any Defeasance.

                  (i) The term "DEFEASANCE COLLATERAL" as used herein shall mean
non-callable and non-redeemable securities evidencing an obligation to timely
pay principal and interest in a full and timely manner that are (a) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged, or (b) to the extent acceptable to the Rating
Agencies, other "government securities" within the meaning of Section 2(a)(16)
of the Investment Company Act of 1940, as amended.

                  (j) Upon Borrower's compliance with all of the conditions to
Defeasance and a Release set forth in Article 5(b) through (i), Lender shall
release the Property or the Parking Land, as applicable, from the lien of the
Security Instrument and the Other Security Documents (or, at Borrower's request,
assign such Security Instrument, or portion thereof in the case of a Parking
Release, in a accordance with section 22.8 of the Security Instrument), and, in
the case of a Parking Release, Lender shall also release King Parking LLC from
and after the date of the Parking Release from its obligations under this Note,
the Security Instrument and the Other

                                      -7-
<PAGE>   8
Security Documents, other than those obligations which are expressly intended to
survive any satisfaction of the Debt. All costs and expenses of Lender incurred
in connection with the Defeasance and Release, including, without limitation,
Lenders' counsels' fees and expenses and any fees and expenses of the Rating
Agencies, shall be paid by Borrower simultaneously with the delivery of the
Release documentation.

                  (k) If a Default Prepayment (defined below) occurs, Borrower
shall pay to Lender the entire Debt, including, without limitation, an amount
(the "DEFAULT CONSIDERATION") equal to the greater of (i) the amount (if any)
which, when added to the outstanding principal amount of the Note will be
sufficient to purchase Defeasance Collateral providing the required Scheduled
Defeasance Payments assuming Defeasance would be permitted hereunder, or (ii)
three percent (3%) of the Default Prepayment. For purposes of this Note, the
term "DEFAULT PREPAYMENT" shall mean a prepayment of the principal amount of
this Note made after the acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring after an
Event of Default or in connection with reinstatement of the Security Instrument
provided by statute under foreclosure proceedings or exercise of a power of
sale, any statutory right of redemption exercised by Borrower or any other party
having a statutory right to redeem or prevent foreclosure, any sale in
foreclosure or under exercise of a power of sale or otherwise.

                  (l) Notwithstanding anything to the contrary herein, (i) upon
not less than fifteen (15) but not more than forty-five (45) days prior written
notice Borrower may prepay the principal balance of this Note in whole during
the three (3) months prior to the Maturity Date and no prepayment consideration
shall be due and payable in connection therewith, but Borrower shall be required
to pay all other sums due hereunder together with all interest which would have
accrued on the principal balance of this Note after the date of prepayment to
the next Monthly Payment Date (the "INTEREST SHORTFALL PAYMENT"), if such
prepayment occurs on a date which is not a Monthly Payment Date; and (ii) if a
complete or partial prepayment results from the application of insurance
proceeds or condemnation awards pursuant to Sections 3.3, 3.6 or 4.4 of the
Security Instrument (an "INVOLUNTARY PREPAYMENT"), no prepayment consideration
or Default Consideration shall be due in connection therewith, but Borrower
shall be required to pay all other sums due hereunder, including, without
limitation, the Interest Shortfall Payment, if applicable. Upon an Involuntary
Prepayment, the Monthly Debt Service Payment Amount shall be recomputed at the
Applicable Interest Rate and the outstanding principal balance of this Note
remaining following such prepayment, based upon an amortization schedule of
twenty-seven (27) years less the period (A) from the first day of the calendar
month following the date of the advance of the proceeds hereunder to the date of
such prepayment, or (B) if the date of the advance hereunder is the tenth day of
a calendar month, from date of the advance of the proceeds hereunder to the date
of such prepayment.

                              ARTICLE 6: SECURITY

                  This Note is secured by the Security Instrument and the Other
Security Documents. The Security Instrument covers the fee and leasehold estate
of Borrower in certain premises located in Kings County, State of New York, and
other property, as more particularly described therein (collectively, the
"PROPERTY") and intended to be duly recorded in said County.

                                      -8-
<PAGE>   9
The term "OTHER SECURITY DOCUMENTS" as used in this Note shall mean all and any
of the documents, other than this Note and the Security Instrument, now or
hereafter executed by Borrower in favor of Lender, which wholly or partially
secure or guarantee payment of this Note or which were executed and/or delivered
in connection with the origination of the Loan. Whenever used, the singular
number shall include the plural, the plural number shall include the singular,
and the words "Lender" and "Borrower" shall include their respective successors,
assigns, heirs, executors and administrators.

                  All of the terms, covenants and conditions contained in the
Security Instrument and the Other Security Documents are hereby made part of
this Note to the same extent and with the same force as if they were fully set
forth herein.

                           ARTICLE 7: SAVINGS CLAUSE

                  This Note is subject to the express condition that at no time
shall Borrower be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.

                             ARTICLE 8: LATE CHARGE

                  If an Event of Default occurs with respect to a monetary
obligation payable under this Note, Borrower shall pay to Lender upon demand an
amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum
amount permitted by applicable law to defray the expenses incurred by Lender in
handling and processing the delinquent payment and to compensate Lender for the
loss of the use of the delinquent payment and the amount shall be secured by the
Security Instrument and the Other Security Documents, but without duplication of
the amounts paid pursuant to Article 4 in respect of such payment.

                           ARTICLE 9: NO ORAL CHANGE

                  This Note 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.

                                      -9-
<PAGE>   10
                    ARTICLE 10: JOINT AND SEVERAL LIABILITY

                  If Borrower consists of more than one person or party, the
obligations and liabilities of each person or party shall be joint and several.

                              ARTICLE 11: WAIVERS

                  Except as otherwise provided in this Note, the Security
Instrument or the Other Security Documents, Borrower and all others who may
become liable for the payment of all or any part of the Debt do hereby severally
waive presentment and demand for payment, notice of dishonor, protest and notice
of protest and non-payment and all other notices of any kind. Except in
connection with a Defeasance, no release of any security for the Debt or
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note, the Security
Instrument or the Other Security Documents made by agreement between Lender or
any other person or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of Borrower, and any other person
or entity who may become liable for the payment of all or any part of the Debt,
under this Note, the Security Instrument or the Other Security Documents. No
notice to or demand on Borrower shall be deemed to be a waiver of the obligation
of Borrower or of the right of Lender to take further action without further
notice or demand as provided for in this Note, the Security Instrument or the
Other Security Documents. If Borrower is a partnership, the agreements contained
herein shall remain in full force and effect, notwithstanding any changes in the
individuals or entities comprising the partnership, and the term "Borrower," as
used herein, shall include any alternate or successor partnership, but any
predecessor partnership and its partners shall not thereby be released from any
liability. If Borrower is a corporation, the agreements contained herein shall
remain in full force and effect notwithstanding any changes in the shareholders
comprising, or the officers and directors relating to, the corporation, and the
term "Borrower" as used herein, shall include any alternate or successor
corporation, but any predecessor corporation shall not be relieved of liability
hereunder. If Borrower is a limited liability company, the agreements herein
contained shall remain in full force and effect, notwithstanding any changes in
the individuals or entities comprising the limited liability company and the
term "Borrower," as used herein, shall include any alternate or successor
limited liability company, but any predecessor limited liability company and its
members shall not be released from any liability. (Nothing in the foregoing
sentence shall be construed as a consent to, or a waiver of, any prohibition or
restriction on transfers of interests in such partnership, corporation or
limited liability company which may be set forth in the Security Instrument or
any Other Security Document.)

                              ARTICLE 12: TRANSFER

                  Upon the transfer of this Note, Borrower hereby waiving notice
of any such transfer, Lender may deliver all the collateral mortgaged, granted,
pledged or assigned pursuant to the Security Instrument and the Other Security
Documents, or any part thereof, to the transferee who shall thereupon become
vested with all the rights herein or under applicable law given to Lender with
respect thereto, and Lender shall thereafter forever be relieved and fully

                                      -10-
<PAGE>   11
discharged from any liability or responsibility in the matter; but Lender shall
retain all rights hereby given to it with respect to any liabilities and the
collateral not so transferred.

                      ARTICLE 13: 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 THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS
NOTE, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY
ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN
CONNECTION THEREWITH.

                            ARTICLE 14: EXCULPATION

                  (a) Except as otherwise provided herein, in the Security
Instrument or in the Other Security Documents, Lender shall not enforce the
liability and obligation of Borrower to perform and observe the obligations
contained in this Note, the Security Instrument or the Other Security Documents
by any action or proceeding wherein a money judgment shall be sought against
Borrower, except that Lender may bring a foreclosure action, action for specific
performance or other appropriate action or proceeding to enable Lender to
enforce and realize upon this Note, the Security Instrument, the Other Security
Documents, and the interest in the Property, the Rents (as defined in the
Security Instrument) and any other collateral given to Lender created by this
Note, the Security Instrument and the Other Security Documents; provided,
however, that any judgment in any such action or proceeding shall be enforceable
against Borrower only to the extent of Borrower's interest in the Property, in
the Rents and in any other collateral given to Lender. Lender, by accepting this
Note and the Security Instrument, agrees that it shall not, except as otherwise
provided in this Article 14, sue for, seek or demand any deficiency judgment
against Borrower in any such action or proceeding, under or by reason of or
under or in connection with this Note, the Other Security Documents or the
Security Instrument. The provisions of this Section shall not, however, (i)
constitute a waiver, release or impairment of any obligation evidenced or
secured by this Note, the Other Security Documents or the Security Instrument;
(ii) impair the right of Lender to name Borrower as a party defendant in any
action or suit for judicial foreclosure and sale under the Security Instrument;
(iii) affect the validity or enforceability of the Environmental Indemnity (as
defined in the Security Instrument), or any guaranty executed in connection with
this Note, the Security Instrument, or the Other Security Documents; (iv) impair
the right of Lender to obtain the appointment of a receiver; (v) impair the
enforcement of the Assignment of Leases and Rents executed in connection
herewith; or (vi) impair the right of Lender to obtain a deficiency judgment or
other judgment on the Note against Borrower if necessary to obtain any insurance
proceeds or condemnation awards to which Lender would otherwise be entitled
under the Security Instrument; provided, however, Lender shall only enforce such
judgment to the extent of such insurance proceeds and/or condemnation awards.

                                      -11-
<PAGE>   12
                  (b) Notwithstanding the provisions of this Article 14 to the
contrary, Borrower shall be personally liable to Lender for the Losses (as
defined in the Security Instrument) it incurs due to: (i) fraud or intentional
misrepresentation by Borrower, Indemnitor (as defined in the Security
Instrument), Guarantor (as defined in the Security Instrument) or Vornado Realty
Trust in connection with the execution and the delivery of this Note, the
Security Instrument or the Other Security Documents; (ii) Borrower's
misapplication or misappropriation of Rents received by Borrower after the
occurrence of an Event of Default; (iii) Borrower's misapplication or
misappropriation of tenant security deposits (including any such deposits,
escrows or reserves deposited by tenants for tenant improvement work) or Rents
collected in advance; (iv) the misapplication or the misappropriation of
insurance proceeds or condemnation awards or the failure to refund any tax
rebates due to any tenant no longer in occupancy at the Property; (v) to the
extent of Rents from the Property, Borrower's failure to pay Taxes (as defined
in the Security Instrument), Other Charges (as defined in the Security
Instrument) (except to the extent that sums sufficient to pay such amounts have
been deposited in escrow with Lender pursuant to the terms of the Security
Instrument), charges for labor or materials or other charges, that can create
prior liens on the Property; (vi) any act of physical waste or arson by
Borrower, any principal, affiliate, member or general partner thereof or by any
Indemnitor or Guarantor; (vii) Borrower's failure to comply with the provisions
of Sections 4.2, 12.1 and 12.2 and Article 8 (other than a violation of Article
8 set forth in subsection (c) below) of the Security Instrument; (viii)
Borrower's failure to comply with the provisions of Section 4.3 (other than
Section 4.3(h)); (ix) Borrower's amendment or modification to the Ground Lease
(as defined in the Security Instrument) without the prior written consent of
Lender; and (x) Borrower's amendment or modification to that certain Amended and
Restated Construction Operation and Reciprocal Easement Agreement dated as of
June 18, 1998 by and among Macy's Kings Plaza Real Estate, Inc. ("MACY'S"),
Alexander's Kings Plaza Center, Inc. ("AKPC") and Alexander's Department Stores
of Brooklyn, Inc. ("ADSB") and/or Supplemental Agreement dated June 18, 1998 by
and among Macy's, AKPC and ADSB without the prior written consent of Lender.

                  (c) Notwithstanding the foregoing, (i) the agreement of Lender
not to pursue recourse liability as set forth in Subsection (a) above SHALL
BECOME NULL AND VOID and shall be of no further force and effect in the event of
Borrower's default under Article 8 of the Security Instrument caused by a
Transfer of the Property in violation of such article or the placement of a
voluntary mortgage lien against the Property, and (ii) the Debt shall be fully
recourse to Borrower in the event that (A) Borrower files a voluntary petition
under the Title 11 of the United States Bankruptcy Code (as amended, the
"BANKRUPTCY CODE") or any other Federal or state bankruptcy or insolvency law;
or (B) Guarantor or any other affiliate of Borrower which controls Borrower
files, or joins in the filing of, an involuntary petition against Borrower under
the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law,
or solicits or causes to be solicited petitioning creditors for any involuntary
petition against Borrower or from any Person, or (C) Borrower files an answer
consenting to or joining in any involuntary petition filed against it, by any
other Person under the Bankruptcy Code or any other Federal or state bankruptcy
or insolvency law, or solicits or causes to be solicited petitioning creditors
for any involuntary petition from any Person; or (D) any affiliate which
controls Borrower consents to or joins in an application for the appointment of
a custodian, receiver, trustee, or examiner for Borrower or any real property
portion of the Property; or (E) Borrower makes an assignment for the benefit of
creditors.

                                      -12-
<PAGE>   13
                  (d) Nothing herein shall be deemed to be a waiver of any right
which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provision of the U.S. Bankruptcy Code to file a claim for the full amount of the
indebtedness secured by the Security Instrument or to require that all
collateral shall continue to secure all of the indebtedness owing to Lender in
accordance with this Note, the Security Instrument and the Other Security
Documents.

                              ARTICLE 15: AUTHORITY

                  Borrower represents that Borrower has full power, authority
and legal right to execute and deliver this Note, the Security Instrument and
the Other Security Documents and that this Note, the Security Instrument and the
Other Security Documents constitute valid and binding obligations of Borrower.

                           ARTICLE 16: APPLICABLE LAW

                  This Note shall be deemed to be a contract entered into
pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York.

                         ARTICLE 17: SERVICE OF PROCESS

                  (a) (i) Borrower will maintain a place of business or an agent
for service of process in New York, New York and give prompt notice to Lender of
the address of such place of business and of the name and address of any new
agent appointed by it, as appropriate. Borrower further agrees that the failure
of its agent for service of process to give it notice of any service of process
will not impair or affect the validity of such service or of any judgment based
thereon. If, despite the foregoing, there is for any reason no agent for service
of process of Borrower available to be served, and if it at that time has no
place of business in New York, New York, then Borrower irrevocably consents to
service of process by registered or certified mail, postage prepaid, to it at
its address given in or pursuant to the first paragraph hereof.

                      (ii) Borrower initially and irrevocably designates its
Chief Financial Officer with offices on the date hereof at c/o Vornado Realty
Trust, 210 Route 4 East, Paramus, New Jersey 07652 to receive for and on behalf
of Borrower service of process in New York, New York with respect to this Note;
provided that a copy will be simultaneously provided to Vornado Realty Trust,
210 Route 4 East, Paramus, New Jersey 07652, Attention: Vice President for Real
Estate.

                  (b) With respect to any claim or action arising hereunder or
under the Security Instrument or the Other Security Documents, Borrower (i)
irrevocably submits to the nonexclusive jurisdiction of the courts of the State
of New York and the United States District Court located in the Borough of
Manhattan in New York, New York, and appellate courts from any thereof, and (ii)
irrevocably waives any objection which it may have at any time to the laying on
venue of any suit, action or proceeding arising out of or relating to this Note
brought in any such court, irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.

                                      -13-
<PAGE>   14
                  (c) Nothing in this Note will be deemed to preclude Lender
from bringing an action or proceeding with respect hereto in any other
jurisdiction.

                            ARTICLE 18: COUNSEL FEES

                  In the event that it should become necessary to employ counsel
to collect the Debt or to protect or foreclose the security therefor, Borrower
also agrees to pay all reasonable fees and expenses of Lender, including,
without limitation, reasonable attorney's fees for the services of such counsel
whether or not suit be brought.

                              ARTICLE 19: 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 sender, (ii) one (1) Business Day 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 as follows:

If to Borrower:            ALEXANDER'S KINGS PLAZA, LLC
                           ALEXANDER'S OF KINGS, LLC and
                           KINGS PARKING, LLC
                           c/o Vornado Realty Trust
                           210 Route 4 East
                           Paramus, New Jersey 07652
                           Attention:  Chief Financial Officer
                           Facsimile No.:  (201) 708-6210

With a copy to:            Winston & Strawn
                           200 Park Avenue
                           New York, New York 10166
                           Attention:  Peter J. Korda, Esq.
                           Facsimile No.:  (212) 294-4700

                                         and

                           Vornado Realty Trust
                           210 Route 4 East
                           Paramus, New Jersey 07652
                           Attention:  Vice President for Real Estate
                           Facsimile No.:  (201) 708-6207

                                      -14-
<PAGE>   15
If to Lender:              Morgan Guaranty Trust Company of New York
                           Commercial Mortgage Finance Group
                           60 Wall Street
                           New York, New York 10260
                           Attention:  Nancy Alto
                           Facsimile No.:  (212) 648-5274

                                         and

                           Morgan Guaranty Trust Company of New York
                           Legal Department
                           270 Park Avenue, 39th Floor
                           New York, New York 10017
                           Attention:  Ronald A. Wilcox, Esq.
                           Facsimile No.:  (212) 270-2934

With a copy to:            Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, New York 10038
                           Attention:  William P. McInerney, Esq.
                           Facsimile No.:  (212) 504-6666

or addressed as such party may from time to time designate by written notice to
the other parties.

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

                  "BUSINESS DAY" shall mean a day upon which commercial banks
are not authorized or required by law to close in New York, New York.

                           ARTICLE 20: MISCELLANEOUS

                  (a) Wherever pursuant to this Note (i) Lender exercises any
right given to it to approve or disapprove, (ii) any arrangement or term is to
be satisfactory to Lender, or (iii) 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 and absolute
discretion of Lender and shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.

                  (b) Wherever pursuant to this Note it is provided that
Borrower pay any costs and expenses, such costs and expenses shall include, but
not be limited to, all reasonable legal fees and disbursements of Lender.

                            ARTICLE 21: DEFINITIONS

                  The terms set forth below are defined in the following
Sections of this Note:

                                      -15-
<PAGE>   16
(a)      ADSP:  14(b);

(b)      AKPC:  14(b);

(c)      Applicable Interest Rate:  Article 2;

(d)      Bankruptcy Code:  14(c);

(e)      Borrower:  Preamble, Articles 6 and 11;

(f)      Business Day:  Article 19;

(g)      Complete Defeasance:  Article 5(b);

(h)      Complete Release:  Article 5(b);

(i)      Debt:  Article 3;

(j)      Default Consideration:  Article 5(k);

(k)      Default Prepayment:  Article 5(k);

(l)      Default Rate:  Article 4;

(m)      Defeasance:  Article 5(b);

(n)      Defeasance Collateral:  Article 5;

(o)      Defeasance Date:  Article 5(c)(i);

(p)      Defeasance Obligor:  Article 5(d);

(q)      Defeasance Security Agreement:  Article 5(c)(iv);

(r)      Interest Shortfall Payment:  Article 5(l);

(s)      Involuntary Prepayment:  Article 5(l);

(t)      IRS Code:  5(c)(v);

(u)      Lender:  Preamble;

(v)      Loan:  Recitals;

(w)      Lockout Period Expiration Date:  Article 5(b);

(x)      Macy's:  14(b)

(y)      Maturity Date:  Article 1;

                                      -16-
<PAGE>   17
(z)      Monthly Debt Service Payment:  Article 1;

(aa)     Monthly Payment Date:  Article 1;

(bb)     New Mortgage: Recitals;

(cc)     New Note:  Recitals;

(dd)     Note:  Preamble;

(ee)     Original Mortgages:  Recitals;

(ff)     Original Notes:  Recitals;

(gg)     Other Security Documents:  Article 6;

(hh)     Parking Defeasance:  Article 5(b)

(ii)     Parking Note:  5(c)(iii)

(jj)     Parking Release:  Article 5(b)

(kk)     Parking Release Amount:  Article 5(b)

(ll)     Property:  Article 6;

(mm)     Release:  Article 5(b);

(nn)     REMIC:  5(c)(v)

(oo)     REMIC Trust:  Article 5(c)(v);

(pp)     Scheduled Defeasance Payments:  Article 5(f); and

(qq)     Security Instrument:  Recitals.

C. Borrower hereby renews and extends its covenant and agreement to pay the
indebtedness evidenced by the Original Notes and the New Note, as amended,
restated, and consolidated pursuant to this Note, and Borrower hereby renews and
extends its covenant and agreement to perform, comply with and be bound by each
and every term and provision of the Original Notes and the New Note, as amended
and restated by the terms of this Note.

D. Borrower confirms and agrees that this Note, is, and shall continue to be,
secured by the Security Instrument and by any other mortgages executed by
Borrower or its predecessor-in-interest to secure the Original Notes and the New
Note, as the same have been modified by the Security Instrument. All of the
provisions of the Security Instrument, this Note and the Other Security
Documents and any other mortgage now or heretofore executed by Borrower as
heretofore or contemporaneously herewith amended, restated and consolidated are
hereby ratified and affirmed in all respects. Without in any way limiting the
generality of the foregoing,

                                      -17-
<PAGE>   18
Lender has, and shall continue to enjoy, all of the rights and remedies provided
for in the Security Instrument, this Note and the Other Security Documents as
heretofore or contemporaneously herewith amended, restated and consolidated.

E. This Note is secured by the Security Instrument and the Other Security
Documents and in no way acts as a release or relinquishment of the liens created
by the Security Instrument or the Other Security Documents. The Security
Instrument liens and all liens securing payment of this Note are hereby
modified, extended, renewed, carried forward in the amount of $223,000,000.00
and confirmed by Borrower in all respects and shall remain in full force and
effect until the amount of this Note then payable in accordance with the terms
hereof, all accrued but unpaid interest, and all extensions, renewals and
rearrangements thereof and all sums secured by this Note, the Security
Instrument and the Other Security Documents shall be fully and finally paid.

F. The parties hereto confirm that (i) the outstanding principal balance of
Original Notes remaining unpaid as of the date hereof is $115,209,592.00, (ii)
the outstanding principal balance of the New Note as of the date hereof is
$107,790,408.00, and (iii) the Loan is not a revolving line of credit and
Borrower shall not be entitled to any readvances of any principal or interest
sums paid from time to time.

G. Borrower hereby certifies to Lender the following facts knowing that Lender
requires, and is relying upon, the representations contained in this paragraph
as a condition to entering into this Note:

                  (i) All interest due to Lender through but not including the
date hereof has been paid or waived;

                  (ii) As of the date of execution hereof, Borrower has no, and
waives any, defenses, rights of setoff, counterclaim, claims, or causes of
action of any kind or description against Lender as holder of this Note, with
respect to (a) payment of the principal sum described therein, (b) payment of
interest under this Note, (c) payment of any other sums due and payable under
this Note, the Security Instrument or any of the Other Security Documents, or
(d) the performance of any obligations under this Note, the Security Instrument
and the Other Security Documents;

                  (iii) This Note, the Security Instrument and the Other
Security Documents are valid and enforceable against Borrower in accordance with
their respective terms subject to principles of equity and applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditor's rights; and

                  (iv) It is understood and agreed that Lender, by virtue of
executing this Note, is not waiving any of its rights under the Security
Instrument, this Note or any of the Other Security Documents with respect to any
defaults or Events of Default which may occur or arise from and after the date
hereof.

H. Borrower acknowledges and agrees that this Note hereby, amends, restates and
consolidates the Original Notes and the New Note, evidences the same
indebtedness evidenced thereby and creates no new or additional indebtedness,
and that this Note is not intended to, nor

                                      -18-
<PAGE>   19
shall it be construed to, constitute a novation of the Original Notes or the New
Note or the obligations contained therein.

I. All recitals set forth on page 1 hereof are hereby incorporated in and made a
part of this Note to the same extent as if herein set forth in full; provided,
however, that said recitals shall not be deemed to modify the express provisions
set forth herein.

                         [NO FURTHER TEXT ON THIS PAGE]

                                      -19-
<PAGE>   20
                  IN WITNESS WHEREOF, Borrower has duly executed this Note the
day and year first above written.

                                   BORROWER:

                                   ALEXANDER'S KINGS PLAZA, LLC,
                                       a Delaware limited liability company

                                   By:  /s/ Joseph Macnow
                                        ---------------------------------------
                                        Name:  Joseph Macnow
                                        Title: Executive Vice President

                                   ALEXANDER'S OF KINGS, LLC, a Delaware limited
                                       liability company

                                   By:  /s/ Joseph Macnow
                                        ---------------------------------------
                                        Name:  Joseph Macnow
                                        Title: Executive Vice President

                                   KINGS PARKING, LLC, a Delaware limited
                                       liability company

                                   By:  /s/ Joseph Macnow
                                        ---------------------------------------
                                        Name:  Joseph Macnow
                                        Title: Executive Vice President
<PAGE>   21
                                   LENDER:

                                   MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
                                       a New York banking corporation

                                   By:  /s/ Steven Z. Schwartz
                                        ----------------------
                                        Name:  Steven Z. Schwartz
                                        Title:  Managing Director

<PAGE>   22
                                   EXHIBIT A

                          ORIGINAL NOTES AND MORTGAGES

                                TERM LOAN NOTES

1.   Note dated March 12, 1999 in the amount of $15,000,000 made by Alexander's
Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's Department Stores
of Brooklyn, Inc. to Bayerische Landesbank, Cayman Islands Branch.

2.   Note dated July 2, 1999 in the amount of $18,750,000 made by Alexander's
Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's Department Stores of
Brooklyn, Inc. to Bayerische Hypo-Und Vereinsbank AG, New York Branch.

3.   Note dated July 2, 1999 in the amount of $7,500,000 made by Alexander's
Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's Department Stores
of Brooklyn, Inc. to Comerica Bank.

4.   Note dated July 2, 1999 in the amount of $24,375,000 made by Alexander's
Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's Department Stores
of Brooklyn, Inc. to The Bank of New York.

5.   Note dated July 2, 1999 in the amount of $24,375,000 made by Alexander's
Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's Department Stores
of Brooklyn, Inc. to UBS AG, Stamford Branch.

                                   MORTGAGES

(1)  Building Loan Mortgage dated June 27, 1969, in the amount of TWENTY THREE
MILLION FIVE HUNDRED THOUSAND and 00/100 Dollars ($23,500,000.00) made by Kings
Plaza Shopping Center of Flatbush Avenue Inc., and Kings Plaza Shopping Center
of Avenue U, Inc. to R.H. Macy & Co., Inc. & Alexander's Inc. and recorded in
the Kings County Clerk's Office on June 30, 1969, in Reel 344 page 153
("MORTGAGE 1").

(2)  Mortgage dated as of March 15, 1995 in the amount of THIRTY MILLION ONE
HUNDRED and 00/100 Dollars ($30,000,100.00) made by Alexander's Inc. to First
Fidelity Bank, National Association recorded in the Kings County Clerk's Office
on March 17, 1995 in Reel 3481 page 1507 ("MORTGAGE 2");

(3)  Spread Mortgage dated December 15, 1925, in the amount of ONE MILLION and
00/100 Dollars ($1,000,000.00) made by United Cigar Stores Company of America
to New York Title & Mortgage Company and recorded in the Kings County Clerk's
Office on December 18, 1925 in Liber 3648 page 59 ("MORTGAGE 3");
<PAGE>   23
(4)  Mortgage dated February 6, 1928, in the amount of FIVE HUNDRED FIFTY
THOUSAND and 00/100 Dollars ($550,000.00) made by 164 E.59 St. Corporation to
United Stores Realty Corporation recorded in the Kings County Clerk's Office on
February 10, 1928 in Liber 3852 page 400 ("Mortgage 4");

(5)  Mortgage dated December 15, 1961, in the amount of FIVE HUNDRED FIFTY
THOUSAND FIVE HUNDRED EIGHTY THREE AND 16/100 Dollars ($550,583.16) made by
Tillie Feldman to Equitable Life Assurance Society of the United States and
recorded in the Kings County Clerk's Office on December 20, 1961, in Liber 6019
page 392 ("Mortgage 5")

(6)  Mortgage dated as of December 21, 1971, in the amount of TWO HUNDRED
NINETY SEVEN THOUSAND TWO HUNDRED FIFTY SEVEN AND 43/100 Dollars ($297,257.43)
made by Grugo Equities, Inc. to United Mutual Savings Bank and recorded in the
Kings County Clerk's Office on December 23, 1971, in Reel 226 page 13
("Mortgage 6");

(7)  Mortgage dated February 10, 1982, in the amount of FOUR HUNDRED TWO
THOUSAND TWENTY NINE AND 96/100 Dollars ($402,029.96) made by Gogru Realty
Corp. to Harlem Savings Bank and recorded in the Kings County Clerk's Office on
February 22, 1982 in Reel 607 page 1532 ("Mortgage 7");

(8)  Mortgage dated December 30, 1994 in the amount of TWENTY TWO MILLION ONE
HUNDRED NINETY FOUR THOUSAND FORTY SEVEN AND 8/100 Dollars ($22,194,047.08) by
Seven Thirty One Limited Partnership to Emanuel Gruss, Riane Gruss and
Elizabeth Goldberg, dated December 30, 1994, and recorded in the Kings County
Clerk's Office on January 12, 1995 in Reel 2173 page 123 ("Mortgage 8");

(9)  Term Loan Fee and Leasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated June 18, 1998, in the amount of FIFTY MILLION EIGHT
HUNDRED EIGHTY THREE THOUSAND EIGHT HUNDRED THIRTY SEVEN AND 37/100 Dollars
($50,883,837.37) made by Alexander's King Plaza Center, Inc., Kings Plaza Corp.
and Alexander's Department Stores of Brooklyn, Inc. to Union Bank of
Switzerland (New York Branch) and recorded in the Kings County Clerk's Office
on July 31, 1998, in Reel 4251 page 1759 ("Mortgage 9");

     Mortgages 1 through 9 were consolidated to form a single lien of
$90,000,000.00 pursuant to a Mortgage Consolidation, Modification and Spreader
Agreement dated June 19, 1998 and recorded in the Kings County Clerk's Office
on July 31, 1998 in Reel 4251 page 1809;

<PAGE>   24
                              BUILDING LOAN NOTES

6.   Building Loan Note dated August 9, 1999 in the amount of $5,299,612.50
made by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to UBS AG, Stamford Branch.

7.   Building Loan Note dated August 9, 1999 in the amount of $4,076,625.00
made by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to Bayerische Hypo-Und Vereinsbank AG, New
York Branch.

8.   Building Loan Note dated August 9, 1999 in the amount of $3,261,300.00
made by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to Bayerische Landesbank, Cayman Islands
Branch.

9.   Building Loan Note dated August 9, 1999 in the amount of $1,630,650.00
made by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to Comerica Bank.

10.  Building Loan Note dated August 9, 1999 in the amount of $5,299,612.50
made by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to UBS AG, Stamford Branch.

     Notes 6 to 10 are secured by a Building Loan Fee and Leasehold Mortgage,
Assignment of Leases and Rents and Security Agreement, dated as of August 9,
1999 in the amount of $19,567,800.00, among Alexander's Kings Plaza Center,
Inc., Kings Plaza Corp., Alexander's Department Stores of Brooklyn, Inc. and
UBS AG, Stamford Branch, as administrative agent for lenders, recorded on
September 17, 1999 in Reel 4587 page 956.

                               PROJECT LOAN NOTES

11.  Project Loan Note dated August 9, 1999 in the amount of $2,825,387.50 made
by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to UBS AG, Stamford Branch.

12.  Project Loan Note dated August 9, 1999 in the amount of $2,825,387.50 made
by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to The Bank of New York.

13.  Project Loan Note dated August 9, 1999 in the amount of $1,738,700.00 made
by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to Bayerische Landesbank, Cayman Islands
Branch.

14.  Project Loan Note dated August 9, 1999 in the amount of $2,173,375.00 made
by Alexander's Kings Plaza Center, Inc., Kings Plaza Corp. and Alexander's
Department Stores of Brooklyn, Inc. to Bayerische Hypo-Und Vereinsbank AG, New
York Branch.

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