Document:

Exhibit 4.1

2000 SANTA LUCIA BANK

STOCK OPTION PLAN

1.                                      Purpose
of the Plan.

The purpose of this 2000
Santa Lucia Bank Stock Option Plan (the “Plan”) is to advance the interests of
the Bank through providing select Participants with the opportunity to acquire
Shares.  By encouraging such stock
ownership, the Bank seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentive to Directors and Employees of the Bank or any Affiliate to promote
the success of the business.

2.                                      Definitions.

As used herein, the following definitions shall apply:

(a)                                  “Affiliate”
shall mean any “parent corporation” or “subsidiary corporation” of the Bank, as
such terms are defined in Section 424(e) and (f), respectively, of the Code,
and any other subsidiary corporations of a parent corporation of the Bank.

(b)                                 “Agreement”
shall mean a written agreement entered into in accordance with Paragraph 5(c).

(c)                                  “Award”
shall mean an Option evidenced by a written agreement entered into in
accordance with Paragraph 5(c).

(d)                                 “Bank”
shall mean Santa Lucia Bank.

(e)                                  “Board”
shall mean the Board of Directors of the Bank.

(f)                                    “Code”
shall mean the Internal Revenue Code of 1986, as amended.

(g)                                 “Committee”
shall mean the Stock Option Committee appointed by the Board in accordance with
Paragraph 5(a) hereof.

(h)                                 “Common
Stock” shall mean the common stock, no par value, of the Bank.

(i)                                     “Continuous
Service” shall mean the absence of any interruption or termination of service
as an Employee or Director of the Bank or an Affiliate.  Continuous Service shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or between the Bank, an Affiliate or a successor.

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(j)                                     “Director”
shall mean any member of the Board, and any member of the board of directors of
any Affiliate that the Board has by resolution designated as being eligible for
participation in this Plan.

(l)                                     “Non-Employee
Director” shall mean any member of the Board who is a “non-employee director”
within the meaning of Rule 16b-3.

(m)                               “Effective
Date” shall mean the date specified in Paragraph 13 hereof.

(n)                                 “Employee”
shall mean any person employed by the Bank or an Affiliate who is an employee
for federal tax purposes.

(o)                                 “Exercise
Price” shall mean the price per Optioned Share at which an Option may be
exercised.

(p)                                 “ISO”
means an option to purchase Common Stock which meets the requirements set forth
in the Plan, and which is intended to be and is identified as an “incentive
stock option” within the meaning of Section 422 of the Code.

(q)                                 “Market
Value” shall mean the fair market value of the Common Stock, as determined
under Paragraph 7(b) hereof.

(r)                                    “Non-ISO”
means an option to purchase Common Stock which meets the requirements set forth
in the Plan but which is not intended to be and is not identified as an ISO.

(s)                                  “Option”
means an ISO and/or a Non-ISO.

(t)                                    “Optioned
Shares” shall mean Shares subject to an Award granted pursuant to this Plan.

(u)                                 “Participant”
shall mean any Employee, Director or other person who receives an Award
pursuant to the Plan.

(v)                                 “Plan”
shall mean this 2000 Santa Lucia Bank Stock Option Plan.

(w)                               “Rule
16b-3” shall mean Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.

(x)                                   “Share”
shall mean one share of Common Stock.

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3.                                      Term
of the Plan and Awards.

(a)                                  Term
of the Plan.  The Plan shall continue in
effect for a term of 10 years from the
Effective Date or the date the Plan is adopted by the Board (whichever period
ends earlier), unless sooner terminated pursuant to Paragraph 15 hereof.  No Award shall be granted under the Plan
after such 10 year term.

(b)                                 Term
of Awards.  The term of each Award
granted under the Plan shall be established by the Committee, but shall not
exceed 10 years; provided, however, that in the case of an Employee who owns
Shares representing more than 10% of the outstanding Common Stock at the time
an ISO is granted, the term of such ISO shall not exceed five years, subject to
the provisions of Section 8(e) hereof.

4.                                      Shares
Subject to the Plan.

Except as otherwise
required by the provisions of Paragraph 10 hereof, the aggregate number of
Shares deliverable pursuant to Awards shall not exceed 90,000 Shares.  Such Shares will be authorized but unissued
Shares.  If any Awards should expire,
become unexercisable, or be forfeited, for any reason without having been
exercised or become vested in full, the Optioned Shares shall, unless the Plan
shall have been terminated, be available for the grant of additional Awards
under the Plan.

5.                                      Administration
of the Plan.

(a)                                  Composition
of the Committee.  The Plan shall be
administered by the Committee, which shall consist of not less than two (2)
members of the Board who are Non-Employee Directors.  Members of the Committee shall serve at the
pleasure of the Board.  In the absence at
any time of a duly appointed Committee, the Plan shall be administered by those
members of the Board who are Non-Employee Directors.

(b)                                 Powers
of the Committee.  Except as limited by
the express provisions of the Plan or by resolutions adopted by the Board, the
Committee shall have sole and complete authority and discretion (i) to select
Participants and grant Awards, (ii) to determine the form and content of Awards
to be issued in the form of Agreements under the Plan, (iii) to interpret the
Plan, (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan, (v) to make other determinations necessary or advisable for the
administration of the Plan.  The
Committee shall have and may exercise such other power and authority as may be
delegated to it by the Board from time to time. 
A majority of the entire Committee shall constitute a quorum and the
action of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee without a
meeting, shall be deemed the action of the Committee.

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(c)                                  Agreement.  Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee.  Each such Agreement shall constitute a
binding contract between the Bank and the Participant, and every Participant,
upon acceptance of such Agreement, shall be bound by the terms and restrictions
of the Plan and of such Agreement.  The
terms of each such Agreement shall be in accordance with the Plan.  In particular, the Committee shall set forth
in each Agreement (i) the Exercise Price of an Option, (ii) the number of
Shares subject to, and the expiration date of, the Award, (iii) the
restrictions, if any, to be placed upon such Award, or upon Shares which may be
issued upon exercise of such Award, and (iv) whether the Option is intended to
be an ISO or a Non-ISO.

The Chairman of the Committee
and such other Directors and officers as shall be designated by the Committee
are hereby authorized to execute Agreements on behalf of the Bank and to cause
them to be delivered to the recipients of Awards.

(d)                                 Effect
of the Committee’s Decisions.  All
decisions, determinations and interpretations of the Committee shall be final
and conclusive on all persons affected thereby.

(e)                                  Indemnification.  In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Bank in connection with any claim, action, suit or
proceeding relating to any action taken or failure to act under or in
connection with the Plan or any Award, granted hereunder to the full extent
provided for under the Bank’s governing instruments with respect to the
indemnification of Directors.

6.                                      Grant
of Options.

(a)                                  General
Rule.  Only Employees and Directors shall
be eligible to receive grants of Options pursuant to the Plan.

(b)                                 Special
Rules for ISOs.  The aggregate Market
Value, as of the date the option is granted, of the Shares with respect to
which ISOs are exercisable for the first time by an Employee during any
calendar year (under all incentive stock option plans, as defined in Section
422 of the Code, of the Bank or any present or future Parent or Subsidiary of
the Bank) shall not exceed $100,000. 
Notwithstanding the foregoing, the Committee may grant Options in excess
of the foregoing limitations, in which case such Options granted in excess of
such limitations shall be Options which are Non-ISOs.

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7.                                      Exercise
Price for Options

(a)                                  Limits
on Committee Discretion.  The Exercise
Price as to any particular Option shall not be less than 100% of the Market
Value of the Options Shares on the date of grant without taking into account
any restrictions on the Optioned Shares. 
In the case of an Employee who owns Shares representing more than 10% of
the Bank’s outstanding Shares of Common Stock at the time an ISO is granted,
the Exercise Price shall not be less than 110% of the Market Value of the
Optioned Shares at the time the ISO is granted.

(b)                                 Standards
for Determining Exercise Price.  If the
Common Stock is listed on a national securities exchange (including NASDAQ
National Market or Small Cap System) on the date in question, then the Market
Value per Share will be the average of the highest and lowest selling price on
such exchange on such date, or if there were no sales on such date, then the
Exercise Price shall be the mean between the bid and asked price on such date.  If the Common Stock is traded otherwise than
on a national securities exchange on the date in question, then the Market
Value per Share shall be the mean between the bid and asked price on such date,
or, if there is no bid and asked price on such date, then on the next prior
business day on which there was a bid and asked price.  If no such bid and asked price is available,
then the Market Value per Share shall be its fair market value as determined by
the Committee, in its sole and absolute discretion.

8.                                      Exercise
of Options.

(a)                                  Generally.  Subject to (e) below, any Option granted
hereunder shall be exercisable at such times and under such conditions as shall
be permissible under the terms of the Plan and of the Agreement granted to a
Participant.  An Option may not be
exercised for a fractional Share.

(b)                                 Procedure
for Exercise. To the extent the right to purchase Shares has vested under a
Participant’s Stock Option Agreement, options may be exercised from time to
time by delivering payment in full at the Option Price for the number of Shares
being purchased by either: (i) cash, certified check, official bank check or
the equivalent thereof acceptable to the Bank; (ii) surrender of previously
issued Shares of the Bank’s Common Stock having an aggregate fair market value
on the date of exercise equal to the Option price; or (iii) a combination of
(i) and (ii) above, together with written notice to the Secretary of the Bank
identifying the Option or part thereof being exercised and specifying the
number of Shares for which payment is being tendered.  The Bank shall deliver to the Optionee, which
delivery shall be not less than fifteen (15) days and not more than thirty (30)
days after the giving of such notice, without transfer or issue tax to the
Optionee (or other person entitled to exercise the option) at the principal
office of the Bank, or such other place as shall be mutually

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acceptable, a certificate
or certificates for such Shares dated the date the options were validly
exercised; provided, however, that the time of such delivery may be postponed
by the Bank for such period as may be required for it with reasonable diligence
to comply with any requirements of law. 
If an Option covers incentive and non-statutory stock options, separate
stock certificates shall be issued; one or more for stock acquired upon
exercise of the incentive stock options and one or more for the stock acquired
upon exercise of the non-statutory stock options.

(c)                                  Period
of Exercisability.  Except to the extent
otherwise provided in more restrictive terms of an Agreement, an Option may be
exercised by a Participant only with respect to the vested portion of such
Option and (in the case of an Employee or a Director) only while he is an
Employee or Director and has maintained Continuous Service from the date of the
grant of the Option, or within three months after termination of such
Continuous Service (but not later than the date on which the Option would
otherwise expire), except if the Employee’s or Director’s Continuous Service
terminates by reason of:

(1)                                  “Just
Cause” which for purposes hereof shall mean termination because of the Employee’s
or Director’s personal dishonesty (meaning material dishonesty with respect to
any aspect of the Bank’s or an Affiliate’s affairs or business), incompetence
(which actually results in substantial harm to the Bank or an Affiliate or
which could reasonably be expected to result in such harm), willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order,
then the Participant’s rights to exercise such Option shall expire on the date
of such termination;

(2)                                  Death,
then all Options of the deceased Participant shall become immediately
exercisable and may be exercised within one year from the date of his death
(but not later than the date on which the Option would otherwise expire) by the
personal representatives of his estate or person or persons to whom his rights
under such Option shall have passed by will or by laws of descent and
distribution;

(3)                                  Permanent
and Total Disability (as such term is defined in Section 22(e)(3) of the Code),
then all Options of the disabled Participant shall become immediately
exercisable and may be exercised within one year from the date of such
Permanent and Total Disability, but not later than the date on which the Option
would otherwise expire.

(d)                                 Effect
of the Committee’s Decisions.  The
Committee’s determination whether a Participant’s Continuous Service has
ceased, and the effective date thereof,

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shall be final and
conclusive on all persons affected thereby.

(e)                                  The
vesting period of an Option shall be provided for in the Agreement and shall be
determined in the sole discretion of the Committee.  The vesting periods for Options need not be
identical.   Vesting shall cease
immediately upon the termination of employment or directorship of an
Optionee.  If an Optionee shall not in any
given period exercise any of an Option which has become exercisable during that
period, the Optionee’s right to exercise such part of the Option shall continue
until expiration of the Option.

9.                                      Substitute
Options.

Notwithstanding any other
provisions of this Plan to the contrary, where the outstanding shares of
another corporation are changed into or exchanged for shares of Common Stock of
the Bank in a merger, consolidation, reorganization or similar transaction,
then, subject to the approval of the Board, Options may be granted in exchange
for unexercised, unexpired stock options of the other corporation, and the
exercise price of the Optioned Shares subject to such Option so granted may be
fixed at a price less than one hundred percent of the Market Value of the
Common Stock at the time such Option is granted if said Exercise Price has been
computed to be not less than the Exercise Price set forth in the stock option
of the other corporation, with appropriate adjustment to reflect the exchange
ratio of the shares of stock of the other corporation into the shares of Common
Stock of the Bank.  The number of shares
of the options of the other corporation shall also be adjusted in accordance
with the exchange ratio so that any substituted Option shall reflect such
adjustment.

10.                               Effect
of Changes in Common Stock Subject to the Plan.

(a)                                  Recapitalizations;
Stock Splits, Etc.  The number and kind
of shares reserved for issuance under the Plan, and the number and kind of
shares subject to outstanding Awards (and the Exercise Price thereof), shall be
proportionately adjusted for any increase, decrease, change or exchange of
Shares for a different number or kind of shares or other securities of the Bank
which results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Bank.

(b)                                 Transactions
in which the Bank Is Not the Surviving Entity. 
In the event of (i) the liquidation or dissolution of the Bank, (ii) a
merger or consolidation in which the Bank is not the surviving entity,  (iii) the sale or
disposition of all or substantially all of the Bank’s assets or (iv) a tender
offer or acquisition by one person or a group of persons acting in concert of
more than 50% of the Bank’s outstanding Shares (any
of the foregoing to be referred to herein as a “Transaction”), the Committee
shall notify each optionee of the pendency of

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the Transaction.  Upon delivery of said notice, any Award
granted prior to the Transaction shall be, notwithstanding the provisions of
Paragraph 8(e), exercisable in full and not only as to those Shares with
respect to which installments, if any, have been accrued, subject, however, to
earlier expiration or termination as provided elsewhere in the Plan.  Upon the date thirty (30) days after delivery
of such notice, any option or portion thereof not exercised shall terminate,
and upon the effective date of the Transaction, this Plan shall terminate,
unless provision is made in connection with the Transaction for assumption of
Options theretofore granted, or payment therefor, or substitution for such
Options of new options covering stock of a successor corporation, or a parent
or subsidiary corporation thereof, solely at the option of such successor
corporation or parent or subsidiary corporation, with appropriate adjustments
as to number and kind of shares and prices. 
Notwithstanding the foregoing, if the Bank is the surviving entity in
any such Transaction, the options shall not terminate.

(c)                                  Special
Rule for ISOs.  Any adjustment made
pursuant to subparagraphs (a) or (b) hereof shall be made in such a manner as
not to constitute a modification, within the meaning of Section 424(h) of the
Code, of outstanding ISOs.

(d)                                 Conditions
and Restrictions on New, Additional or Different Shares or Securities.  If, by reason of any adjustment made pursuant
to this Paragraph, a Participant becomes entitled to new, additional or
different shares of stock or securities, such new, additional or different
shares of stock or securities shall thereupon be subject to all of the
conditions and restrictions which were applicable to the Shares pursuant to the
Award before the adjustment was made.

(e)                                  Other
Issuances.  Except as expressly provided
in this Paragraph, the issuance by the Bank or an Affiliate of shares of stock
of any class, or of securities convertible into Shares or stock of another
class, for cash or property or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor, shall not affect
and no adjustment shall be made with respect to, the number, class, Exercise
Price of Shares then subject to Awards or reserved for issuance under the Plan.

11.                               Non-Transferability
of Awards.

Awards may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution, or pursuant to the
terms of a “qualified domestic relations order” (within the meaning of Section
414(p) of the Code and the regulations and rulings thereunder).  An Award may be exercised only by a
Participant, the Participant’s personal representative or a permitted
transferee.

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12.                               Time
of Granting Awards.

The date of grant of an
Award shall, for all purposes, be the later of the date on which the Committee
makes the determination of granting such Award, and the Effective Date.   Notice of the determination shall be given
to each Participant to whom an Award is so granted within a reasonable time
after the date of such grant.

13.                               Effective
Date.

The Plan shall become
effective immediately upon its approval by a favorable vote of stockholders
owning at least a majority of the Shares eligible to be cast at a meeting duly
held in accordance with applicable laws.

14.                               Modification
of Awards.

At any time, and from
time to time, the Board may authorize the Bank to direct execution of an
instrument providing for the modification of any outstanding Award, provided no
such modification shall confer on the holder of said Award any right or benefit
which could not be conferred on him by the grant of a new Award at such time,
or impair the Award without the consent of the holder of the Award.

15.                               Amendment
and Termination of the Plan.

The Board may from time
to time amend the terms of the Plan and, with respect to any Shares at the time
not subject to Awards, suspend or terminate the Plan.

Except for any changes
that may be required to be made at the direction of the California Department
of Financial Institutions in connection with a permit procedure under the
Financial Code or such other state of federal regulator as may have
jurisdiction over the insurance of shares by the Bank, shareholder approval must
be obtained for any amendment of the Plan that would change the number of
Shares subject to the Plan (except in accordance with Paragraph 10 above),
change the category of persons eligible to be Participants, or materially
increase the benefits under the Plan.

No amendment, suspension
or termination of the Plan shall, without the consent of any affected holders
of an Award, alter or impair any rights or obligations under any Award
theretofore granted.

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16.                               Conditions
upon Issuance of Shares.

(a)                                  Compliance
with Securities Laws.  Shares of Common
Stock shall not be issued with respect to any Award unless the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, any applicable state securities
law, and the requirements of any stock exchange upon which the Shares may then
be listed.

(b)                                 Special
Circumstance.  The inability of the Bank
to obtain approval from any regulatory body or authority deemed by the Bank’s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder
shall relieve the Bank of any liability in respect of the non-issuance or sale
of such Shares.

(c)                                  Committee
Discretion.  The Committee shall have the
discretionary authority to impose in Agreements such restrictions on Shares as
it may deem appropriate or desirable.

17.                               Reservation
of Shares.

The Bank, during the term
of the Plan, will reserve and keep available a number of Shares sufficient to
satisfy the requirements of the Plan.

18.                               Withholding
Tax.

The Bank’s obligation to
deliver Shares upon exercise of Options shall be subject to the Participant’s
satisfaction of all applicable federal, state and local income and employment
tax withholding obligations.  The
Committee, in its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Bank
withhold Shares, or to deliver to the Bank Shares that he already owns, having
a value equal to the amount required to be withheld.  The value of Shares to be with withheld, or
delivered to the Bank, shall be based on the Market Value of the Shares on the
date the amount of tax to be withheld is to be determined.  As an alternative, the Bank may retain, or
sell without notice, a number of such Shares sufficient to cover the amount
required to be withheld.

19.                               No
Employment or Other Rights.

In no event shall an
Employee’s or Director’s eligibility to participate or participation in the
Plan create or be deemed to create any legal or equitable right of the
Employee, Director, or any other party to continue service with the Bank, or
any Affiliate of such corporations.

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20.                               Governing
Law.

The Plan shall be
governed by and construed in accordance with the laws of the State of
California, except to the extent that federal law shall be deemed to apply.

 11Exhibit
10.1

Hudson

 

HENRY HUDSON HOLDINGS LLC,

as Borrower

to

WACHOVIA BANK, NATIONAL ASSOCIATION

as Lender

AGREEMENT OF CONSOLIDATION AND MODIFICATION OF 

MORTGAGE, SECURITY AGREEMENT, 

ASSIGNMENT OF RENTS AND FIXTURE FILING

 

Dated:  October
6, 2006

PREPARED BY AND
UPON RECORDATION RETURN TO:

Proskauer Rose LLP

1585 Broadway

New York, New York  10036

Attention: 
David J. Weinberger, Esq.

 

 

 

THIS AGREEMENT OF CONSOLIDATION AND MODIFICATION OF
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING (this “Agreement”),
is made as of the 6th day of October, 2006, between HENRY HUDSON HOLDINGS LLC (hereinafter
referred to as “Borrower”), having its chief executive office c/o
Morgans Hotel Group LLC, 475 Tenth Avenue, New York, New York 10018, and WACHOVIA
BANK, NATIONAL ASSOCIATION (hereinafter referred to as “Lender”), having
an address at Wachovia Bank, National Association, Commercial Real Estate
Services, 8739 Research Drive URP 4, NC 1075, Charlotte, North
Carolina 28262.

W I T N E S S E T H:

WHEREAS, Borrower
is the owner of the fee interest in the real property described on Exhibit A-1, attached hereto and made a part hereof (the “Fee
Premises”) and of the leasehold interest in the real property described on Exhibit A-2, attached hereto and made a part hereof (the “Leasehold
Premises”, and together with the Fee Premises (collectively, the “Premises”);

WHEREAS, Lender has
authorized a loan (hereinafter referred to as the “Loan”) to Borrower in
the maximum principal sum of TWO HUNDRED SEVENTEEN MILLION AND 00/100 DOLLARS
($217,000,000.00) (hereinafter referred to as the “Loan Amount”), which
is evidenced by Lender’s Existing Notes (as hereinafter defined);

WHEREAS, Lender is
the owner and holder of certain mortgages covering the fee estate of Borrower
in the Premises, the improvements located thereon and certain other rights,
interest and matters, as more particularly described therein, as more
particularly described in Exhibit I
attached hereto (the “Existing Mortgages”) and of the notes, bonds or
other obligations secured thereby (the “Existing Notes”);

WHEREAS, there is
now owing on the Existing Notes and the Existing Mortgages a sum equal to the
Loan Amount;

WHEREAS, in
consideration of the Loan , Borrower has agreed in the manner hereinafter set
forth (1) to spread the Existing Mortgages and the respective liens thereof
over those portions of the Property (as hereinafter defined) not already
covered thereby, (2) to consolidate and coordinate the respective liens of the
Existing Mortgages, as spread and (3) to modify the time and manner of payment
and the terms and provisions of the Existing Notes and the Existing Mortgages
to provide for the making of payments in amounts sufficient to pay and redeem,
and provide for the payment and redemption of the principal of, premium, if
any, and interest on the Existing Notes when due;

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

WHEREAS, Borrower desires by
this Agreement to provide for, among other things, the issuance of the Note and
for the deposit, deed and pledge by Borrower with, and the creation of a

 

 

security interest in favor
of, Lender, as security for Borrower’s obligations to Lender from time to time
pursuant to the Note and the other Loan Documents;

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

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

NOW THEREFORE, to
secure the payment of the principal of, prepayment premium (if any) and
interest on the Existing Notes and all other obligations, liabilities or sums
due or to become due under the Existing Mortgages, the Payment Guaranty, the
Existing Notes or any other Loan Document, including, without limitation,
interest on said obligations, liabilities or sums (said principal, premium,
interest and other sums being hereinafter referred to as the “Debt”),
and the performance of all other covenants, obligations and liabilities of
Borrower pursuant to the Loan Documents, Borrower has executed and delivered
this Agreement and Borrower and Lender by these presents and by the execution
and delivery hereof do hereby irrevocably agree as follows:

I.              The Existing
Mortgages and the respective liens thereof are hereby spread over those
portions of the Property (as hereinafter defined), if any, not already covered
thereby, which Property includes all of the right, title and interest of
Borrower, whether now owned or hereafter acquired, in and to all of the
following property, rights, interests and estates and Borrower by these
presents and by the execution and delivery hereof does hereby irrevocably
grant, bargain, sell, alien, demise, release, convey, assign, transfer, deed,
hypothecate, pledge, set over, warrant, mortgage and confirm to Lender, forever
WITH POWER OF SALE, all right, title and interest of Borrower, whether now
owned or hereafter acquired, in and to all of the following property, rights,
interests and estates:

(a)           the
Premises;

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

(c)           all
easements, servitudes, rights-of-way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
ditches, ditch rights, reservoirs and reservoir rights, air rights and
development rights, lateral support, drainage, gas, oil and mineral rights,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating or pertaining to the Premises or the Improvements and the
reversion and reversions, remainder and remainders, whether existing or
hereafter acquired, and all land lying in the bed of any

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street, road or avenue,
opened or proposed, in front of or adjoining the Premises to the center line
thereof and any and all sidewalks, drives, curbs, passageways, streets, spaces
and alleys adjacent to or used in connection with the Premises and/or
Improvements and all the estates, rights, titles, interests, property,
possession, claim and demand whatsoever, both in law and in equity, of Borrower
of, in and to the Premises and Improvements and every part and parcel thereof,
with the appurtenances thereto;

(d)           all
machinery, equipment, systems, fittings, apparatus, appliances, furniture,
furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles
of personal property and accessions thereof and renewals, replacements thereof
and substitutions therefor (including, but not limited to, all plumbing,
lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers,
chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting,
drapes, draperies, curtains, shades, venetian blinds, wall coverings, screens,
paintings, hangings, pictures, divans, couches, luggage carts, luggage racks,
stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware,
foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other
entry systems, bars, bar fixtures, liquor and other drink dispensers,
icemakers, radios, television sets, intercom and paging equipment, electric and
electronic equipment, dictating equipment, telephone systems, computerized
accounting systems, engineering equipment, vehicles, medical equipment, potted
plants, heating, lighting and plumbing fixtures, fire prevention and
extinguishing apparatus, theft prevention equipment, cooling and
air-conditioning systems, elevators, escalators, fittings, plants, apparatus,
stoves, ranges, refrigerators, laundry machines, tools, machinery, engines,
dynamos, motors, boilers, incinerators, switchboards, conduits, compressors,
vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems,
brackets, signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers,
shelving, spotlighting equipment, dishwashers, garbage disposals, washers and
dryers), other customary hotel equipment and other property of every kind and
nature whatsoever owned by Borrower, or in which Borrower has or shall have an
interest, now or hereafter located upon, or in, and used in connection with the
Premises or the Improvements, or appurtenant thereto, and all building
equipment, materials and supplies of any nature whatsoever owned by Borrower,
or in which Borrower has or shall have an interest, now or hereafter located
upon, or in, and used in connection with the Premises or the Improvements or
appurtenant thereto, (hereinafter, all of the foregoing items described in this
paragraph (d) are collectively called the “Equipment”), all of which,
and any replacements, modifications, alterations and additions thereto, to the
extent permitted by applicable law, shall be deemed to constitute fixtures (the
“Fixtures”), and are part of the real estate and security for the
payment of the Debt and the performance of Borrower’s obligations.  To the extent any portion of the Equipment is
not real property or fixtures under applicable law, it shall be deemed to be
personal property, and this Security Instrument shall constitute a security
agreement creating a security interest therein in favor of Lender under the
UCC;

(e)           all
awards or payments, including interest thereon, which may hereafter be made
with respect to the Premises, the Improvements, the Fixtures, or the Equipment,

 3
 

 

whether from the exercise
of the right of eminent domain (including but not limited to any transfer made
in lieu of or in anticipation of the exercise of said right), or for a change
of grade, or for any other injury to or decrease in the value of the Premises,
the Improvements or the Equipment or refunds with respect to the payment of
property taxes and assessments, and all other proceeds of the conversion,
voluntary or involuntary, of the Premises, Improvements, Equipment, Fixtures or
any other Property or part thereof into cash or liquidated claims;

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

(g)           all
proceeds of and any unearned premiums on any insurance policies covering the
Premises, the Improvements, the Fixtures, the Rents or the Equipment,
including, without limitation, the right to receive and apply the proceeds of
any insurance, judgments, or settlements made in lieu thereof, for damage to
the Premises, the

 4
 

 

Improvements, the
Fixtures or the Equipment and all refunds or rebates of Impositions, and
interest paid or payable with respect thereto;

(h)           all deposit accounts, securities accounts,
funds or other accounts maintained or deposited with Lender, or its assigns, in
connection herewith, including, without limitation, the Security Deposit
Account (to the extent permitted by law), the Engineering Escrow Account, the
Central Account, the Sub-Accounts and the Escrow Accounts and all monies and
investments deposited or to be deposited in such accounts;

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

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

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

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

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

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

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

 5
 

 

action or proceeding to
protect the interest of Lender in the Premises, the Improvements, the Fixtures
or the Equipment;

(p)           all
rights, remedies and powers of Borrower under the Condominium Documents
(hereinafter defined) including, without limitation, any right to appoint
members to the Condominium Board (hereinafter defined) and the right to
exercise any voting rights thereunder;

(q)           the
Ground Lease and the leasehold estate created thereby, together with all
modifications, extensions and renewals of the Ground Lease and all credits,
deposits, options, privileges and rights of Borrower as tenant under the Ground
Lease including, without limitation, the right to renew or extend the Ground
Lease for a succeeding term or terms to the extent set forth therein;

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

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

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

II.            The liens of the
Existing Mortgages as so spread, are hereby consolidated and coordinated so
that together they shall hereafter constitute in law but one mortgage, a single
lien, covering the Property and securing a sum equal to the Loan Amount,
together with interest thereon, prepayment premium (if any), and all other sums
due hereunder (the Existing Mortgages, as so spread, consolidated and
coordinated and as modified, amended, restated, ratified and confirmed pursuant
to the provisions of this Agreement being hereinafter collectively referred to
as the “Security Instrument”).

III.           The Existing Notes and
the respective debts evidenced thereby were combined and coordinated to
constitute one joint indebtedness in the principal sum of the Loan Amount
together with interest thereon by that certain amended, restated and
consolidated promissory note dated the date hereof given by Borrower to Lender
in the original principal amount of the Loan Amount (the Existing Notes, as so
combined and coordinated and as modified and amended pursuant to the provisions
of said amended, restated and consolidated promissory note being hereafter
collectively referred to as the “Consolidated Note”), which Consolidated
Note was then split into separate notes in the aggregate principal amount of
the Consolidated Note, one of which notes (“Note A-1”) evidences a
portion of the Loan (“Loan A-1”) in the original principal amount of
$108,500,000 and one of which notes (“Note A-2”) evidences a portion of
the Loan (“Loan A-2”) in the original principal amount of $108,500,000 (“Note
A-2”, together with Note A-1, collectively, the “Note”).

 6
 

 

IV.           To the extent that
Borrower makes a payment or Lender receives any payment or proceeds for
Borrower’s benefit, which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such extent, the
obligations of Borrower hereunder intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.

V.            If any payment under
the Note, the Mortgage or any other Loan Document is not paid when due,
Borrower shall thereafter pay interest on the Debt from the date such payment
was due until the date such payment is made at the Default Rate.

VI.           Any privileges in the
Existing Mortgages or Existing Notes to prepay the Debt, in whole or in part,
except as may be provided hereinafter, are hereby terminated with the same
force and effect as if they had never been granted.

VII.          Borrower waives
presentment and demand for payment, notice of dishonor, protest and notice of
protest of the Note.

VIII.        Borrower shall promptly
cause this Agreement 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 and fully to protect the lien of the Mortgage upon, and the interest of
Lender in, the Property.  Borrower will
pay all filing, registration and recording fees, and all expenses incident to
the preparation, execution and acknowledgment of this Agreement, and all
Federal, state, county and municipal taxes, duties, imposts, assessments and
charges arising out of or in connection with the filing, registration,
recording, execution and delivery of this Agreement and Borrower shall hold
harmless and indemnify Lender against any liability incurred by reason of the
imposition of any tax on the issuance, making, filing, registration or
recording of this Agreement.

IX.           Borrower represents,
warrants and covenants to Lender that there are no offsets, counterclaims or
defenses against the Debt, this Agreement, the Security Instrument (including
each of the Existing Mortgages) or the Note (including each of the Existing
Notes) and that Borrower (and the undersigned representative of Borrower, if
any) has full power, authority and legal right to execute this Agreement and to
keep and observe all of the terms of this Agreement on Borrower’s part to be
observed or performed.

X.            This Agreement may not
be modified, amended, changed or terminated orally, but only by an agreement in
writing signed by the party against whom the enforcement of any modification,
amendment, change or termination is sought.

XI.           This Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns.

XII.         This Agreement may be
executed in any number of duplicate originals and each such duplicate original
shall be deemed to constitute but one and the same instrument.

 7
 

 

XIII.        If any term, covenant or
condition of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be construed without such
provision.

XIV.        This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
and the applicable laws of the United States of America.

XV.         Borrower hereby binds
itself, and Borrower’s successors and assigns, to warrant and forever defend
the title to the Property.

XVI.        The terms, covenants and
provisions of the Existing Mortgages as herein modified, amended and restated
are hereby modified, ratified and confirmed in all respects by Borrower and the
terms, covenants and provisions of the Existing Mortgages are hereby modified,
amended and restated so that henceforth, the terms, covenants and provisions of
this Agreement shall supersede the terms, covenants and provisions of the
Existing Mortgages and the terms, covenants and provisions of the Existing
Mortgages shall read the same as the following text:

AND Borrower covenants with and warrants to Lender
that:

ARTICLE I: 
DEFINITIONS

Section
1.01.  Certain Definitions.

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

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

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

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

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

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

“Adjusted Net Cash Flow”
shall mean, as of any date of calculation, the Net Operating Income over the twelve (12)-month
period preceding the date of calculation adjusted to reflect (a) an
annual replacement
reserve for furniture, fixtures and equipment of 4% of gross revenues
during such preceding twelve (12) month period and (b) scheduled increases in
real estate taxes over the subsequent twelve (12) month period resulting from,
among other things, increases in tax rates or the assessed value of the
Property and/or the expiration of any applicable tax

 8
 

 

abatements.  The Adjusted Net Cash
Flow shall be calculated by Borrower and shall be subject to the reasonable
review and approval of Lender.

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

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

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

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

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

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

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

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

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

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

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

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

“Basic Carrying Costs
Monthly Installment” shall mean Lender’s estimate of one-twelfth (1/12th)
of the annual amount for Basic Carrying Costs or with respect to insurance
premiums financed in accordance with the terms of this Security Instrument an
amount equal to the next

 9
 

 

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

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

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

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

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

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

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

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

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

 10
 

 

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

“Condominium Board”
shall have the meaning set forth in Section 3.02(e) hereof.

“Condominium Documents”
shall have the meaning set forth in Section 3.02(e) hereof.

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

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

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

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

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

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

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

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

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

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

 11
 

 

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

“Debt Service Coverage”
shall mean the quotient obtained by dividing Adjusted Net Cash Flow by the sum
of the (a) aggregate payments of interest, principal and all other sums due for
such specified period under the Note (determined as of the date the calculation
of Debt Service Coverage is required or requested hereunder) and (b) aggregate
payments of interest, principal and all other sums due for such specified
period pursuant to the terms of subordinate or mezzanine financing, if any, then
affecting or related to the Property or, if Debt Service Coverage is being
calculated in connection with a request for consent to any subordinate or
mezzanine financing, then proposed.  In
determining Debt Service Coverage, the applicable interest rate for the Loan
and for any floating rate loan referred to in clause (b) above, if any, shall
be the LIBOR Margin, with respect to the Loan, and the applicable margin over
the applicable index, with respect to any other loan referred to in clause (b)
above, plus, in each case, 7.0% with respect to the Loan and the applicable
strike price set forth in any rate cap or similar agreement applicable to any
other loan referred to in clause (b) above with respect to such loan.

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

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

“Default Rate” shall
mean the lesser of (a) the highest rate allowable at law and (b) five percent
(5%) above the interest rate set forth in the Note.

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

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

“Disclosure Document” shall mean a prospectus,
prospectus supplement, private placement memorandum, or similar offering
memorandum or offering circular, in each case in preliminary or final form,
used to offer securities in connection with a Securitization.

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

“Eligible Account”
shall mean a segregated account which is either (a) an account or accounts
maintained with a federal or state chartered depository institution or trust
company the long term unsecured debt obligations of which are rated by each of
the Rating Agencies (or, if not rated by Fitch, Inc. (“Fitch”),
otherwise acceptable to Fitch, as confirmed in writing that such

 12
 

 

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

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

“Environmental Problem”
shall mean any of the following:

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

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

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

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

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

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

 13
 

 

“Environmental Statute”
shall mean any federal, state or local statute, ordinance, rule or regulation,
any judicial or administrative order (whether or not on consent) or judgment
applicable to Borrower or the Property including, without limitation, any
judgment or settlement based on common law theories, and any provisions or condition
of any permit, license or other authorization binding on Borrower relating to
(a) the protection of the environment, the safety and health of persons
(including employees) or the public welfare from actual or potential exposure
(or effects of exposure) to any actual or potential release, discharge,
disposal or emission (whether past or present) of any Hazardous Materials or
(b) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Materials, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (“CERCLA”), as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. §9601 et  seq., the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42
U.S.C. §6901 et  seq., the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 U.S.C. §1251 et  seq.,
the Toxic Substances Control Act of 1976, 15 U.S.C. §2601 et  seq.,
the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §1101
et  seq., the Clean Air Act of 1966, as amended, 42 U.S.C. §7401 et
seq., the National Environmental Policy Act of 1975, 42 U.S.C. §4321,
the Rivers and Harbors Act of 1899, 33 U.S.C. §401 et  seq., the
Endangered Species Act of 1973, as amended, 16 U.S.C. §1531 et  seq.,
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651 et
seq., and the Safe Drinking Water Act of 1974, as amended, 42 U.S.C.
§300(f) et  seq., and all rules, regulations and guidance
documents promulgated or published thereunder.

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

“ERISA” shall mean
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated thereunder.  Section references to ERISA are to ERISA, as
in effect at the date of this Security Instrument and, as of the relevant date,
any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.

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

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

 14
 

 

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

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

“Fee Mortgage” 
shall mean any mortgage, deed of trust, deed to secure debt or indenture
of mortgage or deed of trust now or hereafter placed upon the fee title to the
Premises covered by the Ground Lease.

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

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

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

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

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

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

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

 15
 

 

“Ground Lease” 
shall mean the lease or leases of, or other interest in, the Leasehold
Premises more particularly described on Exhibit F
hereto, together with all exhibits and renewals, modifications and extensions
thereto.

“Ground Lessor” shall mean the Person which
holds the interest of lessor under the Ground Lease.

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

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

“Hudson Hotel”
shall mean that certain hotel property located at 356 West 58th Street, New York, New York.

“Impositions” shall
mean all taxes (including, without limitation, all real estate, ad valorem,
assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not commenced or completed within the term of this
Security Instrument), ground rents, condominium common charges, excises,
levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Property and/or any Rent
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Borrower (including, without limitation, all
franchise, single business or other taxes imposed on Borrower for the privilege
of doing business in the jurisdiction in which the Property or any other
collateral delivered or pledged to Lender in connection with the Loan is
located) or Lender or (b) the Property or any part thereof or any Rents
therefrom or any estate, right, title or interest therein.  Impositions shall not include any
taxes imposed on Lender’s income and franchise taxes imposed on Lender by the
law or regulation of any Governmental Authority.

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

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

“Independent” shall
mean, when used with respect to any Person, a Person who (a) is in fact
independent, (b) does not have any direct financial interest or any material
indirect financial interest in Borrower, or in any Affiliate of Borrower or any
constituent partner, shareholder, member or beneficiary of Borrower, (c) is not
connected with Borrower or any Affiliate of Borrower or any constituent
partner, shareholder, member or beneficiary of Borrower as an

 16
 

 

officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions
and (d) is not a member of the immediate family of a Person defined in (b) or
(c) above.  Whenever it is herein
provided that any Independent Person’s opinion or certificate shall be
provided, such opinion or certificate shall state that the Person executing the
same has read this definition and is Independent within the meaning hereof.

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

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

“Institutional Lender”
shall mean any of the following Persons: 
(a) any bank, savings and loan association, savings institution,
trust company or national banking association, acting for its own account or in
a fiduciary capacity, (b) any charitable foundation, (c) any
insurance company or pension and/or annuity company, (d) any fraternal
benefit society, (e) any pension, retirement or profit sharing trust or
fund within the meaning of Title I of ERISA or for which any bank, trust
company, national banking association or investment adviser registered under
the Investment Advisers Act of 1940, as amended, is acting as trustee or agent,
(f) any investment company or business development company, as defined in
the Investment Company Act of 1940, as amended, (g) any small business
investment company licensed under the Small Business Investment Act of 1958, as
amended, (h) any broker or dealer registered under the Securities Exchange
Act of 1934, as amended, or any investment adviser registered under the
Investment Adviser Act of 1940, as amended, (i) any government, any public
employees’ pension or retirement system, or any other government agency
supervising the investment of public funds, or (j) any other entity all of
the equity owners of which are Institutional Lenders; provided that each of
said Persons shall have net assets in excess of $1,000,000,000 and a net worth
in excess of $500,000,000, be in the business of making commercial mortgage
loans, secured by properties of like type, size and value as the Property and
have a long term credit rating which is not less than “BBB-” (or its
equivalent) from each Rating Agency.

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

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

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

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

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

 17
 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

 18
 

 

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

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

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

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

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

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

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

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

“Mez Loan” shall mean that certain loan in the
original principal sum of $32,500,000 of even date herewith made by Wachovia
Bank, National Association to the owner of one hundred percent (100%) of the
direct or indirect equity interests in Borrower which is secured by a pledge of
such equity interest.

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

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

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

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

 19

 

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

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

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

“New Lease” shall
have the meaning set forth in Section 2.05 hereof.

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

“O&M
Operative Period” shall mean the period of time commencing upon the
determination by Lender, which determination shall be made in Lender’s
reasonable discretion, that the Debt Service Coverage (tested quarterly except
during the continuance of an O&M Operative Period, in which event the Debt
Service Coverage shall be tested monthly and shall be calculated based upon
information contained in the reports furnished to Lender pursuant to Section
2.09 hereof) is less than 1.05:1.00 and terminating on the Payment Date next
succeeding the date upon which Lender reasonably determines that the Debt
Service Coverage for two (2) consecutive calendar quarters is 1.05:1.00 or
greater.

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

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

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

“Operating
Expenses” shall mean, in each Fiscal Year or portion thereof during the
term hereof, all expenses directly attributable to the operation, repair and/or
maintenance of the Property including, without limitation, (a) Impositions, (b)
insurance premiums, (c) management fees, whether or not actually paid, equal to
the greater of the actual management fees and four percent (4%) of total
revenues of the Property, (d)
costs attributable to the operation, repair and maintenance of the systems for
heating, ventilating and air conditioning the Improvements and

 20
 

 

actually
paid for by Borrower, and (e) with respect to the bar premises at the
Hudson Hotel only, consulting fees which are to be paid to third party
consultants that are not Affiliates of Borrower, any SPE Pledgor, Manager or
Guarantor and are employed by Manager, 58th Street Bar Company LLC and which are actually
paid over to such consultants.  Operating Expenses shall not include
interest, principal and premium, if any, or any other amount due under the Note
or otherwise in connection with the Debt, income taxes, extraordinary capital
improvement costs, any non-cash charge or expense such as depreciation or
amortization or any item of expense otherwise includable in Operating Expenses
which is paid directly by any tenant except real estate taxes paid directly to
any taxing authority by any tenant.

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

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

“Operation
and Maintenance Expense Sub-Account” shall mean the Sub-Account of the
Central Account established pursuant to Section 5.02 hereof into which sums
allocated for the

 21
 

 

payment
of Cash Expenses, Net Capital Expenditures and approved Extraordinary Expenses
shall be deposited.

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

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

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

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

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

“Permitted Liens”
shall mean:

(a)           the liens created by
the Loan Documents;

(b)           liens, if any, for Impositions
or other charges not yet due and payable and not delinquent, or that are being
contested in accordance with the terms of this Security Instrument;

(c)           liens which arise by operation of law (including statutory liens of
landlords), judgment liens and materialmen’s, mechanics’, carriers’, workmen’s
and repairmen’s liens and other similar liens securing obligations that are not
overdue for more than thirty (30) days (and if overdue by more than thirty (30)
days, that are being contested in good faith and as to which appropriate
reserves are being maintained) or that have been fully-bonded, paid or with
respect to which enforcement action has been stayed, all in accordance with the
terms of this Security Instrument;

(d)           liens, pledges or deposits to secure obligations under workmen’s
compensation, unemployment insurance, social security laws or similar
legislation or to secure public or statutory obligations of Borrower;

(e)           purchase money liens, including the lessor’s interest in respect of any
property subject to a capital lease, upon or in property acquired or held by
Borrower in the ordinary course of business to secure the purchase price of
such property or to secure indebtedness incurred solely for the purpose of
financing the acquisition of any such property to be subject to such liens, or
liens existing on any such property at the time of acquisition, or extensions,
renewals or replacements of any of the foregoing for the same or lesser amount;
provided, however, that no such lien shall extend to any property
other than the property being acquired, and no such extension, renewal or
replacement shall extend to or cover property not theretofore subject to the
lien being extended, renewed or replaced, all subject to the limitations set
forth in Section 2.02(g) of this Security Instrument;

 22
 

 

(f)            Permitted Encumbrances
and such other title and survey exceptions as Lender approves in writing in
Lender’s discretion;

(g)           the liens of any Mez
Loan; and

(h)           Space Leases existing
as of the date hereof or hereafter entered into in accordance with the terms
hereof.

“Permitted Transferee”
shall mean any of the following Persons:

(a)           a pension fund, pension
trust or pension account that immediately prior to such transfer owns, directly
or indirectly, total gross real estate assets of at least $1,000,000,000;

(b)           a pension fund advisor
who (i) immediately prior to such transfer, Controls, directly or indirectly,
at least $1,000,000,000 of total gross real estate assets and (ii) is acting on
behalf of one or more pension funds that, in the aggregate, satisfy the
requirements of clause (a) of this definition;

(c)           an insurance company
which is subject to supervision by the insurance commissioner, or a similar
official or agency, of a state or territory of the United States (including the
District of Columbia) (i) with a net worth, determined as of a date no more
than six (6) months prior to the date of the transfer of at least $500,000,000
and (ii) which, immediately prior to such transfer, controls, directly or
indirectly, total gross real estate assets of at least $1,000,000,000;

(d)           a corporation organized
under the banking laws of the United States or any state or territory of the
United States (including the District of Columbia) (i) with, immediately prior
to such transfer, a combined capital and surplus of at least $500,000,000 and
(ii) which, immediately prior to such transfer, controls, directly or
indirectly total gross real estate assets of at least $1,000,000,000;

(e)           any Person who (i) owns
or operates at least five (5) full service luxury or full service upscale
properties totaling no less than 1,500 hotel rooms (exclusive of the Property),
(ii) has a net worth, determined as of a date no more than six (6) months prior
to the date of such transfer, of at least $500,000,000 and (iii) immediately
prior to such transfer, Controls, directly or indirectly, total gross real
estate assets of at least $1,000,000,000, provided such Person is reasonably
acceptable to Lender based upon, among other things, its credit history and
general reputation; or

(f)            any Person in which
more than fifty percent (50%) of the ownership interests are owned directly or
indirectly by any of the entities listed in subsections (a) through (e) of this
definition of “Permitted Transferee”, or any combination of more than one such
entity, and which is controlled directly or indirectly by such entity or
entities;

in each event with
respect to which Lender shall have received information satisfactory to it
confirming that neither the proposed Permitted Transferee nor any Affiliate of
the proposed

 23
 

 

Permitted Transferee (A)
is on the OFAC List or would, if such Person assumes the Loan or obtains an
interest in Borrower, cause Lender to be in violation of Legal Requirements or
(B) has been, within the seven (7) years prior to the proposed Transfer, the
subject of any bankruptcy, reorganization or insolvency proceeding.

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

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

“Premises” shall
have the meaning set forth in the first “Whereas” clause of this Security
Instrument.

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

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

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

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

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

“Qualified
Transferee” shall have the meaning set forth in the form intercreditor
agreement attached as Appendix VI to the U.S. CMBS Legal and Structured Finance
Criteria published by Standard and Poor’s dated May 1, 2003.

 24
 

 

“Rate
Cap Agreement” shall mean that certain interest rate protection agreement
(together with the confirmation and schedules relating thereto) with a notional
amount which shall not at any time be less than the Principal Amount and a
LIBOR Rate strike price equal to seven percent (7.0%) per annum entered into by
Borrower in accordance with the terms hereof or of the other Loan Documents and
any similar interest rate cap or collar agreements subsequently entered into in
replacement or substitution therefor by Borrower with respect to the Loan.

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

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

“Recurring
Replacement Expenditures” shall mean Capital Expenditures for furniture,
Fixtures and Equipment to be located at the Property from time to time, as
determined in accordance with GAAP, which are set forth in the Approved Annual
Budget.

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

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

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

“Regulation AB”
shall mean Regulation AB under the Securities Act and the Securities Exchange
Act of 1934 (as amended).

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

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

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

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

 25
 

 

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

“Required
Work” shall mean the work set forth on Exhibit D attached
hereto and made a part hereof.

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

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

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

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

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

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

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

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

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

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

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

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

 26
 

 

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

“Significant Obligor”
shall have the meaning set forth in Item 1101(k) of Regulation AB.

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

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

“Space
Leases” shall mean any Lease or sublease thereunder (including, without
limitation, any Major Space Lease) or any other agreement providing for the use
and occupancy of a portion of the Property together with any supplements,
renewals, amendments, modifications or extensions thereof.

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

“Spread
Maintenance Premium” shall mean (a) the amount of the prepayment,
multiplied by (b) the LIBOR Margin multiplied by (c) a fraction, the numerator
of which is the number of full and partial months from such prepayment date
through the end of the first (1st) Loan Year and the denominator of which is
12.

 27
 

 

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

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

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

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

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

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

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

“Transfer”
shall mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging,
hypothecation, granting of a security interest in, granting of options with
respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration or of record) all or any portion of any legal or beneficial
interest (a) in all or any portion of the Property; (b) if Borrower is a
corporation or, if Borrower is a partnership and any General Partner is a
corporation, in the stock of Borrower or any General Partner; (c) in Borrower (or
any trust of which Borrower is a trustee); or (d) if Borrower is a limited or
general partnership, joint venture, limited liability company, trust, nominee
trust, tenancy in common or other unincorporated form of business association
or form of ownership interest, in any Person having a legal or beneficial
ownership in Borrower, excluding any legal or beneficial interest in any
constituent limited partner, if Borrower is a limited partnership, or in any
non-managing member, if Borrower is a limited liability company, unless such
interest would, or together with all other direct or indirect interests in
Borrower which were previously transferred, aggregate 49% or more of the
partnership or membership, as applicable, interest in Borrower or would result
in any Person who, as of the Closing Date, did

 28
 

 

not
own, directly or indirectly, 49% or more of the partnership or membership, as
applicable, interest in Borrower, owning, directly or indirectly, 49% or more
of the partnership or membership, as applicable, interest in Borrower and
excluding any legal or beneficial interest in any General Partner unless such
interest would, or together with all other direct or indirect interest in the
General Partner which were previously transferred, aggregate 49% or more of the
partnership or membership, as applicable, interest in the General Partner (or
result in a change in control of the management of the General Partner from the
individuals exercising such control immediately prior to the conveyance or
other disposition of such legal or beneficial interest) and shall also include,
without limitation to the foregoing, the following:  an installment sales agreement wherein
Borrower agrees to sell the Property or any part thereof or any interest
therein for a price to be paid in installments; an agreement by Borrower
leasing all or substantially all of the Property to one or more Persons
pursuant to a single or related transactions, or a sale, assignment or other
transfer of, or the grant of a security interest in, Borrower’s right, title
and interest in and to any Leases or any Rent; any instrument subjecting the
Property to a condominium regime or transferring ownership to a cooperative
corporation; and the dissolution or termination of Borrower or the merger or
consolidation of Borrower with any other Person.  Notwithstanding the foregoing or
anything to the contrary contained in any other Loan Document, “Transfer” shall
not include (a) transfers of publicly traded stock on a national stock exchange
or on the NASDAQ Stock Market in
the normal course of business and not in connection with a tender offer or a
sale of Morgans Hotel Group Co. or substantially all of the assets of such
Person or (b) pledges (but not the transfer of any direct or indirect interest
in Borrower in connection with the realization of such pledged interests) of
direct or indirect interests in the borrower under the Mez Loan to Qualified
Transferees in connection with a financing secured by pledges of direct or
indirect interests in all or substantially all of the assets of Morgans Group
LLC, provided that the Net Operating Income at the time of the origination of
the financing constitutes ten percent (10%) or less of the net operating income
of the assets with respect to which the pledged interests which secure such
debt relate or (c) the Mez Loan or (d) any Transfer which does not result in
(i) a change of Control of Borrower (it being acknowledged that any holder of
more than forty percent of the direct or indirect interest in Borrower may have
veto rights over major decisions which are customary in joint venture
agreements between two fifty percent owners of a Person and the same shall not
constitute a change of Control) or (ii) a Transfer of more than 49% of any
direct or indirect interest in Borrower. 
Nothing contained herein or in any other Loan Document shall be
construed to prohibit (i) the acquisition by any Affiliate of Borrower of all
or any portion of the interests in Hudson Leaseco LLC, or (ii) the acquisition
by Borrower or any Affiliate of Borrower of the leasehold interest currently
held by Hudson Leaseco LLC in respect of the Property.

“UCC”
shall mean the Uniform Commercial Code as in effect on the date hereof in the
State in which the Realty is located; provided, however, that if by reason of
mandatory provisions of law, the perfection or the effect of perfection or
non-perfection or priority of the security interest in any item or portion of
the collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State in which the Realty is located (“Other UCC
State”), “UCC” means the Uniform Commercial Code as in effect in
such Other UCC State for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection or priority.

 29
 

 

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

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

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

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

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

ARTICLE II:  REPRESENTATIONS, WARRANTIES 

AND COVENANTS OF BORROWER

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

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

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

(b)           Power.  Borrower and, if applicable,
each General Partner has full power and authority to execute, deliver and
perform, as applicable, the Loan Documents to which it is a party, to receive
the borrowings thereunder, to execute and deliver the Note and to grant to

 30
 

 

Lender a first priority, perfected and continuing lien on and security
interest in the Property, subject only to the Permitted Encumbrances.

(c)           Authorization of Borrowing.  The
execution, delivery and performance of the Loan Documents to which Borrower is
a party, the making of the borrowings thereunder, the execution and delivery of
the Note, the grant of the liens on the Property pursuant to the Loan Documents
to which Borrower is a party and the consummation of the Loan are within the
powers of Borrower and have been duly authorized by Borrower and, if
applicable, the General Partners, by all requisite action (and Borrower hereby
represents that no approval or action of any member, limited partner or
shareholder, as applicable, of Borrower, which has not been received or taken,
is required to authorize any of the Loan Documents to which Borrower is a
party) and will constitute the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with their terms, except as
enforcement may be stayed or limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity (whether considered in proceedings at law or in equity)
and will not (i) violate any provision of its partnership agreement or
partnership certificate or certificate of incorporation or by-laws, or
operating agreement, certificate of formation or articles of organization, as
applicable, or, to its knowledge, any law, judgment, order, rule or regulation
of any court, arbitration panel or other Governmental Authority, domestic or
foreign, or other Person affecting or binding upon Borrower or the Property, or
(ii) violate any provision of any indenture, agreement, mortgage, deed of
trust, contract or other instrument to which Borrower or, if applicable, any
General Partner is a party or by which any of their respective property, assets
or revenues are bound, or be in conflict with, result in an acceleration of any
obligation or a breach of or constitute (with notice or lapse of time or both)
a default or require any payment or prepayment under, any such indenture,
agreement, mortgage, deed of trust, contract or other instrument, or (iii)
result in the creation or imposition of any lien, except those in favor of
Lender as provided in the Loan Documents to which it is a party.

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

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

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

 31
 

 

Borrower or the Property, except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect.

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

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

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

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

(v)           Borrower, SPE Pledgor and, if applicable,
each General Partner, have at all times paid, and will continue to pay, their
own liabilities from their own separate

 32
 

 

assets
and each has allocated and charged and each shall allocate and charge fairly
and reasonably any overhead which Borrower, SPE Pledgor and, if applicable, any
General Partner, shares with any other Person, including, without limitation,
for office space and services performed by any employee of another Person.

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

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

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

 33
 

 

have
not made and will not make any loans or advances to any Person (including any
Affiliate).

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

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

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

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

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

 34
 

 

(xiv)        None of Borrower, SPE Pledgor nor, if
applicable, General Partner, has at any time since their formation entered into
and are not a party to, and, will not enter into or be a party to, any
transaction with its Affiliates, members, partners or shareholders, as
applicable, or any Affiliates thereof except in the ordinary course of business
of Borrower or SPE Pledgor, as applicable, on terms which are substantially
similar to those which Borrower or SPE Pledgor, as applicable, would obtain in
a comparable arm’s length transaction with an unrelated third party.

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

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

(xvii)       Borrower, SPE Pledgor and, if applicable,
each General Partner, shall not cause or permit the board of directors or board
of managers or other governing board or body, as applicable, of Borrower, SPE
Pledgor or, if applicable, each General Partner, to take any action which,
under the terms of any certificate of incorporation, by-laws, certificate of
formation, operating agreement or articles of organization with respect to any
common stock, requires a vote of the board of directors of Borrower or SPE
Pledgor,

 35
 

 

or,
if applicable, the General Partner, unless at the time of such action there
shall be at least two (2) members, with respect to Borrower, and at least one
(1) member, with respect to SPE Pledgor, who is or are Independent Director(s).

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

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

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

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

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

(j)            Investment Company Act Status, etc. 
Borrower is not (i) an “investment company,” or a company “controlled”
by an “investment company,” as such terms are defined in the Investment Company
Act of 1940, as amended, (ii) a “holding company” or a “subsidiary

 36
 

 

company” of a “holding company” or an “affiliate” of either a “holding
company” or a “subsidiary company” within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or (iii) subject to any other federal
or state law or regulation which purports to restrict or regulate its ability
to borrow money.

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

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

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

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

(o)           Pending Litigation. 
There are no actions, suits or proceedings pending or, to the best
knowledge of Borrower, threatened against or affecting Borrower or the Property
in any

 37
 

 

court or before any Governmental Authority which if adversely
determined either individually or collectively has or is reasonably likely to
have a Material Adverse Effect.

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

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

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

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

(t)            ERISA.  (i) The
assets of Borrower and Guarantor are not and will not become treated as “plan
assets”, whether by operation of law or under regulations promulgated under
ERISA.  If any Person having a
legal or beneficial ownership interest in Borrower is using (or is deemed under
ERISA to be using) “plan assets”, Borrower will qualify as a “real estate
operating company” within the meaning of 29 C.F.R. §2510.3-101(e) at all times
that the Loan is outstanding.  Each Plan and Welfare Plan, and, to the
knowledge of Borrower, each Multiemployer Plan, is in compliance in all
material respects with, and has been administered in all material respects in
compliance with, its terms and the applicable provisions of ERISA, the Code and
any other applicable Legal Requirement, and no event or condition has occurred
and is

 38
 

 

continuing as to which Borrower would be under an obligation to furnish
a report to Lender under clause (ii)(A) of this Section.  Other than an application for a favorable
determination letter with respect to a Plan, there are no pending issues or
claims before the Internal Revenue Service, the United States Department of
Labor or any court of competent jurisdiction related to any Plan or Welfare
Plan under which Borrower, Guarantor or any ERISA Affiliate, directly or
indirectly (through an indemnification agreement or otherwise), could be
subject to any material risk of liability under Section 409 or 502(i) of ERISA
or Section 4975 of the Code.  No Welfare
Plan, other than a Multiemployer Plan, provides or will provide benefits,
including, without limitation, death or medical benefits (whether or not
insured) with respect to any current or former employee of Borrower, Guarantor
or any ERISA Affiliate beyond his or her retirement or other termination of
service other than (A) coverage mandated by applicable law, (B) death or
disability benefits that have been fully provided for by fully paid up
insurance or (C) severance benefits.

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

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

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

(C)           the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by Borrower or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been taken by PBGC with respect
to such Multiemployer Plan;

 39

 

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

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

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

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

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

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

 40
 

 

by
applicable law) or increase the amount of any benefit or amount payable under,
any employee benefit plan (including, without limitation, any employee welfare
benefit plan that is not a Multiemployer Plan) or other plan, policy or
arrangement, except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits expense to Borrower, Guarantor or any ERISA Affiliate.

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

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

(w)          Compliance with Anti-Terrorism, Embargo and
Anti-Money Laundering Laws.   (i) None of Borrower, SPE Pledgor, General
Partner, any Guarantor, or any Person who owns any equity interest in or
Controls Borrower, SPE Pledgor, General Partner or any Guarantor currently is
identified on the OFAC List or otherwise qualifies as a Prohibited Person, and
Borrower and SPE Pledgor have implemented procedures, approved by Borrower and,
if applicable, General Partner, to ensure that no Person who now or hereafter
owns an equity interest in Borrower, SPE Pledgor or General Partner is a
Prohibited Person or Controlled by a Prohibited Person, (ii) no proceeds of the
Loan will be used to fund any operations in, finance any investments or
activities in or make any payments to, Prohibited Persons, and (iii) none of
Borrower, SPE Pledgor, General Partner, or any Guarantor are in violation of
any Legal Requirements relating to anti-money laundering or anti-terrorism,
including, without limitation, Legal Requirements related to transacting
business with Prohibited Persons or the requirements of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related
regulations issued

 41
 

 

thereunder, including temporary regulations, all as amended from time
to time.  No tenant under a Space Lease
at the Property currently is identified on the OFAC List or otherwise qualifies
as a Prohibited Person, and, to the best of Borrower’s knowledge, no tenant at
the Property is owned or Controlled by a Prohibited Person.  Borrower has determined that Manager has
implemented procedures, approved by Borrower, to ensure that no tenant under a
Space Lease at the Property is a Prohibited Person or owned or Controlled by a
Prohibited Person.

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

Section 2.04.  Recording of Security Instrument, etc.  Borrower forthwith upon the execution and
delivery of this Security Instrument and thereafter, from time to time, will
cause this Security Instrument, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully protect the lien or security interest
hereof upon,

 42
 

 

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

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

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

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

(c)           Taxes and Impositions.  All
taxes and other Impositions and governmental assessments due and payable in
respect of, and affecting, the Property have been paid to the extent due and
payable as of the date hereof.  Borrower
has paid all Impositions which constitute

 43
 

 

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

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

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

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

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

 44
 

 

any notice from any Governmental Authority alleging any uncured
violation relating to the Property of any applicable Legal Requirements.

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

(i)            Intentionally Omitted.

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

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

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

(m)          Intentionally Omitted.

 45
 

 

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

(o)           Space Leases.

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

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

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

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

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

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

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

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

 46
 

 

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

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

(p)           Property Agreements.

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

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

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

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

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

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

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

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

 47
 

 

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

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

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

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

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

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

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

(x)            Ground Leases.

(i)            Borrower
is authorized to assign its interest in any condemnation award which Borrower
is entitled to receive pursuant to the Ground Lease.

 48
 

 

(ii)           Borrower
has the right to sublease or otherwise encumber, without restriction, all or
any part of the Leasehold Premises and encumber the Ground Lease and the
leasehold estate created thereby without the consent of Ground Lessor.

(iii)          if
any default by Borrower shall occur under the Ground Lease, Lender is entitled
under the Ground Lease to receive notice of such default contemporaneously with
any notice of default which is given to Borrower from Ground Lessor and an
additional opportunity to cure any such default which is susceptible of cure by
Lender, which in the case of any non-monetary default susceptible of cure by
Lender, includes the right of Lender or its designee to acquire possession of
the Leasehold Premises by means of foreclosure of this Security Instrument or
by other means and to become the lessee under the Ground Lease.  So long as Lender has agreed to effectuate a
cure and is proceeding to cure any such non-monetary default within applicable
notice and grace periods and no monetary default remains uncured beyond any
applicable notice and grace periods to which Borrower and Lender are entitled,
Ground Lessor may not terminate the Ground Lease.

(iv)          The Ground
Lease is in full force and effect and has not been modified or supplemented.  Other than in connection with an event of
default thereunder, the Ground Lease cannot be cancelled solely by Ground
Lessor and requires Borrower’s consent for all modifications.

(v)           All rents
(including additional rents and other charges) reserved for in the Ground Lease
and payable prior to the date hereof have been paid.

(vi)          No party
to the Ground Lease is in default of any obligation such party has thereunder
and no event has occurred which, with the giving of notice or the lapse of
time, or both, would constitute such a default thereunder.

(vii)         No
notice or other written or oral communication has been provided to any party
under the Ground Lease which alleges that, as of the date hereof, either a
default exists or with the passage of time will exist under the provisions of
such Ground Lease.

(viii)        If
there shall be a Taking of the fee title to the Leasehold Premises, subject to
amounts which are applied to restoration, Borrower is entitled under the Ground
Lease to receive such portion of the award for such Taking as equals the value
of Borrower’s estate under the Ground Lease and improvements made by
Borrower.  If there shall be a casualty
under a Ground Lease, either there is an obligation to use insurance proceeds
for a full restoration or Borrower is entitled to receive such portion of such
proceeds as equals the value of the Improvements.

(ix)           The
Ground Lease may be assigned from time to time without the consent of Ground
Lessor.

(x)            Provided
that no monetary default remains uncured beyond any applicable notice and grace
periods to which Borrower and Lender are entitled, the Ground Lease

 49
 

 

may not be terminated by Ground Lessor by reason of any default by
Borrower which is not susceptible of cure by Lender.

(xi)           If the
Ground Lease is terminated by reason of a default by Borrower, Lender or its
designee is entitled under the Ground Lease to enter into a new lease (the “New
Lease”) with Ground Lessor for the remainder of the term of the Ground
Lease upon the same base rent and additional rent and other terms, covenants,
conditions and agreements as are contained in the Ground Lease.

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

(b)           Without limitation to the provisions of Section 2.06(a) hereof,
Borrower shall (i) unless being contested in good faith by appropriate
proceedings in accordance with Section 2.06(c) hereof, pay, from time to time
when the same shall become due, all claims and demands of mechanics,
materialmen, laborers, and others which, if unpaid, might result in, or permit
the creation of, a lien on the Property or any part thereof, (ii) cause to be
removed of record (by payment or posting of bond or settlement or otherwise)
any mechanics’, materialmens’, laborers’ or other lien on the Property, or any
part thereof, or on the revenues, rents, issues, income or profit arising
therefrom, and (iii) in general, do or cause to be done, without expense to
Lender, everything reasonably necessary to preserve in full the lien of this
Security Instrument.  If Borrower fails
to comply with the requirements of this Section 2.06(b), then, upon five (5)
Business Days’ prior notice to Borrower, Lender may, but shall not be obligated
to, pay any such lien, and Borrower shall, within five (5) Business Days after
Lender’s demand therefor, reimburse Lender for all sums so expended, together
with interest thereon at the Default Rate from the date advanced, all of which
shall be deemed part of the Debt. 
Nothing contained herein shall be deemed a consent or request of Lender,
express or implied, by inference or otherwise, to the performance of any
alteration, repair or other work by any contractor, subcontractor or laborer or
the furnishing of any materials by any materialmen in connection therewith.

(c)           Notwithstanding the foregoing, Borrower may contest any lien (other
than a lien relating to non-payment of Impositions, the contest of which shall
be governed by Section 4.04 hereof) of the type set forth in subparagraph
(b)(ii) of this Section 2.06 provided that, following prior notice to Lender
(i) Borrower is contesting the validity of such lien with due diligence and in
good faith and by appropriate proceedings, without cost or expense to Lender or
any of its agents, employees, officers, or directors, (ii) Borrower shall
preclude the collection of, or other realization upon, any contested amount
from the Property or any revenues from or interest in the Property, (iii)
neither the Property nor any part thereof nor interest therein, shall be in any
danger of being sold, forfeited or lost by reason of such contest by Borrower, (iv)
such contest by Borrower shall not affect the ownership, use or occupancy of
the Property, (v) such contest by Borrower shall not subject Lender or Borrower
to the risk of civil or criminal liability (other than

 50
 

 

the civil liability of Borrower for the amount of the lien in
question), (vi) such lien is subordinate to the lien of this Security
Instrument, (vii) Borrower has not consented to such lien, (viii) Borrower has
given Lender prompt notice of the filing of such lien and the bonding thereof
by Borrower and, upon request by Lender from time to time, notice of the status
of such contest by Borrower and/or confirmation of the continuing satisfaction
of the conditions set forth in this Section 2.06(c), (ix) Borrower shall
promptly pay the obligation secured by such lien upon a final determination of
Borrower’s liability therefor, and (x) Borrower shall deliver to Lender cash, a
bond or other security acceptable to Lender equal to 125% of the contested
amount pursuant to collateral arrangements reasonably satisfactory to Lender.

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

Section 2.08.  Use of the Property.  Borrower will use, or cause to be used, the
Property for such use as is permitted pursuant to applicable Legal Requirements
including, without limitation, under the certificate of occupancy applicable to
the Property, and which is required by the Loan Documents.  Borrower shall not suffer or permit the
Property or any portion thereof to be used by the public, any tenant, or any
Person not subject to a Lease, in a manner as is reasonably likely to impair
Borrower’s title to the Property, or in such manner as may give rise to a claim
or claims of adverse usage or adverse possession by the public, or of implied
dedication of the Property or any part thereof.

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

 51
 

 

(b)           Borrower will furnish Lender (i) annually, within one hundred twenty
(120) days following the end of each Fiscal Year of Borrower and (ii) on a
quarterly basis, within forty-five (45) days following the end of the first
three (3) fiscal quarters of Borrower, with a complete copy of Borrower’s
financial statement consistently applied covering (i) all of the financial
affairs of Borrower and (ii) the operation of the Property for such Fiscal Year
or fiscal quarters, as applicable, and containing a statement of revenues and
expenses, a statement of assets and liabilities and a statement of Borrower’s
equity.  Each annual financial statement
shall be audited by a nationally recognized Independent certified public
accountant that is reasonably acceptable to Lender in accordance with GAAP,
the Uniform System of Accounts (or such
other accounting basis reasonably acceptable to Lender).  Together with the financial statements
required to be furnished pursuant to this Section 2.09(b), Borrower shall
furnish to Lender an Officer’s Certificate certifying as of the date thereof
(1) that the financial statements accurately represent the results of
operations and financial condition of Borrower and the Property all in
accordance with GAAP, the Uniform System of Accounts (or such other accounting basis reasonably
acceptable to Lender) consistently applied, and (2) whether there exists a
Default under the Note or any other Loan Document executed and delivered by
Borrower, and if such event or circumstance exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy such
event or circumstance.

(c)           During the continuance of an O&M Operative Period and when
requested by Lender, Borrower will furnish Lender monthly, within twenty (20)
days following the end of each month, with a true, complete and correct cash
flow statement with respect to the Property in the form attached hereto as Exhibit C and made a part hereof, showing
(i) all cash receipts of any kind whatsoever and all cash payments and
disbursements and (ii) year-to-date summaries of such cash receipts,
payments and disbursements, together with a certification of Manager stating
that such cash flow statement is true, complete and correct and a list of all
litigation and proceedings affecting Borrower or the Property in which the
amount involved is $250,000 or more, if not covered by insurance (or $1,000,000
or more whether or not covered by insurance).

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

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

 52
 

 

Certificate, dated as of the date of the delivery of such rent roll,
certifying that such rent roll is true, correct and complete in all material
respects as of its date.

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

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

(h)           Borrower will furnish Lender annually, within one hundred twenty (120)
days after the end of each Fiscal Year, with a report setting forth (i) the Net
Operating Income for such Fiscal Year, (ii) the average occupancy rate of
the Property during such Fiscal Year, (iii) the Capital Expenditures
incurred at the Property during such Fiscal Year and the aggregate Recurring
Replacement Expenditures made in connection therewith, and (iv) the
balance contained in each of the Escrow Accounts as of the end of such Fiscal
Year (which balance Lender shall provide upon Borrower’s written request
therefor).

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

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

(k)           Borrower shall and shall cause Guarantor to furnish to Lender annually,
within thirty (30) days of filing its respective tax return, a copy of such tax
return and within one

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hundred twenty (120) days after the end of each Fiscal Year or in lieu
thereof deliver annual financial statements of Guarantor prepared in accordance
with GAAP which are audited by a nationally recognized Independent certified
public accountant that is reasonably acceptable to Lender.

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

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

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

Section 2.11.  Updates of Representations.  Borrower shall deliver to Lender within ten
(10) days of the request of Lender an Officer’s Certificate updating all of the
representations and warranties contained in this Security Instrument and the
other Loan Documents and certifying that all of the representations and
warranties contained in this Security Instrument and the other Loan Documents,
as updated pursuant to such Officer’s Certificate, are true, accurate and
complete as of the date of such Officer’s Certificate.  Notwithstanding the foregoing,
provided that no Event of Default has occurred and is continuing, Borrower
shall not be required to deliver the foregoing Officer’s Certificate more than
three (3) times during the term of the Loan. 
For the avoidance of doubt, Lender acknowledges and agrees that it shall
not be the basis of a Default or Event of Default hereunder if any
representation that was true when made ceases to continue to be true thereafter
(unless and only to the extent that the same constitutes a breach of a covenant
hereunder or an “Event of Default” as expressly defined in Section 13.01
hereof).

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

Section
2.13.  Ground Lease.  (a) Borrower will comply in all material
respects with the terms and conditions of the Ground Lease.  Borrower will not do or permit anything to be
done, the doing of which, or refrain from doing anything, the omission of
which, will impair the security of the Leasehold Premises under the Ground
Lease or will be grounds for declaring a forfeiture of the Ground Lease.

(b)           Borrower shall enforce
the Ground Lease and will not terminate, modify, cancel, change, supplement,
alter or amend the Ground Lease, or waive, excuse, condone or in any way
release or discharge Ground Lessor of or from any of the material covenants and
conditions to be performed or observed by Ground Lessor.  Borrower does hereby bargain, sell, assign
and set over to Lender, all of Borrower’s interests in the Ground Lease.  The assignment of Borrower’s interest set
forth in this Section 2.13(b) is an absolute, unconditional and present
assignment from Borrower to Lender and not an assignment for security and the
existence or exercise of Borrower’s revocable license to take all actions with
respect to the Ground Lease shall not operate to subordinate this assignment to
any subsequent assignment.  The exercise
by Lender of any of its rights or remedies pursuant to this Section 2.13(b)
shall not be deemed to make Lender a mortgagee-in-possession.  So long as there shall exist and be
continuing no Event of Default,

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Borrower shall have a revocable license to
take all actions with respect to the Ground Lease subject to the terms of this
Security Instrument.  Any 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 written consent of Lender shall be void and of no force and
effect.

(c)           Lender shall have the
right, but not the obligation, to perform any obligations of Borrower under the
terms of the Ground Lease during the continuance of an Event of Default.  All costs and expenses (including, without
limitation, reasonable attorneys’ fees and expenses) so incurred, shall be
treated as an advance secured by this Security Instrument, shall bear interest
thereon at the Default Rate from the date of payment by Lender until paid in
full and shall be paid by Borrower to Lender during the continuance of an Event
of Default within five (5) days after demand. 
No performance by Lender of any obligations of Borrower shall constitute
a waiver of any Event of Default arising by reason of Borrower’s failure to
perform the same.  If Lender shall make
any payment or perform any act or take action in accordance with this Section
2.13(c), Lender will notify Borrower 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
lessees, sublessees 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.

(d)           To the extent permitted
by law, the price payable by Borrower or any other Person in the exercise of
any right of redemption following foreclosure of the Property shall include all
rents paid and other sums advanced by Lender on behalf of Borrower, together
with interest thereon at the Default Rate.

(e)           Unless Lender shall
otherwise consent, the fee title and the leasehold estate in the Leasehold
Premises shall not merge but shall always be kept separate and distinct,
notwithstanding the union of said estates either in Ground Lessor or in
Borrower, or in a third party, by purchase or otherwise.

(f)            If the Ground Lessor
shall deliver to Lender a copy of any notice of default sent by the Ground
Lessor to Borrower, 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 accordance with this Security Instrument, in
reliance thereon.

(g)           Borrower shall exercise
each individual option, if any, to extend or renew the term of the Ground Lease
not less than thirty (30) days prior to the last day upon which any such option
may be exercised (and in all events within five (5) days after demand by Lender
made at any time within one (1) year of the last day upon which any such option
may be exercised), and Borrower hereby expressly authorizes and appoints Lender
its attorney-in-fact to exercise any such option in the name of and upon behalf
of Borrower to so exercise such option if Borrower fails to exercise as herein
required, which power of attorney shall be irrevocable and shall be deemed to
be coupled with an interest.  Borrower
shall give Lender notice of Borrower’s exercise of any such option to extend or
renew the term of the Ground Lease within five (5) days of the exercise of any
such option.

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(h)           Each Space Lease
hereafter made and each renewal of any existing Space Lease shall provide that,
(i) in the event of the termination of the Ground Lease, such Space Lease shall
not terminate or be terminable by the lessee; (ii) in the event of any action
for the foreclosure of this Security Instrument, such Space Lease shall not
terminate or be terminable by the lessee by reason of the termination of the
Ground Lease unless the lessee is specifically named and joined in any such
action and unless a judgment is obtained therein against the lessee; and (iii)
in the event that the Ground Lease is terminated as aforesaid and a “new lease”
is granted, the lessee under such Space Lease shall attorn to the Borrower or
to the purchaser at the sale of the Property upon such foreclosure, as the case
may be.

(i)            Borrower hereby
assigns, transfers and sets over to Lender all of Borrower’s claims and rights
to the payment of damages arising from any rejection by the Ground Lessor of
the Ground Lease under the Bankruptcy Code. 
Borrower shall notify Lender promptly (and in any event within ten (10)
days) of any claim, suit, action or proceeding relating to the rejection of the
Ground Lease.  Lender is hereby
irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest,
with exclusive power to file and prosecute, to the exclusion of Borrower, any
proofs of claim, complaints, motions, applications, notices and other
documents, in any case in respect of the Ground Lessor under the Bankruptcy
Code during the continuance of an Event of Default.  Borrower may make any compromise or
settlement in connection with such proceedings (subject to Lender’s reasonable approval);
provided, however, that Lender shall be authorized and entitled to compromise
or settle any such proceeding if such compromise or settlement is made after
the occurrence and during the continuance of an Event of Default.  Borrower shall promptly execute and deliver
to Lender any and all instruments reasonably required in connection with any
such proceeding after request therefor by Lender.  Except as set forth above, Borrower shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior written consent of Lender, which consent shall
not be unreasonably withheld or delayed.

(j)            Borrower shall not,
without Lender’s prior written consent, elect to treat the Ground Lease as
terminated under Section 365(h)(1) of the Bankruptcy Code.  Any such election made without Lender’s prior
written consent shall be void.

(k)           If pursuant to Section
365(h)(2) of the Bankruptcy Code, Borrower seeks to offset against the rent
reserved in the Ground Lease the amount of any damages caused by the
non-performance by the Ground Lessor of any of the Ground Lessor’s obligations
under the Ground Lease after the rejection by the Ground Lessor of the Ground
Lease under the Bankruptcy Code, Borrower shall, prior to effecting such
offset, notify Lender of its intention to do so, setting forth the amounts
proposed to be so offset and the basis therefor.  If Lender has failed to object as aforesaid
within ten (10) days after notice from Borrower in accordance with the first
sentence of this Section 2.13(k), Borrower may proceed to effect such offset in
the amounts set forth in Borrower’s notice. 
Neither Lender’s failure to object as aforesaid nor any objection or
other communication between Lender and Borrower relating to such offset shall
constitute an approval of any such offset by Lender.  Borrower shall indemnify and save Lender
harmless from and against any and all claims, demands, actions, suits,
proceedings, damages, losses, costs and expenses of every nature whatsoever
(including, without limitation, reasonable attorneys’ fees

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and disbursements) arising from or relating
to any such offset by Borrower against the rent reserved in the Ground Lease.

(l)            Borrower shall
immediately, after obtaining knowledge thereof, notify Lender of any filing by
or against the Ground Lessor of a petition under the Bankruptcy Code.  Borrower shall thereafter forthwith give
written notice of such filing to Lender, setting forth any information
available to Borrower as to the date of such filing, the court in which such
petition was filed, and the relief sought therein.  Borrower shall promptly deliver to Lender
following receipt any and all notices, summonses, pleadings, applications and
other documents received by Borrower in connection with any such petition and
any proceedings relating thereto.

(m)          If there shall be filed
by or against Borrower a petition under the Bankruptcy Code, and Borrower, as
the tenant under the Ground Lease, shall determine to reject the Ground Lease
pursuant to Section 365(a) of the Bankruptcy Code, then Borrower shall give
Lender not less than ten (10) days prior notice of the date on which Borrower
shall apply to the bankruptcy court for authority to reject the Ground
Lease.  Lender shall have the right, but
not the obligation, to serve upon Borrower within such 10-day period a notice
stating that (i) Lender demands that Borrower assume and assign the Ground
Lease to Lender pursuant to Section 365 of the Bankruptcy Code and (ii) Lender
covenants to cure or provide adequate assurance of prompt cure of all defaults
and provide adequate assurance of future performance under the Ground
Lease.  If Lender serves upon Borrower
the notice described in the preceding sentence, Borrower shall not seek to
reject the Ground Lease and shall comply with the demand provided for in clause
(i) of the preceding sentence within thirty (30) days after the notice shall
have been given, subject to the performance by Lender of the covenant provided
for in clause (ii) of the preceding sentence.

(n)           Effective upon the
entry of an order for relief in respect of Borrower under the Bankruptcy Code,
Borrower hereby assigns and transfers to Lender a non-exclusive right to apply
to the appropriate bankruptcy court under Section 365(d)(4) of the Bankruptcy
Code for an order extending the period during which the Ground Lease may be
rejected or assumed.

(o)           Borrower will give
Lender prompt (and in all events within five (5) days) notice of any default
under the Ground Lease or of the receipt by Borrower of any notice of default
from Ground Lessor.  Borrower will
promptly (and in all events within (5) days) furnish to Lender copies of all
information furnished to Ground Lessor by the terms of the Ground Lease or the
provisions of this Section 2.13. 
Borrower will deposit with Lender an exact copy of any notice,
communication, plan, specification or other instrument or document received or
given by Borrower in any way relating to or affecting the Ground Lease which
may concern or affect the estate of Ground Lessor or Borrower thereunder in or
under the Ground Lease or in the real estate thereby demised.

(p)           Upon acquisition of the
fee title or any other estate, title or interest in the Leasehold Premises by
Borrower, this Security Instrument shall, automatically and without the
necessity of execution of any other documents, attach to and cover and be a
lien upon such other estate so acquired, and such other estate shall be
considered as mortgaged, assigned and conveyed to Lender and the lien hereof
spread to cover such estate with the same force and effect

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as though specifically herein mortgaged,
assigned and conveyed.  The provisions of
this subsection shall not apply if Lender acquires title to the Leasehold
Premises unless Lender shall so elect.

ARTICLE III:  INSURANCE AND CASUALTY RESTORATION

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

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

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

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$75,000,000
excess and/or umbrella liability insurance shall be maintained for any and all
claims.

(iii)          Business interruption, rent loss or other
similar insurance with an unlimited indemnity period (A) with loss payable to
Lender, (B) covering all risks required to be covered by the insurance provided
for in Section 3.01(a)(i) hereof and (C) in an amount not less than 100% of the
projected total revenues derived from the Property for the succeeding
twenty-four (24) month period based on an occupancy rate taking into account
historical and projected occupancy.  The
amount of such insurance shall be determined upon the execution of this Security
Instrument, and not more frequently than once each calendar year thereafter
based on Borrower’s reasonable estimate of projected fixed or base rent plus
percentage rent, from the Property for the next succeeding twenty-four (24)
months.  In the event the Property shall
be damaged or destroyed, Borrower shall and hereby does assign to Lender all
payment of claims under the policies of such insurance, and all amounts payable
thereunder, and all net amounts, shall be collected by Lender under such policies
and shall be applied in accordance with this Security Instrument; provided,
however, that nothing herein contained shall be deemed to relieve Borrower of
its obligations to timely pay all amounts due under the Loan Documents.

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

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

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

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

(viii)        Intentionally omitted.

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(ix)           Insurance
against damage resulting from acts of terrorism, or an insurance policy without
an exclusion for damages resulting from terrorism, on terms consistent with the
commercial property insurance policy required under subsections (i), (ii) and
(iii) above; provided, however, Borrower shall not be required to carry more
than the amount of insurance required pursuant to this Section 3.01(a)(ix) as
is available for an annual premium of 200% of the total annual premium of the
insurance required pursuant to this Section 3.01(a)(ix) during the previous
policy year.

(x)            At all
times during Construction, contractor’s liability insurance to a limit
acceptable to Lender in its reasonable discretion based upon, among other
things, then current market standards and the scope of work, covering each
contractor’s construction operation at the Premises (which insurance may be
provided by the contractor).

(xi)           Such other insurance as may from time to time
be required by Lender and which is then customarily required by Institutional
Lenders for similar properties similarly situated, against other insurable
hazards, including, but not limited to, malicious mischief, vandalism, loss
resulting from mold, spores or fungus on or about the Premises, (which Lender
acknowledges, as of the Closing Date is not required hereunder), sinkhole and
mine subsidence, windstorm and/or earthquake, due regard to be given to the
size and type of the Premises, Improvements, Fixtures and Equipment and their
location, construction and use.

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

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

(b)           Borrower shall cause any Manager of the Property to maintain fidelity
insurance in an amount equal to or greater than $10,000,000.

Section 3.02.  Policy Terms.  (a) All insurance required by
this Article III shall be in the form (other than with respect to Sections
3.01(a)(vi) and (vii) above when insurance in those two sub-sections is placed
with a governmental agency or instrumentality on such agency’s forms) and
amount and with deductibles as, from time to time, shall be reasonably
acceptable to Lender, under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State where
the Property is located, which shall have a claims paying ability rating and/or
financial strength rating, as applicable, of not less than “A-” (or its
equivalent), or such lower claims paying ability rating and/or financial
strength rating, as applicable, as Lender shall, in its reasonable discretion
(taking into account then current Rating Agency guidelines), consent to, from a
Rating Agency (one of which after a Securitization in which Standard & Poor’s
rates any securities issued in connection with such Securitization, shall be
Standard & Poor’s).  Originals or certified copies of all insurance
policies shall be delivered to and held by Lender.  All such policies (except policies for worker’s
compensation) shall name Lender, its successors and/or assigns as an additional
named insured, with respect to the insurance required pursuant to Section
3.01(a)(iii) above, shall provide for loss payable to Lender, its successors

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and/or assigns and shall contain (or have attached):  (i) standard “non-contributory mortgagee”
endorsement or its equivalent relating, inter  alia, to recovery
by Lender notwithstanding the negligent or willful acts or omissions of
Borrower; (ii) a waiver of subrogation endorsement as to Lender; (iii) an
endorsement indicating that neither Lender nor Borrower shall be or be deemed
to be a co-insurer with respect to any casualty risk insured by such policies
and shall provide for a deductible per loss of an amount not more than the
lesser of (x) that which is customarily maintained by owners of similar
properties similarly situated and (y) $250,000 or, with respect to the deductible
under any insurance against losses resulting from windstorms, 5% of the values
at risk or, with respect to the deductible under any insurance against losses
resulting from earthquake, 5% of the values at risk, and (iv) a provision that
such policies shall not be canceled, terminated, denied renewal or amended,
including, without limitation, any amendment reducing the scope or limits of
coverage, without at least thirty (30) days’ prior written notice to Lender in
each instance.  Not less than thirty (30)
days prior to the expiration dates of the insurance policies obtained pursuant
to this Security Instrument, originals or certified copies of renewals of such
policies (or certificates evidencing such renewals) bearing notations
evidencing the payment of premiums or accompanied by other reasonable evidence
of such payment (which premiums shall not be paid by Borrower through or by any
financing arrangement which would entitle an insurer to terminate a policy;
provided, however, premiums for the insurance required pursuant to Section
3.01(a)(i) may be paid quarterly in advance or as otherwise reasonably
acceptable to Lender, it being acknowledged that paying the premium for such
policies by financing the same, paying twenty percent (20%) of the total annual
premium (inclusive of finance charges) at the time of the applicable policy
renewal and paying the remaining eighty percent (80%) of the total annual
premium (inclusive of finance charges) in nine (9) equal monthly installments
is acceptable to Lender) shall be delivered by Borrower to Lender.  Borrower shall not carry separate insurance,
concurrent in kind or form or contributing in the event of loss, with any
insurance required under this Article III.

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

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

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(d)           The insurance required
by this Security Instrument may, at the option of Borrower, be effected by
blanket and/or umbrella policies issued to Borrower covering the Property
provided that, in each case, the policies otherwise comply with the provisions
of this Security Instrument and allocate to the Property, from time to time
(but in no event less than once a year), the coverage specified by this
Security Instrument, without possibility of reduction or coinsurance by reason
of damage to any other property (real or personal) named therein.  If the insurance required by this Security
Instrument shall be effected by any such blanket or umbrella policies, Borrower
shall furnish to Lender (i) original policies or certified copies thereof, or
an original certificate of insurance together with reasonable access to the
original of such policy to review such policy’s coverage of the Property, with
schedules attached thereto showing the amount of the insurance provided under
such policies applicable to the Property and (ii) an Officer’s Certificate
setting forth (A) the number of properties covered by such policy, (B) the
location by city (if available, otherwise, county) and state of the properties,
(C) the average square footage of the properties, (D) a brief description of
the typical construction type included in the blanket policy and (E) such other
information as Lender may reasonably request.

(e)           Borrower shall cause
the Condominium Board to keep the Premises and the balance of the Property
located on or about the Premises insured against such hazards and in such
amounts as required by the provisions of subparagraph (a) above, the
Declaration of Condominium (hereinafter defined) and the By-laws.  Said policies shall be hereinafter referred
to as the “Board’s Policies”. 
Borrower shall furnish to Lender duplicates of each of the Board’s
Policies at least 15 days prior to the expiration date thereof.  Each Board Policy shall contain the standard
New York Mortgage clause endorsement making the Lender the person to whom all
payments made by the insurer shall be paid, as its interest may appear, subject
to the provisions of the Declaration of Condominium and the By-laws.  To the extent not covered by the Board’s
Policies, Borrower will keep the Property insured against loss or damage by
fire, flood and such other risks and matters as Lender may from time to time
require in amounts required by Lender sufficient to avoid co-insurance, and
shall pay the premiums for such insurance as same become due and payable.  The Board’s Policies shall be subject to
Lender’s reasonable approval.  Not later
than fifteen (15) days prior to the expiration date of each of the Board’s
Policies, Borrower will deliver to Lender satisfactory evidence of the renewal
of each of the Policies.  As used herein
the term “Condominium Act” shall mean the provisions of Article 9-B of the
Real Property Law of the State of New York, et  seq., as amended,
the word “By-laws” means a true copy of the By-Laws which is annexed to
the Declaration of Condominium, as amended, the words “Declaration of
Condominium” mean the Declaration of Condominium of the Condominium, as
amended, the words “Rules and Regulations” shall mean the rules adopted
by the Condominium concerning the management and administration of the
Condominium and the use of the Common Elements, as amended, the words “Common
Elements” shall mean the common element of the Condominium as defined in
the Declaration of Condominium, the words “Condominium Board” shall mean
the organization managing the Condominium, by virtue of the Condominium Act,
the Declaration of Condominium and the By-laws, on behalf of all of the owners
of the units comprising the Condominium, the term “Condominium Documents”
shall mean, collectively, the “Declaration of Condominium”, “By-laws”,
“Rules and Regulations” and the rules, regulations, resolutions and
decisions adopted pursuant thereto, each as amended, and

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the word “Condominium” shall mean any
condominium which includes the Property as a part thereof, which was created
pursuant to the Condominium Act.

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

(b)           In the event of the foreclosure of this Security Instrument or any
other transfer of title or assignment of all or any part of the Property in
extinguishment, in whole or in part, of the Debt, all right, title and interest
of Borrower in and to all policies of insurance required by this Security
Instrument shall inure to the benefit of the successor in interest to Borrower
or the purchaser of the Property (it being acknowledged that the policy
required pursuant to Section 3.01(a)(ii) hereof shall not be required to be
assigned to Lender).  If, prior to the
receipt by Lender of any proceeds, the Property or any portion thereof shall
have been sold on foreclosure of this Security Instrument or by deed in lieu
thereof or otherwise, or any claim under such insurance policy arising during
the term of this Security Instrument is not paid until after the extinguishment
of the Debt, and Lender shall not have received the entire amount of the Debt
outstanding at the time of such extinguishment, whether or not a deficiency
judgment on this Security Instrument shall have been sought or recovered or
denied, then, the proceeds of any such insurance to the extent of the amount of
the Debt not so received, shall be paid to and be the property of Lender,
together with interest thereon at the Default Rate, and the reasonable attorney’s
fees, costs and disbursements incurred by Lender in connection with the
collection of the proceeds which shall be paid to Lender and Borrower hereby
assigns, transfers and sets over to Lender all of Borrower’s right, title and
interest in and to such proceeds. 
Notwithstanding any provisions of this Security Instrument to the
contrary, Lender shall not be deemed to be a trustee or other fiduciary with
respect to its receipt of any such proceeds, which may be commingled with any
other monies of Lender; provided, however, that Lender shall use such proceeds
for the purposes and in the manner permitted by this Security Instrument.  Any proceeds deposited with Lender shall be
held by Lender in an interest-bearing account, but Lender makes no
representation or warranty as to the rate or amount of interest, if any, which
may accrue on such

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deposit and shall have no liability in connection therewith.  Interest accrued, if any, on the proceeds
shall be deemed to constitute a part of the proceeds for purposes of this
Security Instrument.  The provisions of
this Section 3.03(b) shall survive the termination of this Security Instrument
by foreclosure, deed in lieu thereof or otherwise as a consequence of the
exercise of the rights and remedies of Lender hereunder after a Default.

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

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

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

(iv)          If (A) an Event of Default shall have occurred and be continuing, (B)
Lender is not reasonably satisfied that the Debt Service Coverage, after
substantial completion of the Work, will be at least equal to the Required Debt
Service Coverage, (C) more than thirty percent (30%) of the reasonably
estimated fair market value of the Property is damaged or destroyed, (D) Lender
is not reasonably satisfied that the Work can be completed six (6) months prior
to Maturity or (E) Lender is not reasonably satisfied that the Work can be
completed within twelve (12) months of the damage to or destruction of the
Property (each, a “Substantial Casualty”), Lender shall have the option,
in its sole discretion to apply any Insurance Proceeds it may receive pursuant
to this Security Instrument (less any cost to Lender of recovering and paying
out such proceeds incurred pursuant to the terms hereof and not otherwise
reimbursed to

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Lender, including, without limitation, reasonable attorneys’ fees and
expenses) to the payment of the Debt, without any prepayment fee or charge of
any kind, or to allow such proceeds to be used for the Work pursuant to the
terms and subject to the conditions of Section 3.04(b) hereof and the other
applicable sections of this Article III.

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

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

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

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

(iii)          Each request for payment shall be made on not
less than ten (10) days’ prior notice to Lender and shall be accompanied by a
certificate of an Architect or Engineer, or, if the Work is not required to be
supervised by an Architect or Engineer, by an Officer’s Certificate stating (A)
that payment is for Work completed in material

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

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

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

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

(vii)         Until such time as the Work has been
substantially completed, Lender shall not be obligated to disburse up to ten
percent (10%) of the cost of the Work (the

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“Retention
Amount”) to Borrower.  Upon
substantial completion of the Work, Borrower shall send notice thereof to
Lender and, subject to the conditions of Section 3.04(b)(i)-(iv), Lender shall
disburse one-half of the Retention Amount to Borrower; provided, however, that
the remaining one-half of the Retention Amount shall be disbursed to Borrower
when Lender shall have received copies of any and all certificates of occupancy
or other certificates, licenses and permits required for the ownership,
occupancy and operation of the Property in accordance with all Legal
Requirements.  Borrower hereby covenants
to diligently seek to obtain any such certificates, licenses and permits.

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

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

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

Section 3.05.  Compliance with Insurance Requirements.  Borrower promptly shall comply with, and
shall cause the Property to comply with, all Insurance Requirements, even if

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

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

 69
 

 

determine, or to cure an Event of Default, or to any one or more of the
foregoing as Lender, in its sole and absolute discretion, may determine.  If Lender shall receive and retain such
Insurance Proceeds, the lien of this Security Instrument shall be reduced only
by the amount thereof received, after reimbursement to Lender of expenses of
collection, and actually applied by Lender in reduction of the principal sum
payable under the Note in accordance with the Note.

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

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

ARTICLE IV:  IMPOSITIONS

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

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

(c)           Borrower shall pay all taxes, charges, filing, registration and
recording fees, excises and levies imposed upon Lender by reason of or in
connection with its ownership of any Loan Document or any other instrument
related thereto, or resulting from the execution, delivery and recording of, or
the lien created by, or the obligation evidenced by, any of them, other than
income, franchise and other similar taxes imposed on Lender and shall pay all
corporate stamp

 70
 

 

taxes, if any, and other taxes, required to be paid on the Loan
Documents other than taxes imposed on Lender’s income and franchise taxes
imposed on Lender by the law or regulations of any Governmental Authority.  If Borrower shall fail to make any such
payment within ten (10) days after written notice thereof from Lender, Lender
shall have the right, but shall not be obligated, to pay the amount due, and
Borrower shall reimburse Lender therefor, on demand, with interest thereon at
the Default Rate from the date of the advance thereof to the date of repayment,
and such amount shall constitute a portion of the Debt secured by this Security
Instrument.

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

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

Section 4.04.  Right to Contest.  Borrower shall have the right, after prior
notice to Lender, at its sole expense, to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Lender or any of its agents, employees, officers or directors, the validity,
amount or application of any Imposition or any charge described in Section
4.01(b), provided that (a) no Event of Default shall exist during such
proceedings and such contest shall not (unless Borrower shall comply with
clause (d) of this Section 4.04) subject the Property or any portion thereof to
any lien or affect the priority of the lien of this Security Instrument, (b)
failure to pay such Imposition or charge will not subject Lender or any of its
agents, employees, officers or directors to any civil or criminal liability,
(c) the contest suspends enforcement of the Imposition or charge (unless
Borrower first pays the Imposition or charge), (d) prior to and during such
contest, Borrower shall furnish to Lender security satisfactory to Lender, in
its reasonable discretion, against loss or injury by reason of such contest or
the non-payment of such Imposition or charge (and if such security is cash,
Lender may deposit the same in an interest-bearing account and interest accrued
thereon, if any, shall be deemed to constitute a part of such security for
purposes of this Security Instrument, but Lender (i) makes no

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representation or warranty as to the rate or amount of interest, if
any, which may accrue thereon and shall have no liability in connection
therewith other than with respect to Lender’s gross negligence or willful
misconduct and (ii) shall not be deemed to be a trustee or fiduciary with
respect to its receipt of any such security and any such security may be
commingled with other monies of Lender), (e) such contest shall not affect the
ownership, use or occupancy of the Property, (f) the Property or any part
thereof or any interest therein shall not be in any danger of being sold, forfeited
or lost by reason of such contest by Borrower, (g) Borrower has given Lender
notice of the commencement of such contest and upon request by Lender, from
time to time, notice of the status of such contest by Borrower and/or
confirmation of the continuing satisfaction of clauses (a) through (f) of this
Section 4.04, and (h) upon a final determination of such contest, Borrower
shall promptly comply with the requirements thereof.  Upon completion of any contest, Borrower
shall immediately pay the amount due, if any, and deliver to Lender proof of
the completion of the contest and payment of the amount due, if any, following
which Lender shall return the security, if any, deposited with Lender pursuant
to clause (d) of this Section 4.04. 
Borrower shall not pay any Imposition in installments unless permitted
by applicable Legal Requirements or the applicable Governmental Authority, and
shall, upon the request of Lender, deliver copies of all notices and bills
relating to any Imposition or other charge covered by this Article IV to
Lender.

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

Section 4.06.  Documentary Stamps.  If, at any time, the United States of
America, any State or Commonwealth thereof or any subdivision of any such State
shall require revenue or other stamps to be affixed to the Note, this Security
Instrument or any other Loan Document, or impose any other tax or charges on
the same, Borrower will pay the same, with interest and penalties thereon, if
any.

ARTICLE V:  CENTRAL CASH MANAGEMENT

Section 5.01.  Cash Flow.  Borrower hereby acknowledges and agrees that
(a) the Rents (which for the purposes of this Section 5.01 shall not include
security deposits from tenants under Leases held by Borrower and not applied
towards Rent) derived from the Property, (b) Loss Proceeds and (c) all proceeds
of the Rate Cap Agreement shall be utilized to fund the Sub-Accounts.  Borrower shall cause Manager to collect all
security deposits from tenants under valid Leases, which shall be held by
Manager, as agent for Borrower, in accordance with applicable law and in a
segregated demand deposit bank account at such commercial or savings bank or
banks as may be reasonably satisfactory to Lender (the “Security Deposit
Account”).  Borrower shall notify
Lender of any security deposits held as letters of credit and, upon Lender’s
request,

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such letters of credit shall be promptly
delivered to Lender.  Borrower shall have
no right to withdraw funds from the Security Deposit Account; provided
that, as long as no Event of Default has occurred and is continuing, Borrower
may withdraw funds from the Security Deposit Account to refund or apply
security deposits as required by the Leases or by applicable Legal
Requirements.  After the occurrence and
during the continuance of an Event of Default, all withdrawals from the
Security Deposit Account must be approved by Lender.  All rental payments made by tenants and other
payments constituting Rent, other than direct payments by credit cards which
shall be paid directly into the Rent Account, shall be delivered to
Manager.  Manager shall collect all of
such Rent and shall deposit such funds, within one (1) Business Day after
receipt thereof in the Rent Account, the name and address of the bank in which
such account is located and the account number of which to be identified in
writing by Manager to Lender.  Borrower
shall cause Manager to give to the bank in which the Rent Account is located an
irrevocable written instruction, in form and substance reasonably acceptable to
Lender, that all funds deposited in such account shall be automatically
transferred through automated clearing house funds (“ACH”) or by Federal
wire to the Central Account prior to 5:00 p.m. (New York City time) on a daily
basis.  On the Closing Date, Borrower
shall deliver to Lender a copy of the irrevocable notice which Borrower
delivered to the bank in which the Rent Account is located pursuant to the
provisions of this Section 5.01, the receipt of which is acknowledged in
writing by such bank.  Additionally,
Borrower shall, or shall cause Manager to send to each respective credit card
company or credit card clearing bank with which Borrower or Manager has entered
into merchant’s agreements (each, a “Credit Card Company”) a direction
letter in the form of Exhibit G
annexed hereto and made a part hereof (the “Credit Card Payment Direction
Letter”) directing such Credit Card Company to make all payments due in
connection with goods or services furnished at or in connection with the
Property by Federal wire or through ACH directly to the Rent Account.  Without the prior written consent of Lender,
neither Borrower nor Manager shall (i) terminate, amend, revoke or modify any
Credit Card Payment Direction Letter in any manner or (ii) direct or cause any
Credit Card Company to pay any amount in any manner other than as specifically
provided in the related Credit Card Payment Direction Letter.  Lender may elect to change the financial
institution in which the Central Account shall be maintained; however,
Lender shall give Borrower and the bank in which the Rent Account is located
not fewer than five (5) Business Days’ prior notice of such change.  Neither Borrower nor Manager shall change
such bank or the Rent Account without the prior written consent of Lender.  All fees and charges of the bank(s) in which
the Rent Account and the Central Account are located shall be paid by Borrower.

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

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or the affected Sub-Account or Escrow
Account, and Lender shall have no responsibility to make additional funds
available in the event that funds on deposit are insufficient.  The Central Account shall contain the Basic Carrying Costs Sub-Account,
the Debt Service Payment Sub-Account, the Recurring Replacement Reserve
Sub-Account, the SAOT Sub-Account, the Mez Payment Sub-Account, the Operation and Maintenance Expense
Sub-Account and the Curtailment Reserve Sub-Account, each of which accounts
shall be Eligible Accounts or book-entry sub-accounts of an Eligible Account
(each a “Sub-Account” and collectively, the “Sub-Accounts”) to
which certain funds shall be allocated and from which disbursements shall be
made pursuant to the terms of this Security Instrument.  Sums held in the Escrow Accounts may be
commingled with other monies held by Lender.

Section 5.03.  Intentionally Omitted.

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

Section 5.05.  Monthly Funding of Sub-Accounts and Escrow
Accounts.  (a) On or before each Payment
Date during the term of the Loan, commencing on the first (1st) Payment Date
occurring after the month in which the Loan is initially funded, Borrower shall
pay or cause to be paid to the Central Account (including from the Rent
Account) all sums required to be deposited in the Sub-Accounts pursuant to this
Section 5.05(a) and all funds transferred or deposited into the Central Account
shall be allocated among the Sub-Accounts as follows and in the following
priority:

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

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

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

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such
Interest Accrual Period shall be credited towards sums required to be deposited
therein by Borrower;

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

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

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

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

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

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

Provided
that no Event of Default has occurred and is continuing, Lender agrees that in
each Interest Accrual Period any amounts deposited into or remaining in the Central
Account after the Sub-Accounts have been funded as set forth in this
Section 5.05(a) with respect to
such Interest Accrual Period and any periods prior thereto, shall be disbursed
by Lender to Borrower or, if the Mez Loan is outstanding, to the holder of the
Mez Loan which is most senior in payment priority, on the Payment Date
applicable to such Interest Accrual Period. 
In addition, Lender shall pay and apply all funds on deposit in the
Sub-Accounts from time to time in accordance with Sections 5.06 through 5.11,
as applicable.  The balance of the funds
distributed to Borrower after payment of all Operating Expenses by or on behalf
of Borrower may be retained by Borrower. 
After the occurrence, and during the continuance, of an Event of
Default, no such excess funds held in the Central Account shall be distributed
to, or withdrawn by, Borrower, and Lender shall have the right to apply all or
any portion of the funds held in the Central Account or any Sub-Account or any
Escrow Account (excluding the SAOT Sub-Account) to the Debt in Lender’s sole
discretion.

(b)           On each Payment Date, or with respect to sums in the Operation and
Maintenance Sub-Account and SAOT Sub-Account, on Wednesday of each week unless
such day is not a Business Day, in which case on the first Business Day
thereafter, (i) sums held in the Basic

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Carrying Costs Sub-Account shall be transferred to the Basic Carrying
Costs Escrow Account, (ii) sums held in the Debt Service Payment Sub-Account,
together with any amounts deposited into the Central Account that are either
(x) Loss Proceeds that Lender has elected to apply to reduce the Debt in
accordance with the terms of Article III hereof or (y) excess Loss Proceeds
remaining after the completion of any restoration required hereunder, shall be
transferred to Lender to be applied towards the Required Debt Service Payment,
(iii) sums held in the SAOT Sub-Account shall be transferred to the SAOT Escrow
Account, (iv) sums held in the Recurring Replacement Reserve Sub-Account shall
be transferred to the Recurring Replacement Escrow Account, (v) sums, if any,
held in the Mez Payment Sub-Account shall be transferred to the Mez Payment Escrow Account, (vi) sums held in the Operation and Maintenance
Expense Sub-Account shall be transferred to the Operation and Maintenance
Expense Escrow Account and (vii) sums held in the Curtailment Reserve
Sub-Account shall be transferred to the Curtailment Reserve Escrow Account.

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

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

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deemed
to have been made by operation of law or otherwise until actually made by
Lender as herein provided.

Section 5.07.  SAOT Escrow Account.  Borrower agrees to pay all SAOT Expenditures
(without regard to the amount of money then available in the SAOT Sub-Account
or the SAOT Escrow Account).  Lender
will, at Lender’s option, either, (a) apply funds in the SAOT Escrow
Account to payments of SAOT Expenditures required to be made by Borrower to the
appropriate Governmental Authorities, provided that Borrower has promptly
supplied Lender with notices of all SAOT Expenditures due or has certified to
Lender that such funds are required to make payments of SAOT Expenditures required
to be made by Borrower, (b) reimburse Borrower for such amounts upon
presentation of evidence of payment by Borrower of such SAOT Expenditures or
(c) release to Borrower funds in the SAOT Escrow Account for payment of SAOT
Expenditures required to be made by Borrower to the appropriate Governmental
Authorities, provided that Borrower has promptly supplied Lender with notices
of all SAOT Expenditures due or has certified to Lender that such funds will be
used to make payments of SAOT Expenditures required to be made by Borrower.

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

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

Provided
that no Event of Default shall have occurred and be continuing, all funds
deposited into the Recurring Replacement Reserve Escrow Account shall be held
by Lender

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

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

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operation of law or otherwise until actually made by Lender as herein
provided.  During any O&M Operative
Period, the management fee payable to Manager shall be limited to 4% per
annum of the total revenues of the Property and shall not include the 2.5%
Allocable Chain Expense (as defined in the Management Agreement).  Failure to pay such 2.5% Allocable Chain
Expense shall not be a default under the Management Agreement.

Section 5.10.  Rate Cap Agreement.  Borrower shall at all times during the term
of the Loan maintain the Rate Cap Agreement at all times during the term of the
Loan which shall be in form and substance and issued by a bank reasonably
acceptable to Lender, and shall pay all fees, charges and expenses incurred in
connection therewith.  Borrower shall
comply with all of its obligations under the terms of the Rate Cap
Agreement.  All amounts paid by the
issuer of the Rate Cap Agreement (the “Counterparty”) to Borrower or
Lender shall be deposited immediately into the Central Account.  Borrower shall take all actions reasonably
requested by Lender to enforce Lender’s rights under the Rate Cap Agreement in
the event of a default by the Counterparty. 
In the event that (a) the long-term unsecured debt obligations of
the Counterparty are downgraded by the Rating Agency below “A+” or its equivalent
or (b) the Counterparty shall default in any of its obligations under the
Rate Cap Agreement, Borrower shall, at the request of Lender, promptly but in
all events within thirty (30) days, replace the Rate Cap Agreement with an
agreement having identical payment terms and maturity as the Rate Cap Agreement
and which is otherwise in form and substance substantially similar to the Rate
Cap Agreement and otherwise acceptable to Lender with a cap provider, the
long-term unsecured debt of which is rated at least “AA-” (or its equivalent)
by each Rating Agency, or which will allow each Rating Agency to reaffirm their
then current ratings of all rated certificates issued in connection with the
Securitization.  In the event that Borrower
fails to maintain the Rate Cap Agreement as provided in this Section 5.10,
Lender may purchase the Rate Cap Agreement and the cost incurred by Lender in
connection therewith shall be paid by Borrower to Lender with interest thereon
at the Default Rate from the date such cost is incurred until such cost is paid
by Borrower to Lender.

Section
5.11.  Curtailment Reserve Escrow
Account.  Funds deposited into the
Curtailment Reserve Escrow Account shall be held by Lender in the Curtailment
Reserve Escrow Account as additional security for the Loan until the Loan has
been paid in full; provided, that whenever, from time to time, the Debt Service
Coverage exceeds 1.10:1.0 for two (2) consecutive calendar quarters, Lender
shall, promptly upon written request from Borrower, release all sums contained
in the Curtailment Reserve Escrow Account to Borrower.  In the event the Debt Service Coverage is
1.05:1.0 or lower for one or more calendar quarters, Lender may, in its sole
discretion, apply any sums in the Curtailment Reserve Escrow Account to the
Debt, without any prepayment fee or charge of any kind.  Should an Event of Default occur and be
continuing, the sums on deposit in the Curtailment Reserve Sub-Account and the
Curtailment Reserve Escrow Account may be applied by Lender to the payment of
the Debt or other charges affecting all or any portion of the Property, as
Lender, in its sole discretion, may determine; provided, however, that no such
application shall be deemed to have been made by operation of law or otherwise
until actually made by Lender as herein provided.

Section 5.12.  Performance of Engineering Work.  Borrower shall promptly
commence and diligently thereafter pursue to completion the Required Work prior
to the twelve (12) month

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anniversary of the Closing Date.  After Borrower completes an item of Required
Work, Borrower shall deliver to Lender lien waivers and a statement from the
Engineer, reasonably acceptable to Lender, indicating that the portion of the
Required Work has been completed in accordance with Legal Requirements.

Section 5.13.  Loss Proceeds.  In the event of a casualty to the Property,
unless Lender elects, or is required pursuant to Article III hereof to make all
of the Insurance Proceeds available to Borrower for restoration, Lender and
Borrower shall cause all such Insurance Proceeds to be paid by the insurer
directly to the Central Account, whereupon Lender shall, after deducting Lender’s
costs of recovering and paying out such Insurance Proceeds, including without
limitation, reasonable attorneys’ fees, apply the same to reduce the Debt in
accordance with the terms of the Note; provided, however, that if
Lender elects, or is deemed to have elected, to make the Insurance Proceeds
available for restoration, all Insurance Proceeds in respect of rent loss, business
interruption or similar coverage shall be maintained in the Central Account, to
be applied by Lender in the same manner as Rent received with respect to the
operation of the Property; provided, further, however,
that in the event that the Insurance Proceeds with respect to such rent loss,
business interruption or similar insurance policy are paid in a lump sum in
advance, Lender shall hold such Insurance Proceeds in a segregated
interest-bearing escrow account, which shall be an Eligible Account, shall
estimate, in Lender’s reasonable discretion, the number of months required for
Borrower to restore the damage caused by the casualty, shall divide the
aggregate rent loss, business interruption or similar Insurance Proceeds by
such number of months, and shall disburse from such bank account into the
Central Account each month during the performance of such restoration such
monthly installment of said Insurance Proceeds. 
In the event that Insurance Proceeds are to be applied toward
restoration, Lender shall hold such funds in a segregated bank account at the
Bank, which shall be an Eligible Account, and shall disburse same in accordance
with the provisions of Section 3.04 hereof. 
Unless Lender elects, or is required pursuant to Section 6.01 hereof to
make all of the Condemnation Proceeds available to Borrower for restoration,
Lender and Borrower shall cause all such Condemnation Proceeds to be paid to
the Central Account, whereupon Lender shall, after deducting Lender’s costs of
recovering and paying out such Condemnation Proceeds, including without
limitation, reasonable attorneys’ fees, apply same to reduce the Debt in
accordance with the terms of the Note; provided, however, that
any Condemnation Proceeds received in connection with a temporary Taking shall
be maintained in the Central Account, to be applied by Lender in the same
manner as Rent received with respect to the operation of the Property; provided,
further, however, that in the event that the Condemnation
Proceeds of any such temporary Taking are paid in a lump sum in advance, Lender
shall hold such Condemnation Proceeds in a segregated interest-bearing bank
account, which shall be an Eligible Account, shall estimate, in Lender’s
reasonable discretion, the number of months that the Property shall be affected
by such temporary Taking, shall divide the aggregate Condemnation Proceeds in
connection with such temporary Taking by such number of months, and shall
disburse from such bank account into the Central Account each month during the
pendency of such temporary Taking such monthly installment of said Condemnation
Proceeds.  In the event that Condemnation
Proceeds are to be applied toward restoration, Lender shall hold such funds in
a segregated bank account at the Bank, which shall be an Eligible Account, and
shall disburse same in accordance with the provisions of Section 3.04
hereof.  If any Loss Proceeds are

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received by Borrower, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of Borrower, and shall be
forthwith paid into the Central Account, or paid to Lender to hold in a
segregated bank account at the Bank, in each case to be applied or disbursed in
accordance with the foregoing.  Any Loss
Proceeds made available to Borrower for restoration in accordance herewith, to
the extent not used by Borrower in connection with, or to the extent they
exceed the cost of, such restoration, shall be deposited into the Central
Account, whereupon Lender shall apply the same to reduce the Debt in accordance
with the terms of the Note.

Section 5.14.  Mez Payment Escrow Account.
Provided that no Event of Default has occurred and is continuing, on each
Payment Date during which the Mez Loan is outstanding, Lender shall transfer to
the holder of the Mez Loan which is most senior in priority, as identified in
writing by a joint direction executed by Borrower and the holder of such Mez
Loan, an amount equal to the Mez Payment Amount (which sum shall be deemed
distributions from Borrower to the borrower under such Mez Loan).  Should an Event of Default occur and be
continuing, the sums on deposit in the Mez Payment Escrow Account may be
applied by Lender to the payment of the Debt or any other charges affecting all
or any portion of the Property, as Lender in its sole discretion may determine;
provided, however, that no such application shall be deemed to
have been made by operation of law or otherwise until actually made by Lender
as herein provided.

ARTICLE VI:  CONDEMNATION

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

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rebuilding work and the plans and
specifications therefor) toward the payment of the Debt or to allow such
proceeds to be used for the Work.

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

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

(d)           In the event of a
Taking which is less than a Substantial Taking, Borrower at its sole cost and
expense (whether or not the award shall have been received or shall be
sufficient for restoration) shall proceed diligently to restore, or cause the
restoration of, the remaining Improvements not so taken, to maintain a
complete, rentable, self-contained fully operational facility of the same sort
as existed prior to the Taking in as good a condition as is reasonably
possible.  In the event of such a Taking,
Lender shall receive the Condemnation Proceeds and shall pay over the same:

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

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

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

(e)           In the event Lender is
obligated to or elects to make Condemnation Proceeds available for the
restoration or rebuilding of the Property, such proceeds shall be disbursed in
the manner and subject to the conditions set forth in Section 3.04(b)
hereof.  If, in accordance with this
Article VI, any Condemnation Proceeds are used to reduce the Debt, they shall
be applied in accordance with the provisions of the Note and, with no
prepayment fee or charge of any kind. 
Borrower shall promptly upon request by Lender execute and deliver all
instruments requested by Lender for the purpose of confirming the assignment of
the Condemnation Proceeds to Lender. 
Application of all or any part of the Condemnation Proceeds to the Debt
shall be made

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in accordance with the provisions of Sections
3.06 and 3.07 hereof.  No application of
the Condemnation Proceeds to the reduction of the Debt shall have the effect of
releasing the lien of this Security Instrument until the remainder of the Debt
has been paid in full.  In the case of any
Taking, Lender, to the extent that Lender has not been reimbursed by Borrower,
shall be entitled, as a first priority out of any Condemnation Proceeds, to
reimbursement for all costs, fees and expenses reasonably incurred in the
determination and collection of any Condemnation Proceeds.  All Condemnation Proceeds deposited with
Lender pursuant to this Section, until expended or applied as provided herein,
shall be held in accordance with Section 3.04(b) hereof and shall constitute
additional security for the payment of the Debt and the payment and performance
of Borrower’s obligations, but Lender shall not be deemed a trustee or other
fiduciary with respect to its receipt of such Condemnation Proceeds or any part
thereof.  All awards so deposited with
Lender shall be held by Lender in an Eligible Account, but Lender makes no
representation or warranty as to the rate or amount of interest, if any, which
may accrue on any such deposit and shall have no liability in connection
therewith other than with respect to Lender’s gross negligence or willful
misconduct.  For purposes hereof, any
reference to the award shall be deemed to include interest, if any, which has
accrued thereon.

ARTICLE VII:  LEASES AND RENTS

Section 7.01.  Assignment.  (a) Borrower does hereby bargain,
sell, assign and set over unto Lender, all of Borrower’s interest in the Leases
and Rents.  The assignment of Leases and
Rents in this Section 7.01 is an absolute, unconditional and present assignment
from Borrower to Lender and not an assignment for security and the existence or
exercise of Borrower’s revocable license to collect Rent shall not operate to
subordinate this assignment to any subsequent assignment.  The exercise by Lender of any of its rights
or remedies pursuant to this Section 7.01 shall not be deemed to make Lender a
mortgagee-in-possession.  In addition to
the provisions of this Article VII, Borrower shall comply with all terms,
provisions and conditions of the Assignment.

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

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

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

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

(f)            In addition to the rights which Lender may
have herein, upon the occurrence and during the continuance of any Event of Default,
Lender, at its option, may require Borrower to pay monthly in advance to
Lender, or any receiver appointed to collect the Rents, the fair and reasonable
rental value for the use and occupation of such part of the Property as may be
used and occupied by Borrower and may require Borrower to vacate and surrender
possession of the Property to Lender or to such receiver and, in default
thereof, Borrower may be evicted by summary proceedings or otherwise.

Section
7.02.  Management of Property.  (a) Borrower shall manage the Property or
cause the Property to be managed in a manner which is consistent with the
Approved Manager Standard.  All Space
Leases shall provide for rental rates comparable to then existing local market
rates and terms and conditions which constitute good and prudent business
practice and are consistent with prevailing market terms and conditions, and
shall be arms-length transactions.  All
Leases shall provide that they are subordinate to this Security Instrument and
that the lessees thereunder attorn to Lender. 
Borrower shall deliver copies of all Leases, amendments, modifications
and renewals thereof to Lender. All proposed Leases for the Property shall be
subject to the prior written approval of Lender (which approval shall not be unreasonably
withheld or delayed), provided, however that Borrower may enter into new leases
with unrelated third parties without obtaining the prior consent of Lender
provided that: (i) the proposed tenant is unrelated to a tenant under an
existing Lease; (ii) the proposed leases conform with the requirements of this
Section 7.02; (iii) the space to be leased pursuant to such proposed lease does
not exceed 5,000 square feet; and (iv) the term of the proposed lease inclusive
of all extensions and renewals, does not exceed five (5) years.

(b)           Borrower (i) shall observe and perform all of its material obligations
under the Leases pursuant to applicable Legal Requirements and shall not do or
permit to be done anything to impair the value of the Leases as security for
the Debt; (ii) shall promptly send copies to Lender of all notices of default
which Borrower shall receive under the Leases; (iii) shall, consistent with the
Approved Manager Standard, enforce all of the material terms, covenants and
conditions contained in the Leases to be observed or performed; (iv) shall not
collect any of the Rents under the Leases more than one (1) month in advance
(except that Borrower may collect in advance such security deposits as are
permitted pursuant to applicable Legal Requirements and are commercially
reasonable in the prevailing market); (v) shall not execute any other
assignment of lessor’s interest in the Leases or the Rents except as otherwise
expressly permitted pursuant to this Security Instrument; (vi) shall not cancel
or terminate any of the Leases or accept

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a surrender thereof in any
manner inconsistent with the Approved Manager Standard; (vii) shall not convey,
transfer or suffer or permit a conveyance or transfer of all or any part of the
Premises or the Improvements or of any interest therein so as to effect a
merger of the estates and rights of, or a termination or diminution of the
obligations of, lessees thereunder; (viii) shall not alter, modify or
change the terms of any guaranty of any Major Space Lease or cancel or
terminate any such guaranty; (ix) shall, in accordance with the Approved
Manager Standard, make all reasonable efforts to seek lessees for space as it
becomes vacant and enter into Leases in accordance with the terms hereof; (x)
shall not cancel or terminate or materially modify, alter or amend any Major
Space Lease or Property Agreement without Lender’s consent, which consent will
not be unreasonably withheld or delayed; (xi) shall notify Lender promptly if
any Pad Owner shall cease business operations or of the occurrence of any event
of which it becomes aware affecting a Pad Owner or its property which could
reasonably be expected to have any material effect on the Property; and (xii)
shall, without limitation to any other provision hereof, execute and deliver at
the request of Lender all such further assurances, confirmations and
assignments in connection with the Property as are required herein and as
Lender shall from time to time reasonably require.

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

(d)           If requested by Lender,
Borrower shall furnish, or shall cause the applicable lessee to furnish, to
Lender financial data and/or financial statements in accordance with Regulation
AB for any lessee of the Property if, in connection with a Securitization,
Lender expects there to be, with respect to such lessee or any group of
affiliated lessees, a concentration within all of the mortgage loans included
or expected to be included, as applicable, in such Securitization such that
such lessee or group of affiliated lessees would constitute a Significant
Obligor; provided, however, that in the event the related Space Lease does not
require the related lessee to provide the foregoing information, Borrower shall
use commercially reasonable efforts to cause the applicable lessee to furnish
such information.

(e)           Borrower covenants and agrees with Lender that (i) the Property will be
managed at all times by Manager pursuant to the management agreements approved
by Lender, which

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approval Lender shall not
unreasonably withhold or delay (each, a “Management Agreement”), (ii)
after Borrower has knowledge of a fifty percent (50%) or more change in Control
of the ownership of Manager, Borrower will promptly give Lender notice thereof
(a “Manager Control Notice”) and (iii) the Management Agreement may be
terminated by Lender at any time for cause (including, but not limited to,
Manager’s gross negligence, misappropriation of funds, willful misconduct or
fraud) or at any time following (A) the occurrence and during the continuance
of an Event of Default, or (B) the receipt of a Manager Control Notice  and a substitute managing agent shall be
appointed by Borrower, subject to Lender’s prior written approval, which
approval Lender shall not unreasonably withhold or delay, but which may be
conditioned on, inter alia, a letter from each Rating Agency confirming that
any rating issued by the Rating Agency in connection with a Securitization will
not, as a result of the proposed change of Manager, be downgraded from the then
current ratings thereof, qualified or withdrawn.  Borrower may from time to time appoint a
successor manager to manage the Property with Lender’s prior written consent
which consent shall not be unreasonably withheld or delayed, provided that any
such successor manager shall be a reputable management company which meets the
Approved Manager Standard and each Rating Agency shall have confirmed in
writing that any rating issued by the Rating Agency in connection with a
Securitization will not, as a result of the proposed change of Manager, be
downgraded from the then current ratings thereof, qualified or withdrawn.  Borrower further covenants and agrees that
Borrower shall require Manager (or any successor managers) to maintain at all
times during the term of the Loan worker’s compensation insurance as required
by Governmental Authorities.

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

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

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

(i)            Borrower
shall maintain or cause Manager to maintain Inventory in kind and amount
sufficient to meet hotel industry standards for hotels comparable to the hotel
located at the Premises and at levels sufficient for the operation of the hotel
located at the Premises at historic occupancy levels.

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

(k)           If
Borrower or SPE Pledgor is a party to a Food and Beverage Lease/Operating
Agreement, Borrower and/or SPE Pledgor, as applicable, shall (i) diligently
perform and observe all of the terms, covenants and conditions of the Food and
Beverage Leases/Operating Agreements on the part of Borrower and the SPE Pledgor
to be performed and observed, (ii)

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

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

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

ARTICLE VIII:  MAINTENANCE AND
REPAIR

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

(a)           Borrower shall not (i) desert or abandon the Property, (ii) change the
use of the Property or cause or permit the use or occupancy of any part of the
Property to be discontinued if

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such discontinuance or use
change would violate any zoning or other law, ordinance or regulation; (iii)
consent to or seek any lowering of the zoning classification, or greater zoning
restriction affecting the Property; or (iv) without Lender’s consent, which may
be granted or withheld in Lender’s sole and absolute discretion and may be
subject to such conditions as Lender shall, in its sole and absolute
discretion, impose, take any steps whatsoever to convert the Property, or any
portion thereof, to a condominium or cooperative form of ownership.

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

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

(d)           Borrower represents and warrants to Lender that (i) there are no
fixtures, machinery, apparatus, tools, equipment or articles of personal
property attached or appurtenant to, or located on, or used in connection with
the management, operation or maintenance of the Property, except for the
Equipment and equipment leased by Borrower for the management, operation or
maintenance of the Property in accordance with the Loan Documents; (ii) the
Equipment and the leased equipment constitute all of the fixtures, machinery,
apparatus, tools, equipment and articles of personal property necessary to the
proper operation and maintenance of the Property; and (iii) all of the
Equipment is free and clear of all liens, except for the lien of this Security
Instrument, the lien, if any, of equipment financing permitted pursuant to
Section 2.02(g)(viii) hereof and the Permitted Encumbrances.  All right, title and interest of Borrower in
and to all extensions, improvements, betterments, renewals and appurtenances to
the Property hereafter acquired by, or released to, Borrower or constructed,
assembled or placed by Borrower

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in the Property, and all
changes and substitutions of the security constituted thereby, shall be and, in
each such case, without any further mortgage, encumbrance, conveyance,
assignment or other act by Lender or Borrower, shall become subject to the lien
and security interest of this Security Instrument as fully and completely, and
with the same effect, as though now owned by Borrower and specifically
described in this Security Instrument, but at any and all times Borrower shall
execute and deliver to Lender any documents Lender may reasonably deem
necessary or appropriate for the purpose of specifically subjecting the same to
the lien and security interest of this Security Instrument.

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

ARTICLE IX:  TRANSFER OR
ENCUMBRANCE OF THE PROPERTY

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

Section
9.02.  No Transfer.  Borrower acknowledges that Lender has
examined and relied on the expertise of Borrower and, if applicable, each
General Partner, in owning and operating properties such as the Property in
agreeing to make the Loan and will continue to rely on Borrower’s ownership of
the Property as a means of maintaining the value of the Property as security
for repayment of the Debt and Borrower acknowledges that Lender has a valid
interest in maintaining the value of the Property.  Borrower shall not Transfer, nor permit any
Transfer, without the prior written consent of Lender, which consent Lender may
withhold in its sole and absolute discretion. 
Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in order to declare the
Debt immediately due and payable upon a Transfer without Lender’s consent.  This provision shall apply to every Transfer
regardless of whether voluntary or not, or whether or not Lender has consented
to any previous Transfer.

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

Section
9.04.  Permitted Transfer.  Notwithstanding the foregoing provisions of
this Article IX, a conveyance of the Property in its entirety or a Transfer
(hereinafter, “Sale”) shall be permitted hereunder from time to time
provided that each of the following terms and conditions are satisfied:

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

(b)           If the proposed Sale is to occur at any time
after a Securitization, each Rating Agency shall have delivered written
confirmation that any rating issued by such Rating Agency in connection with
the Securitization will not, as a result of the proposed Sale, be downgraded
from the then current ratings thereof, qualified or withdrawn; provided,
however, that no request for consent to the Sale will be entertained by Lender
if the proposed Sale is to occur within sixty (60) days of any contemplated
sale of the Loan by Lender, whether in connection with a Securitization or
otherwise;

(c)           Borrower gives Lender written notice of the terms of the proposed Sale
not less than sixty (60) days before the date on which such Sale is scheduled
to close and, concurrently therewith, gives Lender (i) all such information
concerning the proposed transferee of the Property (hereinafter, “Buyer”)
as Lender would require in evaluating an initial extension of credit to a
borrower and Lender determines, in its reasonable discretion that the Buyer is
acceptable to Lender in all material respects (it being acknowledged
that any Permitted Transferee shall be deemed acceptable to Lender provided
that not more than 75% in the aggregate of the direct or indirect interests in
Borrower (but without including more
than once one or more transfers of the same interest) has been
transferred subsequent to the Closing Date in one or more transactions and
Borrower continues to be Controlled by the same Persons which Controlled
Borrower prior to such transfer (it being acknowledged that (x) any holder of
more than forty percent of the direct or indirect interest in Borrower may have
veto rights over major decisions which are customary in joint venture
agreements between two fifty percent owners of a Person and the same shall not
constitute a change in Control) and (y) it further being acknowledged that any
Transfer of a direct or indirect interest in Morgans Group LLC otherwise
requiring approval hereunder shall not be subject to the approval of Lender if
Morgans Group LLC continues to own and manage hotel rooms located in full
service luxury or full service upscale properties numbering not less than
eighty percent (80%) of the number of hotel rooms which it owns and eighty
percent (80%) of the number of hotel rooms it manages as of the Closing Date
(and such numbers shall be calculated on a pro rata basis, so that, for
example, if

 90
 

 

Morgans Group LLC has a fifty percent (50%) interest
in a Person that owns two hundred (200) hotel rooms, Morgans Group LLC shall be
deemed to own one hundred (100) hotel rooms) and the conditions set forth in
clauses (A) and (B) of the definition of Permitted Transferee are met) and (ii) a non-refundable application fee
equal to $15,000;

(d)           Borrower pays Lender, concurrently with the closing of any conveyance
of the Property in its entirety or a direct or indirect interest in Borrower of
75% or more (in the aggregate whether in one or a series of transactions but
without including more than once one or more transfers of the same interest) of
the direct or indirect interest in Borrower, a non-refundable assumption
fee in an amount equal to one percent (1%) of the then outstanding Loan Amount
(which fee shall be waived in the event of a Transfer of the type set forth in
clause (y) of Section 9.04(c)(i)) together with all out-of-pocket
costs and expenses, including, without limitation, reasonable attorneys’ fees,
incurred by Lender in connection with the Sale;

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

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

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

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

(i)            In the event the applicable Transfer will
result in Borrower no longer owning the Property, subject to the provisions of
Section 18.32 hereof, such Sale does not relieve Borrower of any personal
liability under the Note or any of the other Loan Documents for any acts or

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events occurring or
obligations arising prior to or simultaneously with the closing of such Sale,
and Borrower executes, without any cost or expense to Lender, such documents
and agreements as Lender shall reasonably require to evidence and effectuate
the ratification of said personal liability;

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

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

ARTICLE X:  CERTIFICATES

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

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

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

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ARTICLE XI:  NOTICES

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

	
  If to Lender:

  	
  Wachovia Bank, National Association

  
	
   

  	
  Commercial Real
  Estate Services

  
	
   

  	
  8739 Research
  Drive URP 4

  
	
   

  	
  NC 1075

  
	
   

  	
  Charlotte, North
  Carolina 28262

  
	
   

  	
  Loan Number:
  509850398

  
	
   

  	
  Attention:
  Portfolio Management

  
	
   

  	
  Fax No.: (704)
  715-0036

  
	
   

  	
   

  
	
  with a copy to:

  	
  Proskauer Rose LLP

  
	
   

  	
  1585 Broadway

  
	
   

  	
  New York, New
  York 10036

  
	
   

  	
  Attn: David J.
  Weinberger, Esq.

  
	
   

  	
  Facsimile No.:
  (212) 969-2900

  
	
   

  	
   

  
	
  If to Borrower:

  	
  To Borrower, at the address first written above, to
  the attention of Chief Financial Officer, Facsimile No. (212) 277-4268,

  
	
   

  	
   

  
	
  with a copy to:

  	
  To Borrower, at the address first written above, to
  the attention of General Counsel, Facsimile No. (212) 277-4268,

  

 

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

ARTICLE XII:  INDEMNIFICATION

Section
12.01.  Indemnification Covering
Property.  In addition, and without
limitation, to any other provision of this Security Instrument or any other
Loan Document, Borrower shall protect, indemnify and save harmless Lender and
its successors and assigns, and each of their agents, employees, officers, directors,
stockholders, partners and members (collectively, “Indemnified Parties”)
for, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown,

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

 94
 

 

or potential conflict
between Lender or such other Indemnified Party that would make such separate
representation advisable.  Any
Indemnified Party will give Borrower prompt notice after such Indemnified Party
obtains actual knowledge of any potential claim by such Indemnified Party for
indemnification hereunder.  The Indemnified
Parties shall not settle or compromise any action, proceeding or claim as to
which it is indemnified hereunder without notice to Borrower.  Notwithstanding the foregoing, so long
as no Default has occurred and is continuing and Borrower is resisting and
defending such action, suit or proceeding as provided above in a prudent and
commercially reasonable manner, in order to obtain the benefit of this Section
12.01 with respect to such action, suit or proceeding, Lender and the
Indemnified Parties agree that they shall not settle such action, suit or
proceeding without obtaining Borrower’s consent which Borrower agrees not to
unreasonably withhold, condition or delay; provided, however, (x)
if Borrower is not diligently defending such action, suit or proceeding in a
prudent and commercially reasonable manner as provided above and Lender has
provided Borrower with thirty (30) days’ prior written notice, or shorter
period if mandated by the requirements of the applicable law, and Borrower has
failed to correct such failure, or (y) failure to settle could, in Lender’s
reasonable judgment, expose Lender to criminal liability, Lender may settle
such action, suit or proceeding without the consent of but upon notice to
Borrower and be entitled to the benefits of this Section 12.01 with respect to
the settlement of such action, suit or proceeding.

ARTICLE XIII:  DEFAULTS

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

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

(b)           if any monthly payment of interest and/or principal due under the Note
(other than the sums described in (a) above) shall not be fully paid on the
date upon which the same is due and payable thereunder; provided, that the
failure of any such amount to be paid when due shall not be an Event of Default
if adequate funds were on deposit in the relevant Sub-Account (or would have
been on deposit therein if Lender had timely allocated such funds thereto from
the Central Account and/or the Rent Account in accordance with the provisions
of Article V hereof);

(c)           if payment of any sum (other than the sums described in (a) above or
(b) above) required to be paid pursuant to the Note, this Security Instrument
or any other Loan Document shall not be paid within five (5) days after Lender
delivers written notice to Borrower that same is due and payable thereunder or
hereunder; provided, that the failure of any such amount to be paid when due
shall not be an Event of Default if adequate funds were on deposit in the
relevant Sub-Account (or would have been on deposit therein if Lender had
timely allocated such funds thereto from the Central Account and/or the Rent
Account in accordance with the provisions of Article V hereof) and, if
required, Borrower timely instructed Lender as to the application of such
funds;

(d)           if Borrower, Guarantor or, if Borrower or Guarantor is a partnership,
any general partner of Borrower or Guarantor, or, if Borrower or Guarantor is a
limited liability company,

 95
 

 

any member of Borrower or
managing member of Guarantor, shall institute or cause to be instituted any
proceeding for the termination or dissolution of Borrower, Guarantor or any
such general partner or member;

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

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

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

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

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

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

(k)           if the Property becomes subject to any lien which is superior to the
lien of this Security Instrument, other than Permitted Encumbrances;

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

 96
 

 

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

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

(o)           if Borrower shall consent to any modification or amendment to the
Declaration of Condominium or the Condominium Documents without the prior
written consent of Lender, which consent shall not be unreasonably withheld or
delayed for any immaterial modification or amendment;

(p)           if Borrower shall fail to pay, when due and payable, all assessments,
common charges and expenses made against the Property pursuant to the
Condominium Document;

(q)           if Borrower fails to comply with any of the applicable terms, covenants
and conditions on Borrower’s part to be complied with pursuant to the
Condominium Documents;

(r)            if Borrower shall vote to increase the
indebtedness of the Condominium without the prior written consent of Lender;

(s)           if any provision of the applicable statutes pursuant to which the
Condominium was established or any section, sentence, clause, phrase or word or
the application thereof in any circumstance, is held invalid and such invalidity
shall affect the lien of this Security Instrument or the rights of Lender under
the Note, this Security Instrument or any of the other Loan Documents;

(t)            if the Condominium shall become subject to
any action for partition commenced by any unit owner and said action has not
been dismissed within thirty (30) days after commencement thereof unless
Borrower, at its own expense, promptly and in good faith with due diligence
works to dismiss said action in which case Borrower shall have a period not to
exceed sixty (60) days to dismiss said action;

(u)           if, after Borrower has used its best efforts to cure the same, the
Condominium Board continues to fail (i) to maintain the Condominium in good
condition and repair, and such failure directly or indirectly decreases the
security value of this Security Instrument, (ii) to promptly comply with all
laws, orders, and ordinances affecting the Condominium or the use thereof, the
failure to comply with which could reasonably be expected to have a Material
Adverse Effect, (iii) to promptly repair, replace or rebuild any part of the
Property located on, about or adjacent to the Premises and the Common Elements,
which may be damaged or destroyed by any casualty or which may be affected by
any condemnation or similar proceeding and (iv) to complete and pay for, within
a reasonable time, any Improvements or other structure which constitutes a
portion of the Property and Common Elements at any time in the process of
construction or repair all to the extent that the Condominium Board is
authorized to so maintain,

 97
 

 

repair, replace, rebuild and
complete the Condominium by the Declaration of Condominium and such default
shall continue for a period of sixty (60) days after written notice from the
Condominium Board thereof specifying such default and requiring the same to be
remedied shall have been given to the person designated from time to time in
accordance with the Declaration of Condominium to receive service of process;

(v)           if (i) Borrower fails to maintain the
Premises as a condominium under the provisions of the Condominium Act or
(ii) 75% or more of the buildings and improvements which comprise a portion of
the Condominium are destroyed or substantially damaged and 75% or more of the
owners of units comprising the Condominium do not duly and promptly resolve to
proceed with the repair or restoration thereof;

(w)          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 Borrower’s right, if any, to timely and properly
contest said rent or other charge, so long as (i) Borrower shall not be in
default under the Ground Lease for failure to pay said rent or other charge
during the pendency of such contest and (ii) Borrower is diligently and
continuously contesting said rent or other charge;

(x)            if
there shall occur any default by Borrower 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 prior to the expiration of
any applicable grace period therein provided, or if any one or more of the
events referred to in the Ground Lease shall occur which would cause the Ground
Lease to terminate without notice or action by the Ground Lessor or which would
entitle the Ground Lessor to terminate the Ground Lease and the term thereof by
giving notice to Borrower, as lessee thereunder, 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 any of the terms, covenants or conditions of the Ground Lease shall in
any manner be modified, changed, supplemented, altered, or amended without the
prior written consent of Lender, or if Borrower shall fail to exercise any
option to renew the Ground Lease or shall fail to or neglect to pursue
diligently all actions necessary to exercise such renewal rights pursuant to
the terms of the Ground Lease; or

(y)           if a default shall occur under any of the other terms, covenants or
conditions of the Note, this Security Instrument or any other Loan Document,
other than as set forth in (a) through (x) above, for ten (10) days after
notice from Lender in the case of any default which can be cured by the payment
of a sum of money, or for thirty (30) days after notice from Lender in the case
of any other default or an additional ninety (90) days if Borrower is
diligently and continuously effectuating a cure of a curable non-monetary
default, other than as set forth in (a) through (x) above.  Notwithstanding the foregoing, Borrower’s
failure to promptly commence the Work subsequent to a casualty or Taking shall
not be a default hereunder if (i) a Substantial Casualty or Substantial Taking
has occurred, (ii) Lender has not made available Loss Proceeds to Borrower for
the Work for any reason other than because a Default exists and (iii) Borrower
has given written notice to Lender that it shall repay the Loan within six (6)
months of Lender applying Loss Proceeds from the Property towards the repayment
of the Debt and Borrower

 98
 

 

diligently seeks
construction financing for the Work during such period and delivers to Lender
evidence thereof.

Section
13.02.  Remedies.  (a) Upon the
occurrence and during the continuance of any Event of Default, Lender may, in
addition to any other rights or remedies available to it hereunder or under any
other Loan Document, at law or in equity, take such action, without notice or
demand, as it reasonably deems advisable to protect and enforce its rights
against Borrower and in and to the Property including, but not limited to, the
following actions, each of which may be pursued singly, concurrently or
otherwise, at such time and in such order as Lender may determine, in its sole
discretion, without impairing or otherwise affecting any other rights and
remedies of Lender hereunder, at law or in equity:  (i) declare all or any portion of the unpaid
Debt to be immediately due and payable; provided, however, that upon the
occurrence of any of the events specified in Section 13.01(i), the entire Debt
will be immediately due and payable without notice or demand or any other
declaration of the amounts due and payable; or (ii) bring an action to
foreclose this Security Instrument and without applying for a receiver for the
Rents, but subject to the rights of the tenants under the Leases, enter into or
upon the Property or any part thereof, either personally or by its agents,
nominees or attorneys, and dispossess Borrower and its agents and servants
therefrom, and thereupon Lender may (A) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every part of the
Property and conduct the business thereat, (B) make alterations, additions,
renewals, replacements and improvements to or on the Property or any part
thereof, (C) exercise all rights and powers of Borrower with respect to the
Property or any part thereof, whether in the name of Borrower or otherwise,
including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Property and
every part thereof, and (D) apply the receipts from the Property or any part
thereof to the payment of the Debt, after deducting therefrom all expenses
(including, without limitation, reasonable attorneys’ fees and disbursements)
reasonably incurred in connection with the aforesaid operations and all amounts
necessary to pay the Impositions, insurance and other charges in connection
with the Property or any part thereof, as well as just and reasonable
compensation for the services of Lender’s third party agents; or (iii) have an
appraisal or other valuation of the Property or any part thereof performed by
an Appraiser (and Borrower covenants and agrees it shall cooperate in causing
any such valuation or appraisal to be performed) and any cost or expense
incurred by Lender in connection therewith shall constitute a portion of the
Debt and be secured by this Security Instrument and shall be immediately due
and payable to Lender with interest, at the Default Rate, until the date of
receipt by Lender; or (iv) sell the Property or institute proceedings for the
complete foreclosure of this Security Instrument, or take such other action as
may be allowed pursuant to Legal Requirements, at law or in equity, for the
enforcement of this Security Instrument in which case the Property or any part
thereof may be sold for cash or credit in one or more parcels; or (v) with or
without entry, and to the extent permitted and pursuant to the procedures
provided by applicable Legal Requirements, institute proceedings for the
partial foreclosure of this Security Instrument, or take such other action as
may be allowed pursuant to Legal Requirements, at law or in equity, for the
enforcement of this Security Instrument for the portion of the Debt then due
and payable, subject to the lien of this Security Instrument continuing
unimpaired and without loss of priority so as to secure the balance of the Debt
not

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then due; or (vi) sell the
Property or any part thereof and any or all estate, claim, demand, right, title
and interest of Borrower therein and rights of redemption thereof, pursuant to
power of sale or otherwise, at one or more sales, in whole or in parcels, in
any order or manner, at such time and place, upon such terms and after such
notice thereof as may be required or permitted by law, at the discretion of
Lender, and in the event of a sale, by foreclosure or otherwise, of less than
all of the Property, this Security Instrument shall continue as a lien on the
remaining portion of the Property; or (vii) institute an action, suit or
proceeding in equity for the specific performance of any covenant, condition or
agreement contained in the Loan Documents, or any of them; or (viii) recover
judgment on the Note or any guaranty either before, during or after (or in lieu
of) any proceedings for the enforcement of this Security Instrument; or (ix)
apply, ex parte, for the appointment of a custodian, trustee, receiver, keeper,
liquidator or conservator of the Property or any part thereof, irrespective of
the adequacy of the security for the Debt and without regard to the solvency of
Borrower or of any Person liable for the payment of the Debt, to which
appointment Borrower does hereby consent and such receiver or other official
shall have all rights and powers permitted by applicable law and such other rights
and powers as the court making such appointment may confer, but the appointment
of such receiver or other official shall not impair or in any manner prejudice
the rights of Lender to receive the Rent with respect to any of the Property
pursuant to this Security Instrument or the Assignment; or (x) require, at
Lender’s option, Borrower to pay monthly in advance to Lender, or any receiver
appointed to collect the Rents, the fair and reasonable rental value for the
use and occupation of any portion of the Property occupied by Borrower and may
require Borrower to vacate and surrender possession to Lender of the Property
or to such receiver and Borrower may be evicted by summary proceedings or
otherwise; or (xi) without notice to Borrower (A) apply all or any portion of
the cash collateral in any Sub-Account and Escrow Account, including any
interest and/or earnings therein, to carry out the obligations of Borrower
under this Security Instrument and the other Loan Documents, to protect and
preserve the Property and for any other purpose permitted under this Security
Instrument and the other Loan Documents and/or (B) have all or any portion of
such cash collateral immediately paid to Lender to be applied against the Debt
in the order and priority set forth in the Note; or (xii) pursue any or all
such other rights or remedies as Lender may have under applicable law or in
equity; provided, however, that the provisions of this Section 13.02(a) shall
not be construed to extend or modify any of the notice requirements or grace
periods provided for hereunder or under any of the other Loan Documents.  Borrower hereby waives, to the fullest extent
permitted by Legal Requirements, any defense Borrower might otherwise raise or
have by the failure to make any tenants parties defendant to a foreclosure
proceeding and to foreclose their rights in any proceeding instituted by
Lender.

(b)           To the extent not prohibited by law, any time after and during the
continuance of an Event of Default Lender shall have the power to sell the Property
or any part thereof at public auction, in such manner, at such time and place,
upon such terms and conditions, and upon such public notice as Lender may deem
best for the interest of Lender, or as may be required or permitted by
applicable law, consisting of advertisement in a newspaper of general
circulation in the jurisdiction and for such period as applicable law may
require and at such other times and by such other methods, if any, as may be
required by law to convey the Property in fee simple with respect to all
portions of the Fee Premises by Lender’s deed with special warranty of title
and, with respect to the Leasehold Premises, by an assignment of the Ground
Lease, to and at the cost

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of the purchaser, who shall
not be liable to see to the application of the purchase money.  The proceeds or avails of any sale made under
or by virtue of this Section 13.02, together with any other sums which then may
be held by Lender under this Security Instrument, whether under the provisions
of this Section 13.02 or otherwise, shall be applied as follows:

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

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

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

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

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

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

(d)           Upon the completion of any sale or sales made by Lender under or by
virtue of this Section 13.02, Lender, or any officer of any court empowered to
do so, shall execute and deliver to the accepted purchaser or purchasers a good
and sufficient instrument, or good and sufficient instruments, granting,
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. 
Lender is hereby irrevocably appointed the true and lawful attorney-in-fact
of Borrower (coupled with an interest), in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the property
and rights so sold and for that purpose Lender may execute all necessary
instruments of conveyance, assignment, transfer and delivery, and may
substitute one or more Persons with like power, Borrower hereby ratifying and
confirming all that its said attorney-in-fact or such substitute or
substitutes shall lawfully do by virtue hereof. 
Nevertheless, Borrower, if so requested by Lender,

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shall ratify and confirm any
such sale or sales by executing and delivering to Lender, or to such purchaser
or purchasers all such instruments as may be advisable, in the sole judgement
of Lender, for such purpose, and as may be designated in such request.  Any such sale or sales made under or by
virtue of this Section 13.02, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or a judgment or decree
of foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of Borrower
in and to the property and rights so sold, and shall, to the fullest extent permitted
under Legal Requirements, be a perpetual bar, both at law and in equity against
Borrower and against any and all Persons claiming or who may claim the same, or
any part thereof, from, through or under Borrower.

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

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

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

(h)           Upon the exercise by Lender of any power, right, privilege, or remedy
pursuant to this Security Instrument which requires any consent, approval,
registration, qualification, or authorization of any Governmental Authority,
Borrower agrees to execute and deliver, or will cause the execution and
delivery of, all applications, certificates, instruments, assignments and other
documents and papers that Lender or any purchaser of the Property may be
required to obtain for such governmental consent, approval, registration,
qualification, or authorization and Lender is hereby irrevocably appointed the
true and lawful attorney-in-fact of Borrower (coupled with an interest), in its
name and stead, to execute all such applications, certificates, instruments,
assignments and other documents and papers.

Section
13.03.  Payment of Debt After Default.  If, following the occurrence of any Event of
Default, Borrower shall tender payment of an amount sufficient to satisfy the
Debt in whole or in part at any time prior to a foreclosure sale of the
Property, and if at the time of such tender prepayment of the principal balance
of the Note is not permitted by the Note or this Security Instrument, Borrower
shall, in addition to the entire Debt, also pay to Lender a sum equal to
interest which would have accrued on the principal balance of the Note at an
interest rate equal

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to the LIBOR Margin for the
Note plus the greater of (x) the then current LIBOR Rate and (y) the then
current average yield for “This Week” as published by the Federal Reserve Board
during the most recent full week preceding the date on which Borrower tenders
such payment in Federal Reserve Statistical Release H.15 (519) for instruments
having a ten (10) year maturity, from the date of such tender to the earlier of
(a) the Maturity Date or (b) the first day of the period during which
prepayment of the principal balance of the Note would have been permitted
together with a prepayment consideration equal to the prepayment consideration
which would have been payable as of the first day of the period during which
prepayment would have been permitted.  If
at the time of such tender, prepayment of the principal balance of the Note is
permitted, such tender by Borrower shall be deemed to be a voluntary prepayment
of the principal balance of the Note and Borrower shall, in addition to the
entire Debt, also pay to Lender the applicable prepayment consideration
specified in the Note and this Security Instrument.

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

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

Section
13.06.  Borrower’s Actions After
Default.  Upon the occurrence and
during the continuance of any Event of Default and immediately upon the
commencement of any action, suit or other legal proceedings by Lender to obtain
judgment for the Debt, or of any other nature in aid of the enforcement of the
Loan Documents, Borrower will (a) after receipt of notice of the institution of
any such action, waive the issuance and service of process and enter its
voluntary appearance in such action, suit or proceeding, and (b) if required by
Lender, consent to the

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appointment of a receiver or
receivers of the Property or any part thereof and of all the earnings,
revenues, rents, issues, profits and income thereof.

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

Section
13.08.  Right to Cure Defaults.  (a) Upon the
occurrence and during the continuance of any Event of Default, Lender or its
agents may, but without any obligation to do so and without notice to or demand
on Borrower and without releasing Borrower from any obligation hereunder, make
or do the same in such manner and to such extent as Lender may deem necessary
to protect the security hereof.  Lender
and its agents are authorized to enter upon the Property or any part thereof
for such purposes, or appear in, defend, or bring any action or proceedings to
protect Lender’s interest in the Property or any part thereof or to foreclose
this Security Instrument or collect the Debt, and the cost and expense thereof
(including reasonable attorneys’ fees to the extent permitted by law), with
interest as provided in this Section 13.08, shall constitute a portion of the
Debt and shall be immediately due and payable to Lender upon demand.  All such costs and expenses incurred by
Lender or its agents in remedying such Event of Default or in appearing in,
defending, or bringing any such action or proceeding shall bear interest at the
Default Rate, for the period from the date so demanded to the date of payment
to Lender.  All such costs and expenses
incurred by Lender or its agents together with interest thereon calculated at
the above rate shall be deemed to constitute a portion of the Debt and be
secured by this Security Instrument.

(b)           If Lender makes any payment or advance that Lender is authorized by
this Security Instrument to make in the place and stead of Borrower (i)
relating to the Impositions or tax liens asserted against the Property, Lender
may do so according to any bill, statement or estimate procured from the
appropriate public office without inquiry into the accuracy of the bill,
statement or estimate or into the validity of any of the Impositions or the tax
liens or claims thereof; (ii) relating to any apparent or threatened adverse
title, lien, claim of lien, encumbrance, claim or charge, Lender will be the
sole judge of the legality or validity of same; or (iii) relating to any other
purpose authorized by this Security Instrument but not enumerated in this Section
13.08, Lender may do so whenever, in its judgment and discretion, the payment
or advance seems necessary or desirable to protect the Property and the full
security interest intended to be created by this Security Instrument.  In connection with any payment or advance
made pursuant to this Section 13.08, Lender has the option and is authorized,
but in no event shall be obligated, to obtain a continuation report of title
prepared by a title insurance company. 
The payments and the advances made by Lender pursuant to this Section
13.08 and the cost and expenses of said title report will be due and payable by
Borrower on demand, together with interest at the Default Rate, and will be
secured by this Security Instrument.

Section
13.09.  Late Payment Charge.  If any portion of the Debt is not paid in full
on or before the day on which it is due and payable hereunder (other than the
principal portion of the

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Debt due on the Maturity
Date), Borrower shall pay to Lender an amount equal to five percent (5%) of such
unpaid portion of the Debt (“Late Charge”) to defray the expense
incurred by Lender in handling and processing such delinquent payment, and such
amount shall constitute a part of the Debt.

Section
13.10.  Recovery of Sums Required to
Be Paid.  Lender shall have the right
from time to time to take action to recover any sum or sums which constitute a
part of the Debt as the same become due and payable hereunder (after the
expiration of any grace period or the giving of any notice herein provided, if
any), without regard to whether or not the balance of the Debt shall be due,
and without prejudice to the right of Lender thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Borrower
existing at the time such earlier action was commenced.

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

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

Section
13.13.  General Provisions Regarding
Remedies.

(a)           Right to Terminate Proceedings. 
Lender may terminate or rescind any proceeding or other action brought
in connection with its exercise of the remedies provided in Section 13.02 at
any time before the conclusion thereof, as determined in Lender’s sole
discretion and without prejudice to Lender.

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

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Property or the liability of
Borrower to pay the Debt.  No waiver by
Lender shall be effective unless it is in writing and then only to the extent
specifically stated.

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

ARTICLE XIV:  COMPLIANCE WITH
REQUIREMENTS

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

(b)           Borrower shall have the right to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Lender, the validity or application of any Legal Requirement and to suspend
compliance therewith if permitted under applicable Legal Requirements, provided
(i) failure to comply therewith may not subject Lender to any civil or criminal
liability, (ii) prior to and during such contest, Borrower shall furnish to
Lender security reasonably satisfactory to Lender, in its discretion, against
loss or injury by reason of such contest or non-compliance with such
Legal Requirement, (iii) no Event of Default shall exist during such
proceedings and such contest shall not otherwise violate any of the provisions
of any of the Loan Documents, (iv) such contest shall not (unless Borrower
shall comply with the provisions of clause (ii) of this Section 14.01(b))
subject the Property to any lien or encumbrance the enforcement of which is not
suspended or otherwise affect the priority of the lien of this Security
Instrument; (v) such contest shall not affect the ownership, use or occupancy
of the Property; (vi) the Property or any part thereof or any interest therein
shall not be in any danger of being sold, forfeited or lost by reason of such
contest by Borrower; (vii) Borrower shall give Lender prompt notice of the
commencement of such proceedings and, upon request by Lender, notice of the
status of such proceedings and/or confirmation of the continuing satisfaction
of the conditions set forth in clauses (i) - (vi) of this Section 14.01(b); and
(viii) upon a final determination of such proceeding, Borrower shall take all
steps necessary to comply with any requirements arising therefrom.

(c)           Borrower shall at all times comply with all applicable Legal Requirements
with respect to the construction, use and maintenance of any vaults adjacent to
the Property.  If by

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reason of the failure to pay
taxes, assessments, charges, permit fees, franchise taxes or levies of any kind
or nature, the continued use of the vaults adjacent to Property or any part
thereof is discontinued, Borrower nevertheless shall, with respect to any
vaults which may be necessary for the continued use of the Property, take such
steps (including the making of any payment) to ensure the continued use of
vaults or replacements.

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

ARTICLE XV:  PREPAYMENT

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

(b)           Borrower may voluntarily prepay the Loan, in whole or in part, on any
Business Day, in accordance with the following provisions:

(i)            Lender shall have received from Borrower not
less than thirty (30) days , nor more than ninety (90) days, prior written
notice specifying the date proposed for such prepayment and the amount which is
to be prepaid (which notice shall be revocable by Borrower up to three (3)
times during the term of the Loan by giving Lender not less than one (1)
Business Day prior written notice of such revocation, provided that Borrower
shall remain obligated to pay Lender’s costs and expenses including, without
limitation, breakage costs incurred by Lender in connection with such
revocation).

(ii)           Borrower shall also pay to Lender all interest due through and
including the last day of the Interest Accrual Period in which such prepayment
is being made, together with any and all other amounts due and owing pursuant
to the terms of the Note, this Security Instrument or the other Loan Documents,
provided that the amount prepaid shall be deposited in an interest-bearing
account until the Final Payment Date, and all interest accruing thereon through
the date immediately preceding the Final Payment Date shall be remitted to
Borrower, provided that Borrower acknowledges that Lender makes no
representation or warranty as to the rate of return.  For the sake of clarity, if Borrower
shall have paid interest on the Payment Date in the month in which the repayment
occurs through the then current Interest Accrual Period and repays the Debt in
full on or before the Final Payment Date, no additional interest shall be due
or payable by Borrower with respect to the period subsequent to the Payment
Date.

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

(iv)          Intentionally omitted.

(v)           Intentionally omitted.

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(vi)          In the event that the
Loan is prepaid in whole or in part prior to the first (1st) anniversary of the
date hereof, Borrower shall pay to Lender, together with such prepayment and
all other amounts due in connection therewith, a non-refundable amount which
shall be deemed earned by Lender upon the funding of the Loan and shall not
count to or be credited to payment of the Principal Amount, any interest
thereon or any other amounts payable under the Note, the Security Instrument or
any of the Loan Documents, equal to the Spread Maintenance Premium.  Thereafter, all prepayments of the Loan shall
be without any prepayment fee or charge of any kind.

(vii)         The Mez Loan shall have
been paid in full on or before the date of any prepayment of the Loan.

ARTICLE XVI:  ENVIRONMENTAL
COMPLIANCE

Section
16.01.  Covenants, Representations and
Warranties.  (a) Borrower
has not, at any time, and, to Borrower’s best knowledge after due inquiry and
investigation, except as set forth in the Environmental Report, no other Person
has at any time, handled, buried, stored, retained, refined, transported,
processed, manufactured, generated, produced, spilled, allowed to seep, leak,
escape or leach, or pumped, poured, emitted, emptied, discharged, injected,
dumped, transferred or otherwise disposed of or dealt with Hazardous Materials
on, to or from the Premises or any other real property owned and/or occupied by
Borrower, and Borrower does not intend to and shall not use the Property or any
part thereof or any such other real property for the purpose of handling,
burying, storing, retaining, refining, transporting, processing, manufacturing,
generating, producing, spilling, seeping, leaking, escaping, leaching, pumping,
pouring, emitting, emptying, discharging, injecting, dumping, transferring or
otherwise disposing of or dealing with Hazardous Materials, except for use and
storage for use of heating oil, cleaning fluids, pesticides and other
substances customarily used in the operation of properties that are being used
for the same purposes as the Property is presently being used, provided such
use and/or storage for use is in compliance with the requirements hereof and
the other Loan Documents and does not give rise to liability under applicable
Legal Requirements or Environmental Statutes or be the basis for a lien against
the Property or any part thereof.  In
addition, without limitation to the foregoing provisions, Borrower represents
and warrants that, to the best of its knowledge, after due inquiry and
investigation, except as previously disclosed in writing to Lender, there is no
asbestos in, on, over, or under all or any portion of the fire-proofing or any
other portion of the Property.

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

(c)           Borrower shall not permit any Hazardous Materials to be handled,
buried, stored, retained, refined, transported, processed, manufactured,
generated, produced, spilled, allowed to seep, leak, escape or leach, or to be
pumped, poured, emitted, emptied, discharged, injected,

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dumped, transferred or
otherwise disposed of or dealt with on, under, to or from the Property or any
portion thereof at any time, except for use and storage for use of heating oil,
ordinary cleaning fluids, pesticides and other substances customarily used in
the operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is
in compliance with the requirements hereof and the other Loan Documents and
does not give rise to liability under applicable Legal Requirements or be the
basis for a lien against the Property or any part thereof.

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

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

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

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

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Environmental Statute, if
any, or issued by any other Governmental Authority.  Borrower covenants that Borrower will comply
with all Environmental Statutes affecting or imposed upon Borrower or the
Property.

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

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

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

(k)           Borrower represents and warrants that except in accordance with all
applicable Environmental Statutes and as disclosed in the Environmental Report,
(i) no underground treatment or storage tanks or pumps or water, gas, or oil
wells are or have been located about the Property, (ii) no PCBs or
transformers, capacitors, ballasts or other equipment that contain

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dielectric fluid containing
PCBs are located about the Property, (iii) no insulating material
containing urea formaldehyde is located about the Property and (iv) no asbestos-containing
material is located about the Property, in a manner which could reasonably be
expected to have a Material Adverse Effect.

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

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

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

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

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

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

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

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those rights and remedies
provided elsewhere in this Security Instrument or the other Loan Documents.

Section 16.03.  Development
and Implementation of Operations and Maintenance Program.  Borrower hereby covenants to prepare or cause
to be prepared an operations and maintenance program (the “O&M Program”)
for the Premises which addresses any requirements of the Environmental Report
and which includes (a) if recommended in the Environmental Report, a plan for
the encapsulation, removal or other action with respect to asbestos containing
material (“ACM”)at the Premises; and (b) compliance with such other
recommendations contained in the Environmental Report.  The O&M Program shall be subject to
Lender’s reasonable approval and within ninety (90) days of the date hereof
Borrower shall provide Lender with evidence reasonably satisfactory to Lender
that the O&M Program has been established and is in operation.  Borrower hereby covenants and agrees that,
during the term of the Loan, including any extension or renewal thereof,
Borrower shall comply in all material respects with the terms and conditions of
the O&M Program.

ARTICLE XVII:  ASSIGNMENTS

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

ARTICLE XVIII:  MISCELLANEOUS

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

Section
18.02.  Cumulative Rights.  The rights of Lender under this Security
Instrument shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. 
No act of Lender shall be construed as an election to proceed under any
one provision herein to the exclusion of any other provision.  Lender shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled, subject to the
terms of this Security Instrument, to every right and remedy now or hereafter
afforded by law.

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

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

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

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

Section
18.07.  No Oral Change.  The terms of this Security Instrument,
together with the terms of the Note and the other Loan Documents, constitute
the entire understanding and agreement of the parties hereto and supersede all
prior agreements, understandings and negotiations between Borrower and Lender
with respect to the Loan.  This Security
Instrument, and any provisions hereof, may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.

Section
18.08.  Waiver of Counterclaim, Etc.  BORROWER HEREBY WAIVES THE RIGHT TO ASSERT A
COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING
BROUGHT AGAINST IT BY LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY
COUNTERCLAIM BORROWER MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE
ASSERTED BY LENDER OR ITS AGENTS, AGAINST BORROWER, OR IN ANY MATTERS
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT
OR THE DEBT.

Section
18.09.  Headings; Construction of
Documents; etc.  The table of
contents, headings and captions of various paragraphs of this Security
Instrument are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions
hereof.  Borrower acknowledges that it
was represented by competent counsel in connection with the negotiation and
drafting of this Security Instrument and the other Loan Documents and that
neither this Security Instrument nor the other Loan Documents shall be subject
to the principle of construing the meaning against the Person who drafted same.

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

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

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with respect to matters for
which Borrower is not, pursuant to applicable Legal Requirements, permitted to
waive the giving of notice.

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

Section
18.13.  Applicable Law.  THIS SECURITY INSTRUMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA.

Section 18.14.  Security
Agreement.  (a) (i) This
Security Instrument is both a real property mortgage, deed to secure debt or
deed of trust, as applicable, and a “security agreement” within the meaning of
the UCC.  The Property includes both real
and personal property and all other rights and interests, whether tangible or
intangible in nature, of Borrower in the Property.  This Security Instrument is filed as a
fixture filing and covers goods which are or are to become fixtures on the
Property.  Borrower by executing and
delivering this Security Instrument has granted to Lender, as security for the
Debt,  a security interest in the
Property to the full extent that the Property may be subject to the UCC (said
portion of the Property so subject to the UCC being called in this Section
18.14 the “Collateral”).  If an
Event of Default shall occur and shall be continuing, Lender, in addition to
any other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the UCC, including, without limiting the
generality of the foregoing, the right to take possession of the Collateral or
any part thereof, and to take such other measures as Lender may deem necessary
for the care, protection and preservation of the Collateral.  Upon request or demand of Lender following
and during the continuance of an Event of Default, Borrower shall, at its
expense, assemble the Collateral and make it available to Lender at a
convenient place acceptable to Lender. 
Borrower shall pay to Lender on demand any and all expenses, including
reasonable legal expenses and attorneys’ fees, incurred or paid by Lender in
protecting its interest in the Collateral and in enforcing its rights hereunder
with respect to the Collateral.  Any
disposition pursuant to the UCC of so much of the Collateral as may constitute
personal property shall be considered commercially reasonable if made pursuant
to a public sale which is advertised at least twice in a newspaper in which
sheriff’s sales are advertised in the county where the Premises is
located.  Any notice of sale, disposition
or other intended action by Lender with respect to the Collateral given to
Borrower in accordance with the provisions hereof at least ten (10) days prior
to such action, shall constitute reasonable notice to Borrower.  The proceeds of any disposition of the
Collateral, or any part thereof, may be

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applied by
Lender to the payment of the Debt in such priority and proportions as Lender in
its discretion shall deem proper.  It is
not necessary that the Collateral be present at any disposition thereof.  Lender shall have no obligation to clean-up
or otherwise prepare the Collateral for disposition.

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

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

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

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

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

(vii)         If Lender sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Lender
and applied to

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the indebtedness of Borrower.  In the event the purchaser of the Collateral
fails to fully pay for the Collateral, Lender may resell the Collateral and
Borrower will be credited with the proceeds of such sale.

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

Section
18.15.  Actions and Proceedings.  Lender has the right to appear in and defend
any action or proceeding brought with respect to the Property in its own name
or, if required by Legal Requirements or, if in Lender’s reasonable judgment,
it is necessary, in the name and on behalf of Borrower, which Lender believes
will adversely affect the Property or this Security Instrument and to bring any
action or proceedings, in its name or in the name and on behalf of Borrower,
which Lender, in its discretion, decides should be brought to protect its
interest in the Property.

Section
18.16.  Usury Laws.  This Security Instrument and the Note are
subject to the express condition, and it is the expressed intent of the
parties, that at no time shall Borrower be obligated or required to pay
interest on the principal balance due under the Note at a rate which could
subject the holder of the Note to either civil or criminal liability as a
result of being in excess of the maximum interest rate which Borrower is
permitted by law to contract or agree to pay. 
If by the terms of this Security Instrument or the Note, Borrower is at
any time required or obligated to pay interest on the principal balance due
under the Note at a rate in excess of such maximum rate, such rate of interest
shall be deemed to be immediately reduced to such maximum rate and the interest
payable shall be computed at such maximum rate and all prior interest payments
in excess of such maximum rate shall be applied and shall be deemed to have
been payments in reduction of the principal balance of the Note.  No application to the principal balance of
the Note pursuant to this Section 18.16 shall give rise to any requirement to
pay any prepayment fee or charge of any kind due hereunder, if any.

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

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

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

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

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

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

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

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

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

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

Section
18.27.  Borrower’s Obligations
Absolute.  Borrower acknowledges that
Lender and/or certain Affiliates of Lender are engaged in the business of
financing, owning, operating, leasing, managing, and brokering real estate and
in other business ventures which may be viewed as adverse to or competitive
with the business, prospect, profits, operations or condition (financial or
otherwise) of Borrower.  Except as set
forth to the contrary in the Loan Documents, all sums payable by Borrower
hereunder shall be paid without notice or demand, counterclaim, set-off,
deduction or defense and without abatement, suspension, deferment, diminution
or reduction, and the obligations and liabilities of Borrower hereunder shall
in no way be released, discharged, or otherwise affected (except as expressly
provided herein) by reason of:  (a) any
damage to or destruction of or any Taking of the Property or any portion
thereof; (b) any restriction or prevention of or interference with any use of
the Property or any portion thereof; (c) any title defect or encumbrance or any
eviction from the Premises or any portion thereof by title paramount or
otherwise; (d) any bankruptcy proceeding relating to Borrower, any General
Partner, or any guarantor or indemnitor, or any action taken with respect to
this Security Instrument or any other Loan Document by any trustee or receiver
of Borrower or any such General Partner, guarantor or indemnitor, or by any
court, in any such proceeding; (e) any claim which Borrower has or might have
against Lender; (f) any default or failure on the part of Lender to perform or
comply with any of the terms hereof or of any other agreement with Borrower; or
(g) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not Borrower shall have notice or knowledge of any of the
foregoing.

Section
18.28.  Publicity.  All promotional news releases, publicity or
advertising by Manager, Borrower or their respective Affiliates through any
media intended to reach the general public shall not refer to the Loan
Documents or the financing evidenced by the Loan Documents, or to Lender or to
any of its Affiliates without the prior written approval of Lender or such
Affiliate, as applicable, in each instance, such approval not to be
unreasonably withheld or delayed. 
Notwithstanding anything herein to the contrary, Borrower shall be
authorized to provide information relating to the Loan Documents or the
financing evidenced by the Loan Documents, or to Lender or to any of its
Affiliates, to rating agencies, underwriters, potential securities investors,
auditors, regulatory authorities and to any Persons which may be entitled to
such information by operation of law and without limiting the foregoing to
issue press releases and make Form 8-K and other securities filings containing
the above-described information as it or its counsel reasonably deems required
by law.  Lender shall be authorized to
provide information relating to the Property, the Loan and matters relating
thereto to rating agencies, underwriters, potential securities investors,
auditors, regulatory authorities and to any Persons

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which may be entitled to
such information by operation of law and may use basic transaction information
(including, without limitation, the name of Borrower, the name and address of
the Property and the Loan Amount) in press releases or other marketing
materials.

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

Section
18.30.  Cooperation with Rating
Agencies.  Borrower covenants and
agrees that in the event the Loan is to be included as an asset of a
Securitization, Borrower shall (a) gather any information reasonably required
by each Rating Agency in connection with such a Securitization, (b) at Lender’s
request, meet with representatives of each Rating Agency to discuss the
business and operations of the Property, (c) cooperate with the reasonable
requests of each Rating Agency and Lender, at Borrower’s sole cost and expense
with respect to the first such request made by Lender following the Closing
Date and at Lender’s expense for any additional requests thereafter, in
connection with all of the foregoing as well as in connection with all other
matters and the preparation of any offering documents with respect thereto,
including, without limitation, entering into any amendments or modifications to
this Security Instrument or to any other Loan Document which may be requested
by Lender to conform to Rating Agency or market standards for a Securitization;
provided, that no such modification shall modify (i) the interest rate payable
under the Note, (ii) the stated maturity of the Note or (iii) the principal
amount of or the amortization of principal under the Note, (d) Section 18.32
hereof, (e) any other material economic term of the Loan or (f) any provision,
the effect of which would increase Borrower’s obligations or decrease Borrower’s
rights under the Loan Documents to more than a de minimis extent.  Borrower acknowledges that the information
provided by Borrower to Lender may be incorporated into the offering documents
for a Securitization and to the fullest extent permitted, Borrower irrevocably
waives all rights, if any, to prohibit such disclosures including, without
limitation, any right of privacy.  Lender
and each Rating Agency shall be entitled to rely on the information supplied
by, or on behalf of, Borrower and Borrower indemnifies and holds harmless the
Indemnified Parties, their Affiliates and each Person who controls such Persons
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as same may be amended from time to time, for,
from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, whether incurred or imposed within or outside
the judicial process, including, without limitation, reasonable attorneys’ fees
and disbursements that arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such information or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required

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to be stated in such
information or necessary in order to make the statements in such information,
or in light of the circumstances under which they were made, not misleading.

Section
18.31.  Securitization Financials.  Borrower covenants and agrees that, upon
Lender’s written request therefor in connection with a Securitization, Borrower
shall, at Lender’s sole cost and expense, promptly deliver (a) audited
financial statements and related documentation prepared by an Independent
certified public accountant that satisfy securities laws and requirements for
use in a public registration statement (which may include up to three (3) years
of historical audited financial statements) and (b) if, at the time one
or more Disclosure Documents are being prepared in connection with a
Securitization, Lender expects that Borrower alone or Borrower and one or more
of its Affiliates collectively, or the Property alone or the Property and any
other parcel(s) of real property, together with improvements thereon and
personal property related thereto, that is “related”, within the meaning of the
definition of Significant Obligor, to the Property (a “Related Property”)
collectively, will be a Significant Obligor, Borrower shall furnish to Lender
upon request (i) the selected financial data or, if applicable, net operating
income, required under Item 1112(b)(1) of Regulation AB and meeting the
requirements thereof, if Lender expects that the principal amount of the Loan,
together with any loans made to an Affiliate of Borrower or secured by a
Related Property that is included in a Securitization with the Loan (a “Related
Loan”), as of the cut-off date for such Securitization may, or if the
principal amount of the Loan together with any Related Loans as of the cut-off
date for such Securitization and at any time during which the Loan and any
Related Loans are included in a Securitization does, equal or exceed ten
percent (10%) (but less than twenty percent (20%)) of the aggregate principal
amount of all mortgage loans included or expected to be included, as
applicable, in the Securitization or (ii) the financial statements required
under Item 1112(b)(2) of Regulation AB and meeting the requirements thereof, if
Lender expects that the principal amount of the Loan together with any Related
Loans as of the cut-off date for such Securitization may, or if the principal
amount of the Loan together with any Related Loans as of the cut-off date for
such Securitization and at any time during which the Loan and any Related Loans
are included in a 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 Securitization. 
Such financial data or financial statements shall be furnished to Lender
within ten (10) Business Days after notice from Lender in connection with the
preparation of Disclosure Documents for the Securitization and, with respect to
the data or financial statements required pursuant to clause (b) hereof, (A)
not later than thirty (30) days after the end of each fiscal quarter of
Borrower and (B) not later than seventy-five (75) days after the end of each
Fiscal Year; provided, however, that Borrower shall not be obligated to furnish
financial data or financial statements pursuant to clauses (A) or (B) of this
sentence with respect to any period for which a filing pursuant to the
Securities Exchange Act of 1934 in connection with or relating to the
Securitization is not required.

Section
18.32.  Exculpation.  Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in this
Section 18.32 to the contrary, Lender shall not enforce the liability and
obligation of Borrower and (a) if Borrower is a partnership, its constituent
partners or any of their respective partners, (b) if Borrower is a trust, its
beneficiaries or any of their respective Partners (as hereinafter defined), (c)
if Borrower is a

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corporation, any of its
shareholders, directors, principals, officers or employees, or (d) if Borrower
is a limited liability company, any of its members and their respective legal,
equitable and beneficial owner (the Persons described in the foregoing clauses
(a) - (d), as the case may be, together with any direct or indirect beneficial
or legal owners of such Persons, are hereinafter referred to as the “Partners”)
to perform and observe the obligations contained in this Security Instrument or
any of the other Loan Documents by any action or proceeding wherein a money
judgment shall be sought against Borrower or the Partners, except that Lender
may bring a foreclosure action, action for specific performance, or other
appropriate action or proceeding (including, without limitation, an action to
obtain a deficiency judgment) solely for the purpose of enabling Lender to
realize upon (i) Borrower’s interest in the Property and (ii) any other
collateral given to Lender under the Loan Documents (the “Default Collateral”);
provided, however, that any judgment in any such action or
proceeding shall be enforceable against Borrower and the Partners only to the
extent of any such Default Collateral. 
The provisions of this Section shall not, however, (a) impair the
validity of the Debt evidenced by the Note or in any way affect or impair the
lien of this Security Instrument or any of the other Loan Documents or the
right of Lender to foreclose this Security Instrument following the occurrence
and during the continuance of an Event of Default; (b) impair the right of
Lender to name Borrower as a party defendant in any action or suit for judicial
foreclosure and sale under this Security Instrument; (c) affect the validity or
enforceability of the Note, this Security Instrument, or any of the other Loan
Documents, or impair the right of Lender to seek a personal judgment against
Guarantor; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of the Assignment; (f) impair the right of
Lender to bring suit for monetary judgment with respect to damages incurred by
Lender resulting from fraud or intentional misrepresentation by Borrower, or
any other Person in connection with this Security Instrument, the Note or the
other Loan Documents, and the foregoing provisions shall not modify, diminish
or discharge the liability of Borrower or the Partners with respect to same;
(g) impair the right of Lender to bring suit for a monetary judgment with
respect to Borrower’s misappropriation of tenant security deposits or Rent, and
the foregoing provisions shall not modify, diminish or discharge the liability
of Borrower or the Partners with respect to same; (h) impair the right of
Lender to obtain Loss Proceeds due to Lender pursuant to this Security
Instrument; (i) impair the right of Lender to enforce the provisions of
Sections 2.02(g), 16.01 or 16.02, inclusive of this Security Instrument, even
after repayment in full by Borrower of the Debt or to bring suit for a monetary
judgment against Borrower or the Partners with respect to any obligation set
forth in said Sections; (j) prevent or in any way hinder Lender from
exercising, or constitute a defense, or counterclaim, or other basis for relief
in respect of the exercise of, any other remedy against any or all of the
collateral securing the Note as provided in the Loan Documents; (k) impair the
right of Lender to bring suit for a monetary judgment with respect to damages
incurred by Lender resulting from any misapplication or conversion of Loss
Proceeds, and the foregoing provisions shall not modify, diminish or discharge
the liability of Borrower or the Partners with respect to same; (l) impair the
right of Lender to sue for, seek or demand a deficiency judgment against
Borrower solely for the purpose of foreclosing the Property or any part
thereof, or realizing upon the Default Collateral; provided, however,
that any such deficiency judgment referred to in this clause (l) shall be
enforceable against Borrower and the Partners only to the extent of any of the
Default Collateral; (m) impair the ability of Lender to bring suit for a
monetary judgment with respect to damages incurred by Lender resulting from
arson or waste to or of the Property or

 121
 

 

damage to the Property committed
by Borrower or its Affiliates; (n) impair the right of Lender to bring a suit
for a monetary judgment in the event of the exercise of any right or remedy
under any federal, state or local forfeiture laws resulting in the loss of the
lien of this Security Instrument, or the priority thereof, against the
Property; (o) be deemed a waiver of any right which Lender may have under
Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy Code
to file a claim for the full amount of the Debt or to require that all
collateral shall continue to secure all of the Debt; (p) impair the right of
Lender to bring suit for monetary judgment with respect to damages incurred by
Lender resulting from any losses resulting from any claims, actions or proceedings
initiated by Borrower (or any Affiliate of Borrower) alleging that the
relationship of Borrower and Lender is that of joint venturers, partners,
tenants in common, joint tenants or any relationship other than that of debtor
and creditor; (q) impair the right of Lender to bring suit for a monetary
judgment for damages incurred by Lender in the event of a Transfer in violation
of the provisions of Article IX hereof, including, without limitation, the
failure to obtain Lender’s consent to a Transfer as, when and to the extent
required thereunder; (r) impair the right of Lender to bring suit for a
monetary judgment in the event that Borrower moves its principal place of
business or its books and records relating to the Property which are governed
by the UCC, or changes its name, its jurisdiction of organization, type of
organization or other legal structure or, if it has one, organizational
identification number, without first giving Lender thirty (30) days prior
written notice or (s) impair the right of Lender to bring suit for a monetary
judgment in the event that Borrower changes its name of otherwise does anything
which would make the information set forth in any UCC Financing Statements
relating to the Property materially misleading without giving Lender thirty
(30) days prior written notice thereof.  The provisions of this Section
18.32 shall be inapplicable to Borrower if (a) any proceeding, action, petition
or filing under the Bankruptcy Code, or any similar state or federal law now or
hereafter in effect relating to bankruptcy, reorganization or insolvency, or
the arrangement or adjustment of debts, shall be filed by, consented to or
acquiesced in by or with respect to Borrower, or if Borrower shall institute
any proceeding for its dissolution or liquidation, or shall make an assignment
for the benefit of creditors or (b) Lender obtains a judgment that
Borrower or any Affiliate of Borrower has, other than in good faith, contested
or in any material way interfered with, directly or indirectly (collectively, a
“Contest”), any foreclosure action, UCC sale or other material remedy
exercised by Lender upon the occurrence of any Event of Default whether by
making any motion, bringing any counterclaim, claiming any defense, seeking any
injunction or other restraint, commencing any action, or otherwise, in which event Lender shall have recourse
against all of the assets of Borrower including, without limitation, any right,
title and interest of Borrower in and to the Property and any partnership
interests in Borrower (but excluding the other assets of such Partners to the
extent Lender would not have had recourse thereto other than in accordance with
the provisions of this Section 18.32).

Section
18.33.  Component Notes.  Lender, at its sole cost and expense, without
in any way limiting Lender’s other rights hereunder, in its sole and absolute
discretion, shall have the right at any time to require Borrower to execute and
deliver “component” notes (including senior and junior notes), in
substitution for one (1) or both of Note A-1 and/or Note A-2, which notes may
be paid in such order of priority as may be designated by Lender, provided that (a) the aggregate principal
amount of such “component” notes shall equal the outstanding principal balance
of the Loan immediately prior to the creation of such “component” notes, (b)
the

 122
 

 

weighted average interest
rate of all such “component” notes shall on the date created equal the interest
rate which was applicable to the Loan immediately prior to the creation of such
“component” notes, (c) the debt service payments on all such “component” notes
shall on the date created equal the debt service payment which was due under
the Loan immediately prior to the creation of such component notes and (d) the
other terms and provisions of each of the “component” notes shall be identical
in substance and substantially similar in form to the Loan Documents.  Borrower shall cooperate with all reasonable
requests of Lender in order to establish the “component” notes and shall
execute and deliver such documents as shall reasonably be required by Lender in
connection therewith, all in form and substance reasonably satisfactory to
Lender, including, without limitation, the severance of security documents if
requested.  It shall be an Event of Default
if Borrower fails to comply with any of the terms, covenants or conditions of
this Section 18.33 after the expiration of fifteen (15) Business Days after
notice thereof.

Section 18.34.  Reallocation
of Loan Amounts.  Lender, without in
any way limiting its other rights hereunder, in its sole and absolute
discretion, shall have the right, at any time prior to a Securitization, to
reallocate the amount of the Loan and the Mez Loan and/or adjust the interest
rate rates thereon provided that (i) the aggregate principal amount of the Loan
and the Mez Loan immediately following such reallocation shall equal the
outstanding principal balance of the Loan and the Mez Loan immediately prior to
such reallocation, and (ii) the initial weighted average interest rate of the
Note and the note evidencing the Mez Loan immediately following such
reallocation shall equal the weighted average interest rate which was
applicable to the Note and the note evidencing the Mez Loan immediately prior
to such reallocation.  Borrower shall
cooperate with all reasonable requests of Lender in order to reallocate the
amount of the Loan and the Mez Loan and shall execute and deliver such
documents as shall reasonably be required by Lender in connection therewith,
including, without limitation, amendments to the Loan Documents and the
documents evidencing or securing the Mez Loan, and endorsements to the Title
Policy and the UCC title insurance policy, all in form and substance reasonably
satisfactory to Lender, and Lender shall pay all costs and expenses in
connection with such reallocation pursuant to this Section, including, without
limitation, any additional title insurance and UCC insurance premiums and any
additional mortgage, mortgage recording, stamp, intangible or other similar tax
required to be paid by any Person under applicable Legal Requirements currently
in effect in connection with the execution, delivery, recordation, filing,
registration, perfection or enforcement of any amendments of the Loan Documents
or the documents evidencing or securing the Mez Loan in connection with the
reallocation.

Section 18.35.  Certain
Matters Relating to Property Located in the State of New York.  Notwithstanding anything contained herein to
the contrary:

(a)           Borrower
represents that this Security Instrument does not encumber property principally
improved or to be improved by one or more structures containing in the
aggregate not more than six (6) residential dwelling units.

(b)           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

 123
 

 

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 improvements on the
Property before using any part of the total of the same for any other purpose.

(c)           Lender
shall have all of the rights against lessees of the Property as set forth in
Section 291(f) of the Real Property Law of New York.

(d)           The
provisions of subsection 4 of Section 254 of the New York Real Property Law
covering the insurance of buildings against loss by fire and the application of
Insurance Proceeds shall not apply to this Security Instrument.  In the event of any conflict, inconsistency
or ambiguity between the provisions of Article III hereof and the provisions of
subsection 4 of Section 254 of the New York Real Property Law covering the
insurance of buildings against loss by fire and the application of Insurance
Proceeds, the provisions of Article III shall control.

(e)           (i)            In the event of any
sale or transfer of the Property, or any part thereof, including any sale or
transfer by reason of foreclosure of this Security Instrument or any prior or
subordinate mortgage or by deed in lieu of any such foreclosure, Borrower shall
timely and duly complete, execute and deliver to Lender all forms and
supporting documentation required by any taxing authority to estimate and fix
any tax payable by reason of such sale or transfer or recording of the deed
evidencing such sale or transfer, including any New York State Real Estate
Transfer Tax payable pursuant to Article 31 of the New York Tax Law and New
York City Real Property Transfer Tax payable pursuant to Chapter 21, Title 11
of the New York City Administrative Code (individually, a “Transfer Tax”
and collectively, the “Transfer Taxes”).

(ii)           Borrower shall pay the
Transfer Taxes that may hereafter become due and payable with respect to any
sale or transfer of the Property described in this Article, and in default of
such payment, Lender may pay the same and the amount of such payment shall be
added to the Debt secured hereby and, unless incurred in connection with a
foreclosure of this Security Instrument or deed in lieu of such foreclosure,
shall be secured by this Security Instrument.

(iii)          Borrower hereby
irrevocably constitutes and appoints Lender as its attorney-in-fact, coupled
with an interest, to prepare and deliver any questionnaire, statement,
affidavit or tax return in connection with any Transfer Tax applicable to any
foreclosure or deed in lieu of foreclosure described in this Article.

(iv)          Borrower shall indemnify
and hold harmless Lender against (i) any and all liability incurred by Lender
for the payment of any Transfer Tax with respect to any transfer of the
Property by reason of foreclosure, and (ii) any and all expenses incurred by
Lender in connection therewith including, without limitation, interest,
penalties and attorneys’ fees.

(v)           The obligation to pay
the Transfer Taxes and indemnify Lender under this Section is a personal
obligation of Borrower, whether or not Borrower is personally obligated to pay
the Debt secured by this Security Instrument, and shall be binding upon and
enforceable against all transferees of the Premises and all successors and
assigns of

 124
 

 

Borrower with the same force and effect as
though each of them had personally executed and delivered this Security
Instrument, notwithstanding any exculpation provision in favor of Borrower with
respect to the payment of any other monetary obligations under this Security
Instrument.

(vi)          In the event that
Borrower fails or refuses to pay a tax payable by Borrower with respect to a
sale or transfer by reason of a foreclosure of this Security Instrument in
accordance with this Section, the amount of the tax, any interest or penalty
applicable thereto and any other amount payable pursuant to Borrower’s
obligation to indemnify Lender under this Section may, at the sole option of
Lender, be paid as an expense of the sale out of the proceeds of the mortgage
foreclosure sale.

(vii)         The provisions of this
Section shall survive any transfer and the delivery of the deed affecting such
transfer.  Nothing in this Section shall
be deemed to grant to Borrower any greater rights to sell, assign or otherwise
transfer the Premises than are expressly provided in Article IX nor to deprive
Lender of any right to refuse to consent to any transaction referred to in this
Section.

(f)            The
clauses and covenants contained in this Security Instrument that are construed
by Section 254 of the New York Real Property Law shall be construed as provided
in those sections (except as provided in Section 18.35(d) hereof and Article
III hereof).  The additional clauses and
covenants contained in this Security Instrument shall afford rights
supplemental to and not exclusive of the rights conferred by the clauses and
covenants construed by Section 254 and shall not impair, modify, alter or
defeat such rights (except as provided in Section 18.35(d) hereof and Article III
hereof), notwithstanding that such additional clauses and covenants may relate
to the same subject matter or provide for different or additional rights in the
same or similar contingencies as the clauses and covenants construed by Section
254.  The right of Lender arising under
the clauses and covenants contained in this Security Instrument shall be
separate, distinct and cumulative and none of them shall be in 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, anything herein or otherwise to the contrary
notwithstanding.  In the event of any
inconsistencies between the provisions of Section 254 and the provisions of
this Security Instrument, the provisions of this Security Instrument shall
prevail.

Notwithstanding anything
to the contrary in this Security Instrument, the maximum amount of principal
indebtedness secured by this Security Instrument or which under any contingency
may be secured by this Security Instrument is $217,000,000.

Section 18.36.  Assignment
Upon Repayment.  At Borrower’s
request, upon (a) Borrower’s prepayment or repayment of the Debt in full,
whether by prepayment or otherwise and (b) payment by Borrower of Lender’s reasonable counsel fees and disbursements and
other reasonable costs, if any, and provided Borrower (i) refinances
the Loan through any institution other than Lender, or (ii) sells any of
the Premises, and an institution other than Lender is involved in the financing of such sale, Lender shall deliver
to Borrower or Borrower’s designee (x) an assignment of the Note, this Security Instrument and the
other Loan Documents, without recourse, representation or warranty,
together with the Note (or an affidavit of lost note) duly

 125
 

 

endorsed by
Lender to Borrower’s designee, or (y) a satisfaction and release of lien in
respect hereof, in recordable form, as well as all appropriate UCC termination
statements and the release and termination of all other security for the
Loan.  Borrower shall pay all of Lender’s
reasonable out-of-pocket costs and expenses incurred in connection with the
foregoing.

Section 18.37.  Primary
Servicer.  Notwithstanding anything
to the contrary contained herein or in any other Loan Document, in the event
that Note A-1 and Note A-2 are held by different Persons, Borrower shall be
required to deal with only one Person acting on behalf of all Persons
comprising Lender (the “Primary Servicer”), with respect to any
consents, approvals or notices required or permitted from, or to, Lender
pursuant to the Loan Documents (it being understood that the Primary Servicer
may need to consult with other Persons that hold a portion of Lender’s rights
and obligations under the Loan or with the Rating Agencies in connection with
any such consent, approval or notice and that a so-called “special servicer”
may act as such Primary Servicer). 
Lender may replace such Primary Servicer with another Primary Servicer
at any time in Lender’s sole discretion. 
As of the date hereof, Wachovia Bank, National Association is hereby
designated as the Primary Servicer and unless and until Borrower is notified by
Wachovia Bank, National Association of a new Primary Servicer, Borrower shall
be permitted to rely conclusively and irrevocably on such designation.

 126
 

 

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

	
  Borrower’s Organizational Identification

  	
  HENRY HUDSON HOLDINGS LLC,

  
	
  Number:

  	
  13-4035148

  	
   

  	
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc S. Gordon

  	
   

  
	
   

  	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, NATIONAL

  ASSOCIATION, a national banking association

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
							

 

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

	
  HUDSON PLEDGOR LLC, a Delaware limited

  
	
  liability company, SPE Pledgor

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Marc S. Gordon

  	
   

  
	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
  58th STREET BAR
  COMPANY LLC, a Delaware

  
	
  limited liability company, SPE Pledgor

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Marc S. Gordon

  	
   

  
	
   

  	
  Name:Marc S. Gordon

  
	
   

  	
  Title: Authorized Signatory

  

 

 127
 

 

 

	
  HUDSON MANAGING MEMBER LLC,

  
	
  a Delaware limited liability company, SPE Pledgor

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Marc S. Gordon

  	
   

  
	
   

  	
  Name: Marc S. Gordon

  
	
   

  	
  Title: Authorized Signatory

  

 

 128

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