Document:

exv10w5

 

Exhibit 10.5

Recording Requested by and

when recorded return to:

WELLS FARGO BANK, N.A.

Commercial Mortgage Origination

MAC # A0194-093

45 Fremont Street, 9th Floor

San Francisco, California 94105

Attention: CMO Loan Admin.

Loan No. : 31-0900266A

DEED OF TRUST

and

ABSOLUTE ASSIGNMENT OF RENTS

AND LEASES

and

SECURITY AGREEMENT

(AND FIXTIURE FILING)

The parties to this DEED OF TRUST AND ABSOLUTE ASSIGNMENT OF RENTS AND LEASES AND SECURITY
AGREEMENT (AND FIXTURE FILING) (“Deed of Trust”), dated as of De Cembe r 21, 2 0 0
0
are BARBER LANE ASSOCIATES L.P., a California limited partnership
(“Trustor”), with a mailing address at 490 California Ave .4th Floor~Palo
AltoLCA
943 01, AMERICAN SECURITIES COMPANY, a California corporation (“Trustee”), with a mailing
address at 1320 Willow Pass Road, Suite 205, Concord, California 94520, and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Beneficiary”), with a mailing address at 1320 Willow Pass Road, Suite 205,
Concord, California 94520.

RECITALS

	A.	 	BARBER LANE ASSOCIATES L.P., a California limited partnership
(“Borrower”) proposes to borrow from Beneficiary, and Beneficiary proposes to lend to
Borrower the principal
sum of EIGHT MILLION AND NO/100THS DOLLARS ($8,000,000.00) (“Loan”). The
Loan is evidenced by a promissory note (“Note”) executed by Borrower, dated the date of this Deed
of Trust, payable to the order of Beneficiary in the principal amount of the Loan. The maturity
date of the loan is
February 1, 201:L.

	B.	 	The loan documents include this Deed of Trust, the Note and the other documents described in
the Note as Loan Documents (“Loan Documents”).

ARTICLE 1. DEED OF TRUST

	1.1	 	GRANT. For the purposes of and upon the terms and conditions of this Deed of Trust,
Trustor irrevocably
grants, conveys and assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale
and right of

 

 

	 	 	entry and possession, all cstatc, right, title and interest which Trustor now has or may
hereafter acquire in, to, under or derived from any or all of the following:

	 	a.	 	That real property (“Land”) located in Milpitas, county of Santa
Clara, state of California, and more particularly described on Exhibit A
attached hereto;
	 
	 	b.	 	All appurtenances, easements, rights of way, water and water rights, pumps, pipes,
flumes and ditches and ditch rights, water stock, ditch and/or reservoir stock or
interests, royalties, development rights and credits, air rights, minerals, oil rights,
and gas rights, now or later used or useful in connection with, appurtenant to or related
to the Land;
	 
	 	c.	 	All buildings, structures, facilities, other improvements and fixtures now or
hereafter located on the Land;
	 
	 	d.	 	All apparatus, equipment, machinery and appliances and all accessions thereto and
renewals and replacements thereof and substitutions therefor used in the operation or
occupancy of the Land, it being intended by the parties that all such items shall be
conclusively considered to be a part of the Land, whether or not attached or affixed to
the Land;
	 
	 	e.	 	All land lying in the right-of-way of any street, road, avenue, alley or
right-of-way opened, proposed or vacated, and all sidewalks, strips and gores of land
adjacent to or used in connection with the Land;
	 
	 	f.	 	All additions and accretions to the property described above;
	 
	 	g.	 	All licenses, authorizations, certificates, variances, consents, approvals and
other permits now or hereafter pertaining to the Land and all estate, right, title and
interest of Trustor in, to, under or derived from all tradenames or business names
relating to the Land or the present or future development, construction, operation or use
of the Land; and
	 
	 	h.	 	All proceeds of any of the foregoing.

All of the property described above is hereinafter collectively defined as the “Property”. The
listing of specific rights or property shall not be interpreted as a limitation of general
terms.

ARTICLE 2. OBLIGATIONS SECURED

	2.1	 	OBLIGATIONS SECURED. Trustor makes the foregoing grant and assignment for the purpose
of securing the following obligations (“Secured Obligations”):

	 	a.	 	Full and punctual payment to Beneficiary of all sums at any time owing under the Note;
	 
	 	b.	 	Payment and performance of all covenants and obligations of Trustor under this Deed
of Trust including, without limitation, indemnification obligations and advances made to
protect the Property;
	 
	 	c.	 	Payment and performance of all additional covenants and obligations of Borrower and
Trustor under the Loan Documents;
	 
	 	d.	 	Payment and performance of all covenants and obligations, if any, which any rider
attached as an exhibit to this Deed of Trust recites are secured hereby;
	 
	 	e.	 	Payment and performance of all future advances and other obligations that the then
record owner of all or part of the Property may agree to pay and/or perform (whether as
principal, surety or guarantor) for

 

 

	 	 	 	the benefit of Beneficiary, when the obligation is evidenced by a writing which recites
that it is secured by this Deed of Trust;
	 
	 	f.	 	All interest and charges on all obligations secured hereby including, without
ltation, prepayment charges, late charges and loan fees; and
	 
	 	g.	 	All modifications, extensions and renewals of any of the obligations secured
hereby, however evidenced, including, without limitation: (i) modifications of the
required principal payment dates or interest payment dates or both, as the case may be,
deferring or accelerating payment dates wholly or partly; and (ii) modifications,
extensions or renewals at a different rate of interest whether or not any such
modification, extension or renewal is evidenced by a new or additional promissory note
or notes.

	2.2	 	OBLIGATIONS. The term “obligations” is used herein in its broadest and most
comprehensive sense and shall be deemed to include, without limitation, all interest and
charges, prepayment charges, late charges and loan fees at any time accruing or assessed on
any of the Secured Obligations.

	2.3	 	INCORPORATION. All terms and conditions of the documents which evidence any of the
Secured Obligations are incorporated herein by this reference. All perso::rs who may have or
acquire an interest in the Property shall be deemed to have notice of the terms of the Secured
Obligations and to have notice that the rate of interest on one or more Secured Obligation may
vary from time to time.

ARTICLE 3. ABSOLUTE ASSIGNMENT OF RENTS AND LEASES

	3.1	 	ASSIGNMENT. Trustor irrevocably assigns to Beneficiary all of Trustor’s right, title
and interest in, to and under: (a) all present and future leases of the Property or any
portion thereof, all licenses and agreements relating to the management, leasing or operation
of the Property or any portion thereof, and all other agreements of any kind relating to the
use or occupancy of the Property or any portion thereof, whether such leases, licenses and
agreements are now existing or entered into after the date hereof (“Leases”); and (b) the
rents, issues, deposits and profits of the Property, including, without limitation, all
amounts payable and all rights and benefits accruing to Trustor under the Leases
(“Payn:.ents”). The term “Leases” shall also include all guarantees of and security for the
tenants‘ performance thereunder, and all amendments, extensions, renewals or
modifications thereto which are permitted hereunder. This is a present and absolute
assignment, not an assignment for security purposes only, and Beneficiary’s right to the
Leases and Payments is not contingent upon, and may be exercised without possession of, the
Property.

	3.2	 	GRANT OF LICENSE. Notwithstanding anything to the contrary in this Deed of Trust,
Beneficiary confers upon Trustor a revocable license ("License") to
collect and retain the Payments as they become due and payable and to exercise and enjoy all
of its benefits and privileges of landlord under the Lease(s), until the occurrence of a
Default (as hereinafter defined). Upon a Default, the License shall be automatically revoked
and Beneficiary may collect and apply the Payments pursuant to the terms hereof without notice
and without taking possession of the Property. Upon Tmstors cure of the Default, Beneficiary
shall re-confer, upon Trustor a revocable license to collect and retain the Payments as they
become due and payable, until the occurrence of a Default (as herein defined). All Payments
thereafter collected by Tmstor shall be held by Trustor as trustee under a constructive trust
for the benefit of Beneficiary. Trustor hereby irrevocably authorizes and directs the tenants
under the Leases to rely upon and comply with any notice or demand by Beneficiary for the
payment to Beneficiary of any rental or other sums which may at any time become due under the
Leases, or for the performance of any of the tenants‘ undertakings under the
Leases, and the tenants shall have no right or duty to inquire as to whether any Default has
actually occurred or is then existing. Trustor hereby relieves the tenants from any liability
to Trustor by reason of relying upon and complying with any such notice or demand by
Beneficiary. Beneficiary may apply, in its sole discretion, any Payments so collected by
Beneficiary against any Secured Obligation or any other obligation of Borrower, Trustor or any
other person or entity, under any document or instrument related to or executed in cormection
with the Loan Documents, whether existing on the date hereof or hereafter

 

 

	 	 	arising. Collection of any Payments by Beneficiary shall not cure or waive any Default or
notice of Default or invalidate any acts done pursuant to such notice.
	 
	3.3	 	EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause
Beneficiary to be: (a) a mortgagee in possession; (b) responsible or liable for the control,
care, management or repair of the Property or for performing any of the terms, agreements,
undertakings, obligations, representations, warranties, covenants and conditions of the
Leases; (c) responsible or liable for any waste committed on the Property by the tenants under
any of the Leases or by any other parties; for any dangerous or defective condition of the
Property; or for any negligence in the management, upkeep, repair or control of the Property
resulting in loss or injury or death to any tenant, licensee, employee, invitee or other
person; or (d) responsible for or impose upon Beneficiary any duty to produce rents or
profits. Except for the gross negligence or willfull misconduct of Beneficiary, Beneficiary
shall not directly or indirectly be liable to Trustor or any other person as a consequence of:
(e) the exercise or failure to exercise any of the rights, remedies or powers granted to
Beneficiary hereunder; or (f) the failure or refusal of Beneficiary to perform or discharge
any obligation, duty or liability of Trustor arising under the Leases.

3.4 COVENANTS-LONG TERM LEASES.

	 	a.	 	All Leases. Trusto.r shall, at Trustor’s sole cost and expense:

	 	(i)	 	perform all obligations of the landlord under the Leases and use
reasonable efforts to enforce performance by the tenants of all obligations of the
tenants under the Leases;
	 
	 	(ii)	 	use reasonable efforts to keep the Property leased at all times to
tenants which Trustor reasonably and in good faith believes are creditworthy at
rents not less than the fair market rental value (including, but not limited to,
free or discounted rents to the extent the market so requires);
	 
	 	(iii)	 	promptly upon Beneficiary’s request, deliver to Beneficiary a copy of
each requested Lease and all amendments thereto and waivers thereof; and
	 
	 	(iv)	 	promptly upon Beneficiary’s request, execute and record any additional
assignments of landlord’s interest under any Lease to Beneficiary and specific
subordination of any Lease to this Deed of Trust, in form and substance
satisfactory to Beneficiary.

Unless consented to in writing by Beneficiary or otherwise permitted under any other
provision of the Loan Documents, Tmstor shall not:

	 	(v)	 	grant any tenant under any Lease any option, right of first refusal or
other right to purchase all or any portion of the Property under any circumstances;
	 
	 	(vi)	 	grant any tenant under any Lease any right to prepay rent more than I month in
advance;
	 
	 	(vii)	 	except upon Beneficiary’s request, execute any assignment of landlord’s interest
in any Lease; or
	 
	 	(viii)	 	collect rent or other sums due under any Lease in advance, other than to collect
rent 1 month in advance of the time when it becomes due.

Any such attempted action in violation of the provisions of this Section shall be null
and void.

Trustor shall deposit with Beneficiary to be held by Beneficiary in an interest-bearing
account for the benefit of Trustor any sums received by Trustor in consideration of any
termination, modification or amendment of any Lease or any release or discharge of any
tenant under any Lease from any obligation thereunder and any such sums received by
Trustor shall be held in trust by Trustor for such purpose.

 

 

Notwithstanding the foregoing, so long as no Default exists, the portion of any such sum
received by Trustor with respect to any Lease which is less than $50,000 shall be payable to
Trustor. All such sums received by Beneficiary with respect to any Lease shall be deemed
“Impounds” (as defined in Section 6.12b) and shall be deposited by Beneficiary into a pledged
account in accordance with Section 6.12b. If no Default exists, Beneficiary shall release
such Impounds to Trustor once a month as necessary to pay or reimburse Trustor for such
tenant improvements, brokerage commissions and other leasing costs as may be required to
re-tenant the affected space; provided, however, Beneficiary shall have received and approved
each of the following for each tenant for which such costs were incurred; (1) Trustor’s
written request for such release, including the name of the tenant, the location and net
rentable area of the space and a description and cost breakdown of the tenant improvements or
other leasing costs covered by the request; (2) Trustor’s certification that any portions of
the tenant improvements or the portions requested have been completed lien-free and in a
workmanlike manner; (3) a fully executed Lease, or extension or :renewal of the current
Lease; (4) upon the final disbursement an estoppel certificate executed by the tenant
including its acknowledgement that all tenant improvements have been satisfactorily
completed; and (5) such other information with respect to such costs as Beneficiary may
require. Following the re-tenanting of all affected space (including, without limitation, the
completion of all tenant improvements), and provided no Default exists, Beneficiary shall
release any remaining such Impounds relating to the affec ted space to Trustor. Tmstor shall
construct all tenant improvements in a workmanlike manner and in accordance with all
applicable laws, ordinances, rules and regulations.

	 	b.	 	Manor Leases. Trustor shall, at Trustor’s sole cost and expense, give Beneficiary
prompt written notice of any material default by landlord or tenant under any Major Lease (as
defined below). Unless consented to in writing by Beneficiary or otherwise permitted under any
other provision of the Loan Documents, Trustor shall not:

	 	(i)	 	enter into any Major Lease which (aa) is not on fair market terms (which terms
may include free or discounted rent to the extent the market so requires); (bb) does not
contain a provision requiring the tenant to execute and deliver to the landlord an
estoppel certificate in form and substance satisfactory to the landlord promptly upon
the landlord’s request; or (cc) allows the tenant to assign or sublet the premises
without the landlord’s consent;
	 
	 	(ii)	 	reduce any rent or other sums due from the tenant under any Major Lease;
	 
	 	(iii)	 	ternunate or materially modify or amend any Major Lease; or
	 
	 	(iv)	 	release or discharge the tenant or any guarantor under any Major Lease from any
material obligation thereunder.

Any such attempted action in violation of the provisions of this Section shall be null and
void.

“Major Lease”, as used herein, shall mean any Lease, which is, at any time: (1) a Lease of
more than 20% of the total rentable area of the Property, as reasonably determined by
Beneficiary; or (2) a Lease which generates a gross base monthly rent exceeding 20% of the
total gross base monthly rent generated by all Leases (excluding all Leases under which the
tenant: is then in default), as reasonably determined by Beneficiary. Trustor’s obligations
with respect to Major Leases shall be governed by the provisions of Section 3.4a as well as
by the provisions of this Section.

	 	c.	 	Failure to Deny Request. Beneficiary’s failure to deny any written request by Trustor
for Beneficiary’s consent under the provisions of Sections 3.4a or 3.4b within 10 Business
Days after Beneficiary’s receipt of such request (and all documents and information reasonably
related thereto) shall be deemed to constitute Beneficiary’s consent to such request.

 

 

	3.5	 	ESTOPPEL CERTIFICATES. Within 30 days after request by Beneficiary, Trustor shall
deliver to Beneficiary and to any party designated by Beneficiary, estoppel certificates
relating to the Leases executed by Trustor and by each of the tenants, in form and substance
acceptable to Beneficiary; provided, however, if any tenant shall fail or refuse to so
execute and deliver any such estoppel certificate upon request, Trustor shall use reasonable
efforts to cause such tenant to execute and deliver such estoppel certificate but such
tenant’s continued failure or refusal to do so, despite T:rustor-’s reasonable efforts, shall
not constitute a default by Trustor under this Section.
	 
	3.6	 	RIGHT OF SUBORDINATION. Beneficiary may at any time and from time to time by specific
written instrument intended for the purpose unilaterally subordinate the lien of this Deed of
Trust to any Lease, without joinder or consent of, or notice to, Tmstor, any tenant or any
other person. Notice is hereby given to each tenant under a Lease of such right to
subordinate. No subordination referred to in this Section shall constitute a subordination to
any lien or other encumbrance, whenever arising, or improve the right of any junior
lienholder. Nothing herein shall be construed as subordinating this Deed of Trust to any
Lease.

ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING

	4.1	 	SECURITY INTEREST. Trustor grants and assigns to Beneficiary a security interest to
secure payment and performance of all of the Secured Obligations, in all of the following
described personal property in which Trustor now or at any time hereafter has any interest
(“Collateral”):

All goods, building and other materials, supplies, work in process, equipment,
machinery, fixtures, furniture, furnishings, signs and other personal property,
wherever situated, which are or are to be incorporated into, used in connection with or
appropriated for use on the Property; all rents, issues, deposits and profits of the
Property (to the extent, if any, they are not subject to the Absolute Assignment of
Rents and Leases); all inventory, accounts, cash receipts, deposit accounts, impounds,
accounts receivable, contract rights, general intangibles, chattel paper, instruments,
documents, notes, drafts, letters of credit, insurance policies, insurance and
condemnation awards and proceeds, any other rights to the payment of money, trade
names, trademarks and service marks arising from or related to the Property or any
business now or hereafter conducted thereon by Trustor; all permits, consents,
approvals, licenses, authorizations and other rights granted by, given by or obtained
from, any governmental entity with respect to the Property; al.[ deposits or other
security now or hereafter made with or given to utility companies by Trustor with
respect to the Property; all advance payments of insurance premiums made by Trustor
with respect to the Property; all plans, drawings and specifications relating to the
Property; all loan funds held by Beneficiary, whether or not disbursed; all funds
deposited with Beneficiary pursuant to any Loan Document, all reserves, deferred
payments, deposits, accounts, refunds, cost savings and payments of any kind related to
the Property or any portion thereof, including, without limitation, all “Impounds” as
defined herein; together with all replacements and proceeds of, and additions and
accessions to, any of the foregoing, and all books, records and files relating to any
of the foregoing.

As to all of the above described personal property which is or which hereafter becomes a
“fixture” under applicable law, this Deed of Trust constitutes a fixture filing under the
California Uniform Commercial Code, as amended or recodified from time to time (“UCC”).

	4.2	 	RIGHTS OF BENEFICIARY. In addition to Beneficiary’s rights as a “Secured Party” under
the UCC, Beneficiary may, but shall not be obligated to, at any time without notice and at the
expense of Trustor:

(a) give notice to any person of Beneficiary‘s rights hereunder and enforce such
rights at law or in equity;

(b) insure, protect, defend and preserve the Collateral or any rights or interests of
Beneficiary therein; and

(c) inspect the Collateral. Notwithstanding the above, in no event shall Beneficiary be
deemed to have accepted any property other than cash in satisfaction of any obligation of
Trustor to Beneficiary unless Beneficiary shall make an express written election of said
remedy under the UCC or other applicable law.

 

 

	4.3	 	ADDITIONAL RIGHTS OF BENEFICIARY UPON DEFAULT. Upon the occurrence of a Default
hereunder, then in addition to all of Beneficiary’s rights as a “Secured Party” under the UCC
or otherwise at law:

	 	a.	 	Sale of Collateral. Beneficiary may: (i) upon written notice, require
Trustor to assemble any or all of the Collateral and make it available to Beneficiary at
a place designated by Beneficiary; (ii) without prior notice, enter upon the Property or
other place where any of the Collateral may be located and take possession of, collect,
sell and dispose of any or all of the Collateral, and store the same at locations
acceptable to Beneficiary at Trustor’s expense; or (iii) sell, assign and deliver at any
place or in any lawful manner all or any part of the Collateral and bid and become
purchaser at any such sales; and
	 
	 	b.	 	Other Rights. Beneficiary may, for the account of Trustor and at
Trustor‘s expense: (i) operate, use, consume, sell or dispose of the
Collateral as Beneficiary deems appropriate for the purpose of performing any or all of
the Secured Obligations; (ii) enter into any agreement, compromise or settlement
including insurance claims, which Beneficiary may deem desirable or proper with respect
to any of the Collateral; and (iii) endorse and deliver evidences of title for, and
receive, enforce and collect by legal action or otherwise, all indebtedness and
obligations now or hereafter owing to Trustor in connection with or on account of any or
all of the Collateral.

Trustor acknowledges and agrees that a disposition of the Collateral in accordance with
Beneficiary’s rights and remedies as heretofore provided is a disposition thereof in a
commercially reasonable manner and that 5 days prior notice of such disposition is
commercially reasonable notice. Tmstor further agrees that any sale or other disposition of
all or any portion of the Collateral may be applied by Beneficiary first to the reasonable
expenses in connection therewith, including reasonable attorneys’ fees and disbursements, and
then to the payment of the Secured Obligations.

	4.4	 	POWER OF ATTORNEY. Trustor hereby irrevocably appoints Beneficiary as Trustor’s
attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact,
Beneficiary may, without the obligation to do so, in Beneficiary’s name or in the name of Trus
tor, but prior to a Default only if Tmstor fails to do so within ten (10) days after written
notice from Beneficiary prepare, execute, file and record financing statements, continuation
statements, applications for registration and like papers necessary to create, perfect or
preserve any of Beneficiary’s security interests and rights in or to any of the Collateral,
and upon a Default hereunder, take any other action required of Trustor; provided,
however, that Beneficiary as such attorney-infact shall be accountable only for such
funds as are actually received by Beneficiary.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES

	5.1	 	REPRESENTATIONS AND WARRANTIES. Tmstor represents and warrants to Beneficiary that,
to Tmstor’s current actual knowledge after reasonable investigation and inquiry, the following
statements are true and correct as of the Effective Date:

	 	a.	 	Legal Status. Tmstor and Borrower are duly organized and existing and in
good standing under the laws of the state(s) in which Trustor and Borrower are
organized. Tmstor and Borrower are qualified or licensed to do business in all
jurisdictions in which such qualification or licensing is required.
	 
	 	b.	 	Permits. Trustor and Borrower possess all permits, franchises and
licenses and all rights to all trademarks, trade names, patents and fictitious names, if
any, necessary to enable Trustor and Borrower to conduct the business(es) in which
Trustor and Borrower are now engaged in compliance with applicable law.

 

 

	 	c.	 	Authorization and Validity. The execution and delivery of the Loan Documents have
been duly authorized and the Loan Documents constitute valid and binding obligations of
Trustor, Borrower or the party which executed the same, enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy, insolvency,
moratorium or other laws affecting the enforcement of creditors’ rights, or by the
application of rr les of equity.
	 
	 	d.	 	Violations. The execution, delivery and performance b y Trustor and Borrower of each
of the Loan Documents do not violate any provision of any law or regulation, or result in any
breach or default under any contract, obligation, indenture or other instrument to which
Trustor or Borrower is a party or by which Trustor or Borrower is bound.
	 
	 	e.	 	Litigation. There are no pending or threatened actions, claims, investigations, suits
or proceedings before any governmental authority, court or administrative agency which may
adversely affect the financial condition or operations of Trustor or Borrower other than those
previously disclosed in writing by Tmstor or Borrower to Beneficiary.
	 
	 	f.	 	Financial Statements. The fmancial statements of Trustor and Borrower, of each
general partner (if Trustor or Borrower is a partnership), of each member (if Trustor or
Borrower is a limited liability company) and of each guarantor, if any, previously delivered
by Trustor or Borrower to Beneficiary: (i) are materially complete and correct; (ii) present
fairly the fmancial condition of such party; and (iii) have been prepared in accordance with
the same accounting standard used by Trustor or Borrower to prepare the financial statements
delivered to and approved by Beneficiary in connection with the making of the Loan, or other
accounting standards approved by Beneficiary. Since the date of such financial statements,
there has been no material adverse change in such financial condition, nor have any assets or
properties reflected on such financial statements been sold, transferred, assigned, mortgaged,
pledged or encumbered except as previously disclosed in writing by Trustor or Borrower to
Beneficiary and approved in writing by Beneficiary.
	 
	 	g.	 	Reports. All reporl:s, documents, instruments and information delivered to
Beneficiary in connection with the Loan: (i) are materially correct and sufficiently complete
to give Beneficiary accurate knowledge of their subject matter; and (ii) do not contain any
misrepresentation of a material fact or omission of a material fact which omission makes the
provided information misleading.
	 
	 	h.	 	Income Taxes. There are no pending assessments or adjustments of Trustor’s or
Borrower’s income tax payable with respect to any year.
	 
	 	 	 	Subordination. There is no agreement or instrument to which Borrower is a party or by
which Borrower is bound that would require the subordination in right of payment of any of
Borrower’s obligations under the Note to an obligation owed to another party.
	 
	 	 	 	Title. Trustor lawfully holds and possesses fee simple title to the Property, without
limitation on the right to encumber same. This Deed of Trust is a first lien on the Property
prior and superior to all other liens and encumbrances on the Property except: (i) liens for
real estate taxes and assessments not yet due and payable; (ii.) senior exceptions previously
approved by Beneficiary and shown in the title insurance policy insuring the lien of this Deed
of Trust; and (iii) other matters, if any, previously disclosed to Beneficiary by Trustor in a
writing specifically referring to this representation and warranty.
	 
	 	k.	 	Mechanics’ Liens. There are no mechanics’ or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law could give
rise to any such liens) affecting the Property which are or maybe prior to or equal to the
lien of this Deed of Trust.

	 	1.	 	Encroachments. Except as shown in the survey, if any, previously delivered to
Beneficiary, none of the buildings or other improvements which were included for the purpose of
determining the appraised

 

 

	 	 	 	value of the Property lies outside of the boundaries or building restriction lines of the
Property and no buildings or other improvements located on adjoining properties encroach upon
the Property.

	 	m.	 	Leases. All existing Leases are in full force and effect and are enforceable in
accordance with their respective terms. No material breach or default by any party, or event
which would constitute a material breach or default by any party after notice or the passa,,e
of time, or both, exists under any existing Lease. None of the landlord’s interests under any
of the Leases, including, but not limited to, rents, additional rents, charges, issues or
profits, has been transferred or assigned. No rent or other payment under any existing Lease
has been paid by any tenant for more than 1 month in advance.
	 
	 	n.	 	Collateral. Trustor has good title to the existing Collateral, free and clear of all
liens and encumbrances except those, if any, previously disclosed to Beneficiary by Trustor in
writing specifically referring to this representation and warranty. Trustor’s principal place
of business is located at the address shown in this Deed of Trust.
	 
	 	o.	 	 Condition of Propt. Except as shown in the property condition survey or other
engineering reports, if any, previously delivered to or obtained by Beneficiary, the Property
is in good condition and repair and is free from any damage that would materially and
adversely affect the value of the Property as security for the Loan or the intended use of the
Property.
	 
	 	P.	 	Hazardous Materials. Except as shown in the enviromnental assessment report(s), if
any, previously delivered to or obtained by Beneficiary, the Property is not and has not been
a site for the use, generation, manufacture, storage, treatment, release, threatened release,
discharge, disposal, transportation or presence of Hazardous Materials (as hereinafter
defined) except as otherwise previously disclosed in writing by Tmstor to Beneficiary.
	 
	 	q.	 	Hazardous Materials Laws. The Property complies with all Hazardous Materials
Laws (as hereinafter defined).
	 
	 	r.	 	Hazardous Materials Claims. Trustor has received no notice of any pending or
threatened Hazardous Materials Claims (as hereinafter defined).
	 
	 	s.	 	Wetlands. Except as previously disclosed to Beneficiary, no part of the Property
consists of or is classified as wetlands, tidelands or swamp and overflow lands.
	 
	 	t.	 	Compliance With ]Laws. All federal, state and local laws, rules and regulations
applicable to the Property, including, without limitation, all zoning and building
requirements and all requirements of the Americans With Disabilities Act of 1990, as amended
fro:n time to time (42 U. S. C. Section 12101 et seq.) have been satisfied or complied with.
Trustor is in possession of all certificates of occupancy and all other licenses, permits and
other authorizations required by applicable law for the existing use of the Property. All such
certificates of occupancy and other licenses, permits and authorizations are valid and in full
force and effect.
	 
	 	u.	 	Property Taxes and Other Liabilities. All taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, and ground rents, if any, which previously
became due and owing in respect of the Property have been paid.
	 
	 	v.	 	Condemnation. There is no proceeding pending or threatened for the total or partial
condemnation of the Property.
	 
	 	w.	 	Homestead. There is no homestead or other exemption available to Trustor which would
materially interfere with the right to sell the Property at a trustee’s sale or the right to
foreclose this Deed of Trust.

 

 

	 	x.	 	Solvency. None of the transactions contemplated by the Loan will be or have
been made with an actual intent to hinder, delay or defraud any present or future
creditors of Trustor, and Trustor, on the Effective Date, will have received fair and
reasonably equivalent value in good faith for the grant of the liens or security
interests effected by the Loan Documents. On the Effective Date, Trustor will be
solvent and will not be rendered insolvent by the transactions contemplated by the Loan
Documents. Trustor is able to pay its debts as they become due.
	 
	 	Y.	 	Separate Tax Parcel(s). The Property is assessed for the real estate tax
purposes as one or more wholly independent tax parcels, separate from any other real
property, and no other real property is assessed and taxed together with the Property or
any portion thereof.

	5.2	 	REPRESENTATIONS, WARRANTIES AND COVENANTS, REGARDING STATUS (LEVEL II
SPE). Trustor hereby represents, warrants and covenants to Beneficiary as follows:

	 	a.	 	such entity was organized solely for the purpose of owning the Property;
	 
	 	b.	 	such entity will not engage in any business unrelated to the ownership of the Property;
	 
	 	c.	 	such entity will not have any assets other than the Property (and personal
property incidental to the ownership and operation of the Property);
	 
	 	d.	 	such entity has not and will not engage in, seek or consent to any dissolution,
winding up, liquidation, consolidation, merger, asset sale, or amendment of its articles
of incorporation, articles of organization, certificate of formation, operating
agreement or limited partnership agreement, as applicable;
	 
	 	e.	 	such entity, without the unanimous consent of all of its directors, general
partners or members, as applicable, shall not file or consent to the filing of any
bankruptcy or insolvency petition or otherwise institute insolvency proceedings;
	 
	 	f.	 	such entity has no indebtedness (and will have no indebtedness) other than (i) the
Loan; and (ii) unsecured trade debt which is not evidenced by a note and is incurred in
the ordinary course of Trustor’s business in connection with owning, operating and
maintaining the Property and is paid within thirty (30) days from the date incurred;
	 
	 	g.	 	such entity has not and will not fail to correct any known misunderstanding
regarding the separate identity of such entity;
	 
	 	h.	 	such entity has maintained and will maintain its accounts, books and records
separate from any other person or entity;
	 
	 	 	 	such entity has maintained and will maintain its books, records, resolutions and
agreements as official records;
	 
	 	J.	 	such entity (i) has not and will not commingle its funds or assets with those of
any other entity; and (ii) has held and will hold its assets in its own name;
	 
	 	k.	 	such entity has conducted and will conduct its business in its own name;
	 
	 	1.	 	such entity has maintained and will maintain its accounting records and other
entity documents separate from any other person or entity;

 

 

	 	m.	 	such entity has prepared and will prepare separate tax returns and financial statements,
or if part of a consolidated group., is shown as a separate member of such group;
	 
	 	n.	 	such entity has paid and will pay its own liabilities and expenses out of its own funds and
assets;
	 
	 	o.	 	 such entity has held and will hold regular meetings, as appropriate, to conducts its business
and has observed and will observe all corporate., partnership or limited liability company
formalities and record keeping, as applicable;
	 
	 	p.	 	such entity has not and will not assume or guarantee or become obligated for the debts of any
other entity or hold out its credit as being available to satisfy the obligations of any other
entity;
	 
	 	q.	 	such entity has not and will not acquire obligations or securities of its shareholders,
partners or members, as applicable;
	 
	 	r.	 	such entity has allocated and will allocate fairly and reasonably the costs associated with
common employees and any overhead for shared office space and such entity has used and will
use separate stationery, invoices and checks;
	 
	 	s.	 	such entity has not and will not pledge its assets for the benefit of any other person or
entity;
	 
	 	t.	 	such entity has held and identified itself and will hold itself out and identify itself as a
separate and distinct entity under its own name and not as a division or part of any other
person or entity;
	 
	 	u.	 	such entity has not made and will not make loans to any person or entity;
	 
	 	v.	 	such entity has not and will not identify its shareholders, partners or members, as
applicable, or any affiliates of any of the foregoing, as a division or part of it;
	 
	 	w.	 	such entity has not entered into and will not enter into or be a party to, any transaction
with its shareholders, partners or members, as applicable, or any affiliates of any of the
foregoing, except in the ordinary course of its business pursuant to written agreements and on
terms which are intrinsically fair and are no less favorable to it than would be obtained in a
comparable arm’s-length transaction with an unrelated third party;
	 
	 	x.	 	if any such entity is a corporation, the directors of such entity shall consider the
interests of the creditors of such entity in connection with all corporate action;
	 
	 	y.	 	such entity has paid and will pay the salaries of its oven employees and has maintained and
will maintain a sufficient number of employees in light of its contemplated business
operations;
	 
	 	z.	 	such entity has maintained and will maintain adequate capital in light of its contemplated
business operations;
	 
	 	aa.	 	if any such entity is a limited partnership with more than one general partner, its limited
partnership agreement requires the remaining partners to continue the partnership as long as
one solvent general partner exists; and
	 
	 	bb.	 	if any such entity is a limited liability company, its operating agreement, if any such
entity is a limited partnership, its limited partnership agreement and if any such entity is a
corporation, to the fullest extent permitted by applicable law, its articles of incorporation,
contain the provisions set forth in this Section 5.2 and such entity shall conduct its
business and operations in strict compliance with the terms contained therein.

 

 

ART][CLE 6. RIGHTS AND DUTIES OF THE PARTIES

	6.1	 	MAINTENANCE AND ;PRESERVATION OF THE PROPERTY. Trustor shall: (a) keep the Property
in good condition and repair; (b) complete or restore promptly and in workmanlike manner the
Property or any part thereof which may be damaged or destroyed (unless, if and to the extent
permitted under Section 6.11, Beneficiary elects to require that insurance proceeds be used to
reduce the Secured Obligations and after such repayment the ratio of Secured Obligations to
the value of the Property, as reasonably determined by Beneficiary is the same as or flower
than it was immediately before the loss or taking occurred); (c) comply and cause the Property
to comply with (i) all laws, ordinances, regulations and standards, (ii) all covenants,
conditions, restrictions and equitable servitudes, whether public or private, of every kind
and character and (iii) all requirements of insurance companies and any bureau or agency which
establishes standards of insurability, which laws, covenants or requirements affect the
Property and pertain to acts committed or conditions existing thereon, including, without
limitation, any work of alteration, improvement or demolition as such laws, covenants or
requirements mandate; (d) operate and manage the Property at all times in a professional
manner and do all other acts which from the character or use of the Property may be reasonably
necessary to maintain and preserve its value; (e) promptly after execution, deliver to
Beneficiary a copy of any management agreement concerning the Property and all amendments
thereto and waivers thereof; and (f) execute and acknowledge all further documents,
instruments and other papers as Beneficiary or Trustee deems necessary or appropriate to
preserve, continue, perfect and enjoy the benefits of this Deed of Trust and perform Trustor’s
obligations,, including, without limitation, statements of the amount secured hereby then
owing and statements of no offset. Trustor shall not: (g) remove or demolish all or any
material part of the Property; (h) alter either (i) the exterior of the Property in a manner
which materially and adversely affects the value of the Property or (ii) the roof or other
structural elements of the Property in a manner which requires a building permit except for
tenant improvements required under the Leases; (i) initiate or acquiesce in any change in any
zoning or other land classification which affects the Property; (j) materially alter the type
of occupancy or use of all or any part of the Property; or (k) commit or permit waste of the
Property.

	6.2	 	HAZARDOUS MATERIALS. Without limiting any other provision of this Deed of Trust,
Trustor agrees as follows:

	 	a.	 	Prohibited Activities. Trustor shall not cause or permit: the Property to
be used as a site for the use, generation, manufacture, storage, treatment, release,
discharge, disposal, transportation or presence of any oil or other petroleum products,
flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials,
hazardous wastes, toxic or contaminated substances or similar materials, including,
without limitation, any substances which are “hazardous substances,” “hazardous wastes,”
“hazardous materials” or “toxic substances” under the :Hazardous Materials Laws (defined
below) and/or other applicable environmental laws, ordinances or regulations (“Hazardous
Materials”).
	 
	 	 	 	The foregoing to the contrary notwithstanding, (i) Ttustor may store, maintain and use
on the Property janitorial and maintenance supplies, paint and other Hazardous Materials
of a type and in a quantity readily available for ;purchase by the general public and
normally stored, maintained and used by owners and managers of properties of a type
similar to the Property; and (ii) tenants of the Property may store, maintain and use on
the Property (and, if any tenant is a retail business, hold in inventory and sell in the
ordinary course of such tenant‘s business) Hazardous Materials of a type and
quantity readily available for purchase by the general public and normally stored,
maintained and used (and, if tenant is a retail business, sold) by tenants in similar
lines of business an properties similar to the Property or as otherwise permitted under
the subject lease.
	 
	 	b.	 	Hazardous Materials Laws. Trustor shall comply and cause the Property to
comply with all federal, state and local laws, ordinances and regulations relating to
Hazardous Materials (“Hazardous

 

 

	 	 	 	Materials
Laws”), including, without limitation: the Clean Air Act, as
amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control
Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and
Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (including the Superfund Amendments and Reauthori:i:ation Act of 1986,
“CERCLA”), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health
Act, as amended, 29 U.S.C. Section 651; the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and
Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state
and local laws, laws of other jurisdictions or orders and regulations, except to the
extent such compliance is modified or excused in writing by the relevant government
authority to the reasonable satisfaction of the Beneficiary.

	 	c.	 	Notices. Trustor shall immediately notify Beneficiary in writing of (i) the
discovery of any Hazardous Materials on, under or about the Property (other than
Hazardous Materials permitted under Section 6.2(a)); (ii) any knowledge by Trustor that
the Property does not comply with any Hazardous Materials Laws; (iii) any claims or
actions (“Hazardous Materials Claims”) pending or threatened against Trustor or I:he
Property by any governmental entity or agency or any other person or entity relating to
Hazardous Materials or pursuant to the Hazardous Materials Laws; and (iv) the discovery
of any occurrence or condition on any real property adjoining or in the vicinity of the
Property that could cause the Property or any part thereof to become contaminated with
Hazardous Materials.
	 
	 	d.	 	Remedial Action. In response to the presence of any Hazardous Materials on,
under or about the Property, Trustor shall immediately take, at Trustor’s sole expense,
all remedial action required by any Hazardous Materials Laws or any judgment, consent
decree, settlement or compromise in respect to any Hazardous Materials Claims.
	 
	 	e.	 	Inspection By Beneficiary. Upon reasonable prior notice to Trustor,
Beneficiary, its employees and agents, may from time to time (whether before or after the
commencement of a nonjudicial or judicial foreclosure proceeding), enter and inspect the
Property for the purpose of determining the existence, location, nature and magnitude of
any past or present release or threatened release of any Hazardous Materials into, onto,
beneath or from the Property.
	 
	 	f.	 	Legal Effect of Section. Trustor and Beneficiary agree that: (i) this
Hazardous Materials Section is intended as Beneficiary’s written request for informati:an
(and Trustor’s response) concerning the environmental condition of the real property
security as required by California Code of Civil Procedure Section 726.5; and (:ii) each
representation and warranty and covenant in this Section (together with any indemnity
applicable to a breach of any such representation and warranty) with respect to the
environmental condition of the Property is intended by Beneficiary and Trustor to be an
"environmental provision" for purposes of California Code of Civil
Procedure Section 736.

	6.3	 	COMPLIANCE WITH LAWS. Trustor shall comply with all federal, state and local laws,
rules and regulations applicable to the Property, including, without limitation, all zoning
and building requirements and all requirements of the Americans With
Disabilities Act of 1990. (42 U.S.C. Section 12101 et seq.), as amended from time to time. Trustor shall possess and
maintain or cause Borrower to possess and maintain in full force and effect at all times (a)
all certificates of occupancy and other licenses, permits and authorizations required by
applicable law for the existing use of the Property and (b) all permits, franchises and
licenses and all rights to all trademarks, trade names, patents and fictitious names, if any,
required by applicable law for Trustor and Borrower to conduct the business(es) in which
Trustor and Borrower are now engaged.

 

 

	6.4	 	LITIGATION. Trustor shall promptly notify Beneficiary in writing of any litigation
pending or threatened against Trustor or Borrower claiming damages in excess of $50,000 and of
all pending or threatened litigation against Trustor or Borrower if the aggregate damage
claims against Trustor or Borrower exceed $100,000.
	 
	6.5	 	MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Trustor shall not: (a) merge or
consolidate with any other entity or permit Borrower to merge or consolidate with any other
entity; (b) make any substantial change in the nature of Trustor’s business or structure or
permit Borrower to make any substantial change in the nature of Borrower’s business or
structure; (c) acquire all or substantially all of the assets of any other entity or permit
Borrower to acquire all or substantially all of the assets of any other entity; or (d) sell,
lease, assign, transfer or otherwise dispose of a material part of Trustor’s assets except in
the ordinary course of Trustor’s business or permit Borrower to sell, lease, assign, transfer
or otherwise dispose of a material part of Borrower’s assets except in the ordinary course of
Borrower’s business.
	 
	6.6	 	ACCOUNTING RECORDS. Trustor shall maintain and cause Borrower to maintain adequate
books and records in accordance with the same accounting standard used by Trustor or Borrower
to prepare the financial statements delivered to and approved by Beneficiary in connection
with the making of the Loan or other accounting standards approved by Beneficiary. Trustor
shall permit and shall cause Borrower to permit any representative of Beneficiary, at any
reasonable tirne and from time to time, to inspect, audit and examine such books and records
and make copies of same.
	 
	6.7	 	COSTS, EXPENSES AND ATTORNEYS’ FEES. Trustor shall pay to Beneficiary the full amount
of all costs and expenses, including, without limitation, reasonable attorneys’ fees and
expenses of Beneficiary’s in-house or outside counsel, incurred by Beneficiary in connection
with: (a) appraisals and inspections of the Property or Collateral required by Beneficiary as
a result of (i) a Transfer or proposed Transfer (as defined below), or (ii) a Default; (b)
appraisals and inspections of the Property or Collateral required by applicable law,
including, without limitation, federal or state regulatory reporting requirements; and (c) any
acts performed by Beneficiary at Trustor’s request or wholly or partially for the benefit of
Trustor (including, without limitation, the preparation or review of amendments, assumptions,
waivers, releases, reconveyances, estoppel certificates or statements of amounts owing under
any Secured Obligation). In connection with appraisals and inspections, Trustor specifically
(but not by way of limitation) acknowledges that: (aa) a formal written appraisal of the
Property by a state certified or licensed appraiser may be required by federal regulatory
reporting requirements on an annual or more frequent basis; and (bb) Beneficiary may require
inspection of the Property by an independent supervising architect, a cost engineering
specialist, or both. Trustor shall pay all indebtedness arising under this Section immediately
upon demand by Beneficiary together with interest thereon following notice of such
indebtedness at the rate of interest then applicable to the principal balance of the Note as
specified therein.
	 
	6.8	 	LIENS, ENCUMBRANCES AND CHARGES. Trustor shall immediately discharge by bonding or
otherwise any lien, charge or other encumbrance which attaches to the Prcperty in violation of
Section 6.15. Subject to Trustor’s right to contest such matters under this Deed of Trust or
as expressly petted in the Loan Documents, Trustor shall pay when due all obligations secured
by or reducible to liens and encumbrances which shall now or hereafter encumber or appear to
encumber all or any part of the Property or any interest therein, whether senior or
subordinate hereto, including, without limitation, all claims for work or labor performed, or
materials or supplies furnished, in connection with any work of demolition, alteration,
repair, improvement or construction of or upon the Property, except such. as Trustor may in
good faith contest or as to which a bona fide dispute may arise (provided provision is made to
the satisfaction of Beneficiary for eventual payment thereof in the event that Trustor is
obligated to make such payment and that any recorded claim of lien, charge or other
encumbrance against the Property is immediately discharged by bonding or otherwise).
	 
	6.9	 	TAXES AND OTHER LL~BILITIES. Trustor shall pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real and personal and including federal
and state income taxes and state and local property taxes and assessments. Trustor shall
promptly provide to Beneficiary copies of all tax and assessment notices pertaining to the
Property. Trustor hereby authorizes Beneficiary to obtain, at Trustor’s

 

 

	 	 	expense, a tax service contract which shall provide tax informat: on on the Property to
Beneficiary for the term of the Loan and any extensions or renewals of the Loan.
	 
	6.10	 	INSURANCE COVERAGE. Trustor shall insure the Property against loss or damage by fire
and such other hazards as Beneficiary shall from time to time require; provided, however, (a)
Beneficiary, at Beneficiary’s election, may only require flood insurance if all or any portion
of the improvements located on the Property is or becomes located in a special flood hazard
area, and (b) Beneficiary, at Beneficiary’s election, may only require earthquake insurance if
all or any portion of the Property is or becomes located in an earthquake fault zone. Trustor
shall also carry public liability insurance and such ether insurance as Beneficiary may
require, including, without limitation, business interruption insurance or loss of rents
insurance. Such policies shall contain a standard mortgage clause naming Beneficiary and its
successors in interest as a loss payee and requiring at least 30 days prior notice to the
holder at termination or cancellation. Trustor shall maintain all required insurance
throughout the term of the Loan and while any liabilities of Borrower or Trustor to
Beneficiary under any of the Loan Documents remain outstanding at Trustor’s expense, with
companies, and in substance and form satisfactory to Beneficiary. Neither Beneficiary nor
Trustee, by reason of accepting, rejecting, approving or obtaining insurance shall incur any
liability for: (c) the existence, nonexistence, form or legal sufficiency of any insurance;
(d) the solvency of any insurer; or (e) the payment of claims.
	 
	6.11	 	INSURANCE AND CONDEMNATION PROCEEDS.

	 	a.	 	Assignment of Claims. Trustor absolutely and irrevocably assigns to
Beneficiary all of the following rights, claims and amounts (collectively, “Claims”), all
of which shall be paid to Beneficiary: (i) all awards of damages and all other
compensation payable directly or indirectly by reason of a condemnation or proposed
condemnation for public or 1:rivate use affecting all or any part of, or any interest in,
the Property; (ii) all other claims and awards for damages to or decrease in value of all
or any part of, or any interest in, the Property; (iii) all proceeds of any insurance
policies payable by reason of loss sustained to all or any part of the Propery; and (iv)
all interest which may accrue on any of the foregoing. Trustor shall give Beneficiary
prompt written notice of the occurrence of any casualty affecting, or the institution of
any proceedings for eminent domain or for the condemnation of, the Property or any
portion thereof. So long as no ]Default has occurred and is continuing at the time,
Trustor shall have the right to adjust, compromise and settle any Claim of $100,000 or
less without the consent of Beneficiary, provided, however, all awards, proceeds and
other sums described herein shall continue to be payable to Beneficiary. Beneficiary may
commence, appear in, defend or prosecute any Claim exceeding $100,000, and may adjust,
compromise and settle all Claims (except for Claims which Trustor may settle as provided
herein), but shall not be responsible for any failure to commence, appear in, defend,
prosecute or collect any such Claim regardless of the cause of the failure. All awards,
proceeds and other sums described herein shall be payable to Beneficiary.
	 
	 	b.	 	Application of Proceeds; No Default. So long as no Default has occurred and
is continuing at the time of Beneficiary’s receipt of the proceeds of the Claims
(“Proceeds”) and no Default occurs thereafter, Beneficiary shall apply the Proceeds in
the following order of priority: First, to Beneficiary’s expenses in settling,
prosecuting or defending the Claims; Second, to the repair or restoration of the
Property; and Third, to Trustor if the repair or restoration of the Property has
been completed, but to the Secured Obligations in any order without suspending, extending
or reducing any obligation of Trustor to make installment payments if the repair or
restoration of the Property has not been completed. Notwithstanding the foregoing,
Beneficiary shall have no obligation to make any Proceeds available for the repair or
restoration of the Property unless and until all the following conditions have been
satisfied: (i) delivery to Beneficiary of the Proceeds plus any additional amount which
is needed to pay all costs of the repair or restoration (including, without limitation,
taxes, fmancing charges, insurance and rent during the repair period); (ii) establishment
of an arrangement for lien releases and disbursement of funds acceptable to Beneficiary;
(iii) delivery to Beneficiary in form and content acceptable to Beneficiary of all of the
following: (aa) plans and specif’ cations for the work; (bb) a contract for the work,
signed by a contractor acceptable to Beneficiary; (cc) a cost breakdown for the work;
(dd) if

 

 

	 	 	 	required by Beneficiary, a payment and performance bond for the work; (ee) evidence of
the continuation of all Leases unless consented to in writing by Beneficiary; (ff)
evidence that, upon completion of the work, the size, capacity, value, and income
coverage ratios for the Property will be at least as great as those which existed
immediately before the damage or condemnation occurred; and (gg) evidence of the
satisfaction of any additional conditions that Beneficiary may reasonably establish to
protect Beneficiary’s security. Tmstor acknowledges that the specific conditions
described above are reasonable.
	 
	 	c.	 	Application of Proceeds; Default. If a Default has occurred and is
continuing at the time of Beneficiary’s receipt of the Proceeds or if a Default occurs at
any time thereafter, Beneficiary may, at Beneficiary’s absolute discretion and regardless
of any impairment of security or lack of impairment of security, but subject to
applicable law governing use of the Proceeds, if any, apply all or any of the Proceeds to
Beneficiary’s expenses in settling, prosecuting or defending the Claims and then apply
the balance to the Secured Obligations in any order without suspending, extending or
reducing any obligation of Tmstor to make installment payments, and may release all or
any part of the Proceeds to Tmstor upon any conditions Beneficiary chooses.

	6.12	 	IMPOUNDS.

	 	a.	 	Post-Default Impounds. If required by Beneficiary at any time after a
Default occurs (and regardless of whether such Default is thereafter cured), Tmstor shall
deposit with Beneficiary such amounts (“Post-Default Impounds”) on such dates (determined
by Beneficiary as provided below) as will be sufficient to pay any or all “Costs” (as
defined below) specified by Beneficiary. Beneficiary in its sole discretion shall
estimate the amount of such Costs that will be payable or required during any period
selected by Beneficiary not exceeding 1 year and shall determine the fractional portion
thereof that Tmstor shall deposit with Beneficiary on each date specified by Beneficiary
during such period. If the Post-Default Impounds paid by Tmstor are not sufficient to pay
the related Costs, Tmstor shall deposit with Beneficiary upon demand an amount equal to
the deficiency. All Post-Default Impounds shall be payable by Tmstor in addition to (but
without duplication of) any other Impounds (as defined below).
	 
	 	b.	 	All Impounds. Post-Default Impounds and any other impounds that may be
payable by Borrower under the Note are collectively called “Impounds”. All Impounds shall
be deposited into one or more segregated or commingled accounts maintained by Beneficiary
or its servicing agent. Except as otherwise provided in the Note, such account(s) shall
not bear interest. Beneficiary shall not be a trustee, special depository or other
fiduciary for Tmstor with respect to such account, and the existence of such account
shall not limit Beneficiary’s rights under this reed of Trust, any other agreement or any
provision of law. If no Default exists, Beneficiary shall apply all Impounds to the
payment of the related Costs, or in Beneficiary’s sole discretion may release any or all
Impounds to Tmstor for application to and payment of such Costs. If a Default exists,
Beneficiary may apply any or all Impounds to any Secured Obligation and/or to cure such
Default, whereupon Tmstor shall restore all Impounds so applied and cure all Defaults not
cured by such application. The obligations of Tmstor hereunder shall not be diminished by
deposits of Impounds made by Tmstor, except to the extent that such obligations have
actually been met by application of such Impounds. Upon any assignment of this Deed of
Trust, Beneficiary may assign all Impounds in its possession to Beneficiary’s assignee,
whereupon Beneficiary and Trustee shall be released from all liability with respect to
such Impounds. Within 60 days following full repayment of the Secured Obligations (other
than as a consequence of foreclosure or conveyance in lieu of foreclosure) or at such
earlier time as Beneficiary may elect, Beneficiary shall pay to Tmstor all Impounds in
its possession, and no other party shall have any right or claim thereto. “Costs” means
(i) all taxes and other liabilities payable by Tmstor under Section 6.9, (ii) all
insurance premiums payable by Tmstor under Section 6.10, (iii) all other costs and
expenses for which Impounds are required under the Note, and/or (iv) all other amounts
that will be required to preserve the value of the Property. Tmstor shall deliver to
Beneficiary, promptly upon receipt, all bills for Costs for which Beneficiary has
required Post-Default Impounds. Notwithstanding the foregoing, if any such default is

 

 

	 	 	 	current and no default exists thereafter for a period of six consecutive months, any
impound amounts that were required to be deposited pursuant to Section (iv) above, will
be promptly returned to the Borrower.

	6.13	 	DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. Trustor shall protect, preserve and
defend the Property and title to and right of possession of the Pro aerty, the security of
this Deed of Trust and the rights and powers of Beneficiary and Trustee hereunder at Trustor’s
sole expense against all adverse claims, whether the claim: (a) is against a possessory or
non-possessory interest; (b) arose prior or subsequent to the Effective Date; or (c) is senior
or junior to Trustor’s or Beneficiary’s rights. Trustor shall give Beneficiary and Trustee
prompt notice in writing of the assertion of any claim, of the filing of any action or
proceeding, of the occurrence of any damage to the Property and of any condemnation offer or
action.
	 
	6.14	 	RIGHT OF INSPECTION. Beneficiary and its independent contractors, agents and
employees may enter the Property from time to time at any reasonable time, if no Default
exists, after first providing not less than five (5) days advance notice for the purpose of
inspecting the Property and ascertaining Trustor’s compliance with the terms of this Deed of
Trust Beneficiary shall use reasonable efforts to assure that Beneficiary’s entry upon and
inspection of the Property shall not materially and unreasonably interfere with the business
or operations of Trustor or Trustor‘s tenants on the Property.
	 
	6.15	 	PROHIBITION OF TRANSFER OF PROPERTY OR INTERESTS IN TRUSTOR. Trustor acknowledges
that Beneficiary has relied upon the principals of Trustor and Borrower and their experience
in owning and operating properties similar to the Property in connection with the closing of
the Loan. Accordingly, except with the prior written consent of Beneficiary or as otherwise
expressly permitted in the Note, Trustor shall not cause or permit any sale, exchange,
mortgage, pledge, hypothecation, assignment, encumbrance or other transfer, conveyance or
disposition, whether voluntarily, involuntarily or by operation of law (“Transfer”) of all or
any part of, or all or any direct or indirect interest in, the Property or the
Collateral (except for equipment and inventory in the ordinary course of its business), or
cause or permit a Transfer of any direct or indirect interest (whether general partnership
interest, stock, non-managing member limited liability company interest, trust, or otherwise)
in Tmstor or Borrower. In the event of any Transfer that is not expressly permitted in the
Note and is without the prior written consent of Beneficiary, Beneficiary shall have the
absolute right at its option, without prior demand or notice, to declare all of the Secured
Obligations immediately due and payable, except to the extent prohibited by law, and pursue
its rights and remedies under Section 7.3 herein.
	 
	 	 	Tmstor agrees to pay any prepayment fee as set forth in the Note in the event the Secured
Obligations are accelerated pursuant to the terms of this Section. Consent to one such
Transfer shall not be deemed to be a waiver of the right to require the consent to future or
successive Transfers. Beneficiary’s consent to any Transfer may be withheld, conditioned or
delayed in Beneficiary’s sole and absolute discretion.
	 
	6.16	 	ACCEPTANCE OF TRUST; POWERS AND DUTIES OF TRUSTEE. Tmstee accepts this trust when
this Deed of Trust is recorded. From time to time upon written request of Beneficiary and
presentation of this Deed of Trust, or a certified copy thereof, for endorsement, and without
affecting the personal liability of any person for payment of any indebtedness or performance
of any Secured Obligation, Trustee may, without liability therefor and without notice: (a)
reconvey all or any part of the Property; (b) consent to the making of any map or plat of the
Property; (c) join in granting any easement on the Property; (d) join in any declaration of
covenants and restrictions; or (e) join in any extension agreement or any agreement
subordinating the lien or charge of this Deed of Trust. Nothing contained in the immediately
preceding sentence shall be construed to limit, impair or otherwise affect the rights of
Trustor in any respect. Except as may otherwise be required by applicable law, Trustee or
Beneficiary may from time to time apply to any court of competent jurisdiction for aid and
direction in the execution of the trusts hereunder and :he enforcement of the rights and
remedies available hereunder, and Trustee or Beneficiary may obtain orders or decrees
directing or confirming or approving acts in the execution of said trusts and the enforcement
of said remedies. Tmstee has no obligation to notify any party of any pending sale or any
action or proceeding (including, without limitation, actions in which Tmstor, Beneficiary or
Tmstee shall be a party) unless held or commenced and maintained by Trustee under this Deed
of Trust. Tmstee shall not be obligated to perform any act required of it hereunder unless
the

 

 

	 	 	performance of the act is requested in writing and Trustee is reasonably indemnified and held
harmless against loss, cost, liability and expense.
	6.17	 	COMPENSATION OF TRUSTEE. Trustor shall pay to Trustee reasonable compensation and
reimbursement for services and expenses in the administration of this trust, including,
without limitation, reasonable attorneys’ fees. Trustor shall pay all indebtedness arising
under this Section immediately upon demand by Trustee or Beneficiary together with interest
thereon from the date the indebtedness arises at the rate of interest then applicable to the
principal balance of the Note as specified therein.
	 
	6.18	 	EXCULPATION. Beneficiary shall not directly or indirectly be liable to Trustor or any
other person as a consequence of: (a) the exercise of the rights, remedies or powers granted
to Beneficiary in this Deed of Trust; (b) the failure or refusal of Beneficiary to perform or
discharge any obligation or liability of Trustor under any agreement related to the Property
or under this Deed of Trust; or (c) any loss sustained by Trustor or any third party resulting
from Beneficiary’s failure to lease the Property after a Default (hereafter defined) or from
any other act or omission of Beneficiary in managing the Property after a Default unless the
loss is caused by the willful misconduct and bad faith of Beneficiary and no such liability
shall be asserted or enforced against Beneficiary, all such liability being expressly waived
and released by Trustor.
	 
	6.19	 	INDEMNITY. Without in any way limiting any other indemnity contained in this Deed of
Trust, Trustor agrees to defend, indemnify and hold harmless Trustee and the Beneficiary
Group from and against any claim, loss, damage, cost, expense or liability
directly or indirectly arising out of: (a) the making of the Loan, except for
violations of banking laws or regulations by the Beneficiary Group; (b) this Deed of Trust;
(c) the execution of this trust or the performance of any act required or permitted hereunder
or by law; (d) any failure of Trustor to perform Trustor’s obligations under this Deed of
Trust or the other Loan Documents; (e) any alleged obligation or undertaking on the
Beneficiary Group’s part to perform or discharge any of the representations, warranties,
conditions, covenants or other obligations contained in any other document related to the
Property; (f) any act or omission by Trustor or any contractor, agent, employee or
representative of Trustor with respect to the Property; or (g) any claim, loss, damage, cost,
expense or liability directly or indirectly arising out of: (i) the use, generation,
manufacture, storage, treatment, release, threatened release, discharge, disposal,
transportation or presence of any Hazardous Materials which are found in, on, under or about
the Property (including, without limitation, underground contamination); or (ii) the breach
of any covenant, representation or warranty of Trustor under Section 6.2 above. The foregoing
to the contrary notwithstanding, this indemnity shall not include any claim, loss, damage,
cost, expense or liability directly or indirectly arising out of the gross negligence or
willful misconduct of any member of the Beneficiary Group or Trustee., or any claim, loss,
damage, cost, expense or liability incurred by the Beneficiary Group or Trustee arising from
any act or incident on the Property occurring after the full reconveyance and release of the
lien of this Deed of Trust on the Property, or with respect to the matters set forth in
clause (g) above, any claim, loss, damage, cost, expense or liability incurred by the
Beneficiary Group resulting from the introduction and initial release of Hazardous Materials
on the Property occurring after the transfer of title to the Property at a foreclosure sale
under this Deed of Trust, either pursuant to judicial decree or the power of sale, or by deed
in lieu of such foreclosure. This indemnity shall include, without limitation: (aa) all
consequential damages (including, without limitation, any third party tort claims or
governmental claims, fines or penalties against Trustee or the :3eneficiary Group); (bb) all
court costs and reasonable attorneys’ fees (including, without limitation, expert witness
fees) paid or incurred by Trustee or the Beneficiary Group; and (cc) the costs, whether
foreseeable or unforeseeable, of any investigation, repair, cleanup or detoxification of the
Property which is required by any governmental entity or is otherwise necessary to render the
Property in compliance with all laws and regulations pertaining to Hazardous Materials.
“Beneficiary Group”, as used herein, shall mean (1) Beneficiary (including, without
limitation, any participant in the Loan), (2) any entity controlling, controlled by or under
common control with Beneficiary, (3) the directors, officers, employees and agents of
Beneficiary and such other entities, and (4) the successors, heirs and assigns of the
entities and persons described in foregoing clauses (1) through (3). Trustor shall pay
immediately upon Trustee’s or Beneficiary’s demand any amounts owing under this indemnity
together with interest from the date the indebtedness arises until paid at the rate of
interest applicable to the principal balance of the Note as specified therein. Trustor agrees
to use legal counsel reasonably acceptable to Trustee and the Beneficiary

 

 

	 	 	Group in any action or proceeding arising under this indemnity. THE PROVISIONS OF THIS SECTION
SHALL SURVIVE THE TERMINATION AND RECONVEYANCE OF THIS DEED OF TRUST, BUT TRUSTOR’S LIABILITY
UNDER THIS INDEMNITY SHALL BE SUBJECT TO THE PROVISIONS OF THE SECTION IN THE NOTE ENTITLED
“BORROWER’S LIABILITY.”
	 
	6.20	 	SUBSTITUTION OF TRUSTEE. From time to time, by a writing signed and acknowledged by
Beneficiary and recorded in the Office of the Recorder of the County in which the Property is
situated, Beneficiary may appoint another trustee to act in the place and stead of Trustee or
any successor. Such writing shall set forth any information required by law. The recordation
of such instrument of substitution shall discharge Trustee herein named and shall appoint the
new trustee as the trustee hereunder with the same effect as if originally named trustee
herein. A writing recorded pursuant to the provisions of this Section shall be conclusive
proof of the proper substitution of such new trustee.
	 
	6.21	 	RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to or the
consent, approval or agreement of any persons or entities having any interest at any time in
the Property or in any manner obligated under the Secured Obligations ("Interested
Parties"), Beneficiary may, from time to time: (a) fully or partially release any
person or entity from liability for the payment or performance of any Secured Obligation; (b)
extend the maturity of any Secured Obligation; (c) make any agreement with Borrower increasing
the amount or otherwise altering the terms of any Secured Obligation; (d) accept additional
security for any Secured Obligation; or (e) release all or any portion of the. Property,
Collateral and other security for any Secured Obligation. None of the foregoing actions shall
release or reduce the personal liability of any of said Interested Parties, or release or
impair the priority of the lien of this Deed of Trust upon the Property.
	 
	6.22	 	SALE OR PARTICIPATION OF LOAN. Trustor agrees that Beneficiary may at no cost or
expense to Trustor, at any time sell, assign, participate or securitize all or any portion of
Beneficiary’s rights and obligations under the Loan Documents, and that any such sale,
assignment, participation or securitization may be to one or more financial institutions or
other entities, to private investors, and/or into the public securities market, in
Beneficiary’s sole discretion. Trustor further agrees that Beneficiary may disseminate to any
such actual or potential purchaser(s), assignee(s) or participant(s) all documents and
financial and other information heretofore or hereafter provided to or /mown to Beneficiary
with respect to: (a) the Property and its operation; and/or (b) any party connected with the
Loan (including, without limitation Trustor, any partner or member of Trustor, any constituent
partner or member of Trustor, any guarantor and any nonborrower trustor). In the event of any
such sale, assignment, participation or securitization, Beneficiary and the other parties to
the same shall share in the rights and obligations of Beneficiary set forth in the Loan
Documents as and to the extent they shall agree among themselves. In connection with any such
sale, assignment., participation or securitization, Trustor further agrees that the Loan
Documents shall be sufficient evidence of the obligations of Trustor to each purchaser,
assignee or participant, and Trustor shall, within 15 days after request by Beneficiary,
deliver an estoppel certificate verifying for the benefit of Beneficiary and any other party
designated by Beneficiary the status and the terms and provisions of the Loan in form and
substance acceptable to Beneficiary, and enter into such amendments or modifications to the
Loan Documents as may be reasonably required in order to facilitate any such sale, assignment,
participation or securitization without impairing Trustor’s rights or increasing Trustor’s
obligations. The indemnity obligations of Trustor under the Loan Documents shall also apply
with respect to any purchaser, assignee or participant.
	 
	6.23	 	RECONVEYANCE. Upon Beneficiary’s written request, and upon surrender of this Deed of
Trust or certified copy thereof and any note, instrument or instruments setting forth all
obligations secured hereby to Trustee for cancellation, Trustee shall reconvey, without
warranty, the Proper. or that portion thereof then held hereunder. The recitals of any matters
or facts in any reconveyance executed hereunder shall be conclusive proof of the truthfulness
thereof. To the extent permitted by law, the reconveyance may describe the grantee as “the
person or persons legally entitled thereto". Neither Beneficiary nor Trustee shall
have any duty to determine the rights of persons claiming to be rightful grantees of any
reconveyance. When the Property has been fully reconveyed, the last such reconveyance shall
operate as a reassignment of all future rents, issues and profits of the Property to the
person or persons legally entitled thereto.

 

 

	6.24	 	SUBROGATION. Beneficiary shall be subrogated to the lien of all encumbrances, whether
released of record or not, paid in whole or in part by Beneficiary pursuant to this Deed of
Trust or by the proceeds of any loan secured by this Deed of Trust.

ARTICLE 7. DEFAULT

	7.1	 	DEFAULT. For all purposes hereof, “Default” shall mean either an “Optional Default”
(as defined below) or an “Automatic Default” (as defined below).

	 	a.	 	Optional Default. An “Optional Default” shall occur, at Beneficiary’s
option, upon the occurrence of any of the following events:

	 	(i)	 	Monetary. Borrower or Trustor shall fail to (aa) pay when due any sums
which by their express terms require immediate payment without any grace period or
sums which are payable on the Maturity Date, or (bb) pay within 5 days when due
any other sums payable under the Note, this Deed of Trust or any of the other Loan
Documents, including without limitation, any monthly payment due under the Note.
	 
	 	(ii)	 	Failure to Perform. Borrower or Trustor shall fail to observe, perform
or discharge any of Borrower’s or Trustor’s obligations, covenants, conditions or
agreements, other than Borrower’s or Trustor‘s payment obligations,
under the Note, this Deed of Trust or any of the other Loan Documents, and (aa)
such failure shall remain uncured for 30 days after written notice thereof shall
have been given to Borrower or Tmstor, as the case may be, by Beneficiary or (bb)
if such failure is of such a nature that it cannot be cured within such 30 day
period, Borrower or Trustor shall fail to commence to cure such failure withir..
such 30 day period or shall fail to diligently prosecute such curative action
thereafter.
	 
	 	(iii)	 	Representations and Warranties. Any representation, warranty,
certificate or other statement (financial or otherwise) made or furnished by or on
behalf of Borrower, Trustor, or a guarantor, if any, to Beneficiary or in
connection with any of the Loan Documents, or as an inducement to Beneficiary to
make the Loan, shall be false, incon-ect, incomplete or misleading in any material
respect when made or furnished.
	 
	 	(iv)	 	Condemnation; Attachment. The condemnation, seizure or appropriation
of any material portion (as reasonably determined by Beneficiary) of the Property;
or the sequestration or attachment of, or levy or execution upon any of the
Property, the Collateral or any other collateral provided by Borrower or Trustor
under any of the Loan Documents, or any material portion of the other assets of
Borrower or Trustor, which sequestration, attachment, levy or execution is not
released or dismissed within 45 days after its occurrence; or the sale of any
assets affected by any of the foregoing.
	 
	 	(v)	 	Uninsured Casualty. The occurrence of an uninsured casualty with
respect to any material portion (as reasonably determined by Beneficiary) of the
Property unless: (aa) no other Default has occurred and is continuing at the time
of such casualty or occurs thereafter; (bb) Trustor promptly notifies Beneficiary
of the occurrence of such casualty; and (cc) not more than 45 days after the
occurrence of such casualty, Trustor delivers to Beneficiary immediately available
funds in an amount sufficient, in Beneficiary’s reasonable opinion, to pay all
costs of the repair or restoration (including, without limitation, taxes, fmancing
charges, insurance and rent during the repair period). So long as no Default has
occurred and is continuing at the time of Beneficiary’s receipt of such funds and
no Default occurs thereafter, Beneficiary shall make such funds available for the
repair or restoration of the Property. Notwithstanding the foregoing, Beneficiary

 

 

	 	 	 	shall have no obligation to make any funds available for repair or restoration of
the Property unless and until all the conditions set forth in clauses (ii) and
(iii) of the second sentence of Section 6.11(b) of this Deed of Trust have been
satisfied. Trustor acknowledges that the specific conditions described above are
reasonable.
	 
	 	 	 	Adverse Financial Change. Any material adverse change in the financial condition
of Borrower or any general partner or managing member of Borrower or any
guarantor, and which change Beneficiary reasonably determines will have a
material adverse effect on (aa) the business, operations or condition of the
Property; or (bb) the ability of Borrower or Trustor to pay or perform Borrower’s
or Trustor’s obligations in accordance with the terms of the Note, this Deed of
Trust, and the other Loan Documents.
	 
	 	(vii)	 	Key Person or Entity. The retirement, death., incapacity or
material reduction in current management authority or duties, if any,
of            HENRY
D. BULLOCK and RICHARD J . HOLMSTROM and Trustor’s failure to provide a substitute or
replacement acceptable to Beneficiary within 30 days after the occurrence of any
such event.

	 	b.	 	Automatic Default. An “Automatic Default” shall occur automatically upon
the occurrence of any of the following events:

	 	(i)	 	Voluntary Bankruptcy, Insolvency, Dissolution. (aa) Borrower’s filing a
petition for relief under the Bankruptcy Reform Act of 1978, as amended or
recodified (“Bankruptcy Code”), or under any other present or future state or
federal law regarding bankruptcy, reorganization or other relief to debtors
(collectively, “Debtor Relief Law”); or (bb) Borrower’s filing any pleading in any
involuntary proceeding under the Bankruptcy Code or other Debtor Relief Law which
admits the jurisdiction of a court to regulate Borrower or the Property or the
petition’s material allegations regarding Borrower’s insolvency; or (cc) Borrower’s
making a general assignment for the benefit of creditors; or (dd)
Bcrrower‘s applying for, or the appointment of, a receiver, trustee,
custodian or liquidator of Borrower or any of its property; or (ee) the filing by
or against Borrower of a petition seeking the liquidation or dissolution of
Borrower or the commencement of any other procedure to liquidate or dissolve
Borrower.
	 
	 	(ii)	 	Involuntary Bankruptcy. Borrower’s failure to effect a full dismissal
of any involuntary petition under the Bankruptcy Code or other Debtor Relief Law
that is filed against Borrower or in any way restrains or limits Borrower or
Beneficiary regarding the Loan or the Property, prior to the earlier of the entry
of any order granting relief sought in the involuntary petition or 45 days after
the date of filing of the petition.
	 
	 	(iii)	 	Partners, Guarantors. The occurrence of an event specified in
Sections (i) or (ii) as to Trustor, any general partner or managing member of
Borrower or Trustor, or any guarantor or other person or entity in any manner
obligated to Beneficiary under the Loan Documents.

	7.2	 	ACCELERATION. Upon. the occurrence of an Optional Default, Beneficiary may, at its
option, declare all sums owing to Beneficiary under the Note and the other Loan Documents
immediately due and payable. Upon the occurrence of an Automatic Default, all sums owing to
Beneficiary under the Note and the other Loan Documents shall automatically become
immediately due and payable.
	 
	7.3	 	RIGHTS AND REMEDIES. In addition to the rights and remedies in Section 7.2 above, at
any time after a Default, Beneficiary shall have all of the following rights and remedies:

	 	a.	 	Entry on Property. With or without notice, and without releasing Trustor
from any Secured Obligation, and without becoming a mortgagee in possession, to enter
upon the Property from time to time and to do such acts and things as Beneficiary or
Trustee deem necessary or desirable in order to

 

 

	 	 	 	inspect, investigate, assess and protect the security hereof or to cure any Default,
including, without limitation: (i) to take and possess all documents, books, records,
papers and accounts of Trustor, Borrower or the then owner of the Property which relate
to the Property; (ii) to make, terminate, enforce or modify leases of the Property upon
such terms and conditions as Beneficiary deems proper; (iii) to make repairs,
alterations and improvements to the Property necessary, in Trustee’s or Beneficiary’s
sole judgment, to protect or enhance the security hereof; (iv) to appear in and defend
any action or proceeding purporting to affect the security hereof or the rights or
powers of Beneficiary or Trustee hereunder; (v) to pay, purchase, contest or compromise
any encumbrance, charge, lien or claim of lien which, in the sole judgment of either
Beneficiary or Trustee, is or may be senior in priority hereto, the judgment of
Beneficiary or Trustee being conclusive as between the parties hereto; (vi) to obtain
insurance; (vii) to pay any premiums or charges with respect to insurance required to
be carried hereunder; (viii) to obtain a court order to enforce Beneficiary’s right to
enter and inspect the Property for Hazardous Materials, in which regard the decision of
Beneficiary as to whether there exists a release or threatened release of Hazardous
Materials onto the Property shall be deemed reasonable and conclusive as between the
parties hereto; (ix) to have a receiver appointed pursuant to applicable law to enforce
Beneficiary‘s rights to enter and inspect the Property for Hazardous
Materials; and/or (x) to employ legal counsel, accountants, engineers, consultants,
contractors and other appropriate persons to assist them;
	 
	 	b.	 	Appointment of Receiver. With. or without notice o;- hearing, to apply
to a court of competent jurisdiction for and obtain appointment of a receiver, trustee,
liquidator or conservator of the Property, for any purpose, including, without
limitation, to enforce Beneficiary‘s right to collect Payments and to enter
on and inspect the Property for Hazardous Materials, as a matter of strict right and
without regard to: (i) the adequacy of the security for the repayment of the Secured
Obligations; (ii) the existence of a declaration that the Secured Obligations are
immediately due and payable; (iii) the filing of a notice of default; or (iv) the
solvency of Trustor, Borrower or any guarantor or other person or entity in any manner
obligated to Beneficiary under the Loan Documen:s;
	 
	 	c.	 	Judicial Foreclosure; Injunction. To commence and maintain an action or
actions in any court of competent jurisdiction to foreclose this instrument as a
mortgage or to obtain specific enforcement of the covenants of Trustor hereunder, and
Trustor agrees that such covenants shall be specifically enforceable by injunction or
any other appropriate equitable remedy and that for the purposes of any suit brought
under this subparagraph, Trustor waives the defense of lathes and any applicable
statute of limitations;
	 
	 	d.	 	Nonjudicial Foreclosure. To execute a written notice of such Default and
of the election to cause the Property to be sold to satisfy the Secured Obligations.
Trustee shall give and record such notice as the law then requires as a condition
precedent to a trustee‘s sale. When the minimum period of time required by
law after such notice has elapsed, Trustee, without notice to or demand upon Trustor
except as required by law, shall sell the Property at the time and place of sale fixed
by it in the notice of sale, at one or several sales, either as a whole or in separate
parcels and in such manner and order, all as Beneficiary in its sole discretion may
determine, at public auction to the highest bidder for cash, in lawful money of the
United States, payable at time of sale. Neither Trustor nor any other person or entity
other than Beneficiary shall have the right to direct the order in which the Property
is sold. Subject to requirements and limits imposed by law, Trustee may, from time to
time postpone sale of all or any portion of the Property by public announcement at such
time and place of sale, and from time to time may postpone the sale by public
announcement at the time and place fixed by the preceding postponement. A sale of less
than the whole of the Property or any defective or irregular sale made hereunder shall
not exhaust the power of sale provided for herein. Trustee shall deliver to the
purchaser at such sale a deed conveying the Property or portion thereof so sold, but
without any covenant or warranty, express or implied. The recitals in the deed of any
matters or facts shall be conclusive proof of the truthfulness thereof. Any person,
including Trustee, Trustor or Beneficiary may purchase at the sale;

 

 

	 	 	 	Upon sale of the Property at any judicial or nonjudicial foreclosure, Beneficiary may
credit bid (as determined by Beneficiary in its sole and absolute discretion) all or any
portion of the Secured Obligations. In determining such credit bid, Beneficiary may, but
is not obligated to, take into account all or any of the following: (i) appraisals of
the Property as such appraisals may be discounted or adjusted by Beneficiary in its sole
and absolute underwriting discretion; (ii) expenses and costs incurred by Beneficiary
with respect to the Property prior to foreclosure; (iii) expenses and costs which
Beneficiary anticipates will be incurred with respect to the Property after foreclosure,
but prior to resale, including, without limitation, costs of structural reports and
other due diligence, costs to carry the Property prior to resale, costs of resale (e.g.
commissions, attorneys’ fees, and taxes), costs of any Hazardous Materials clean-up and
monitoring, costs of deferred maintenance, repair, refurbishment and retrofit, costs of
defending or settling litigation affecting the Property, and lost opportunity costs (if
any), including the time value of money during any anticipated holding period by
Beneficiary; (iv) declg trends in real property values generally and with respect to
properties similar to the Property; (v) anticipated discounts upon resale of the
Property as a distressed or foreclosed property; (vi) the fact of additional collateral
(if any), for the Secured Obligations; and (vii) such other factors or matters that
Beneficiary (in its sole and absolute discretion) deems appropriate. In regard to the
above, Trustor acknowledges and agrees that: (viii) Beneficiary is not required to use
any or all of the foregoing factors to determine the amount of its credit bid; (ix) this
paragraph does not impose upon Beneficiary any additional obligations that are not
imposed by law at the time the credit bid is made; (x) the amount of Beneficiary’s
credit bid need not have any relation to any loan-to-value ratios specified in the Loan
Documents or previously discussed between Trustor and Beneficiary; and (xi)
Beneficiary’s credit bid may be (at Beneficiary’s sole and absolute discretion) higher
or lower than any appraised value of the Property;
	 
	 	e.	 	Multiple Foreclosures. To resort to and realize upon the security
hereunder and any other security now or later held by Beneficiary concurrently or
successively and in one or several consolidated or independent judicial actions or
lawfully taken nonjudicial proceedings, or both, and to apply the proceeds received
upon the Secured Obligations all in such order and manner as Trustee and Beneficiary
or either of them determine in their sole discretion;
	 
	 	f.	 	Rights to Collateral. To exercise all rights Trustee or Beneficiary may
have with respect to the Collateral under this Deed of Trust, the UCC or otherwise at
law; and
	 
	 	g.	 	Other Rights. To exercise such other rights as Trustee or Beneficiary
may have at law or in equity or pursuant to the terms and conditions of this Deed of
Trust or any of the other Loan Documents.

     In connection with any sale or sales hereunder, Beneficiary may elect to treat any of the
Property which consists of a right in action or which is property that can be severed from
the Property (including, without limitation, any improvements forming a part thereof)
without causing structural damage thereto as if the same were personal property or a
fixture, as the case may be, and dispose of the same in accordance with applicable law,
separate and apart from the sale of the Property. Any sale of Collateral hereunder shall be
conducted in any manner permitted by the UCC.

	7.4	 	APPLICATION OF FORECLOSURE SALE PROCEEDS. If any foreclosure sale is effected,
Trustee shall apply the proceeds of such sale in the following order of priority:
First, to the costs, fees and expenses of exercising the power of sale and of sale,
including, without limitation, the payment of the Trustee’s fees and attorneys’ fees
permitted pursuant to subdivision (b) of California Civil Code Section 2924d and subdivision
(b) of Section 2924k; Second, to the ;payment of the Secured Obligations which are
secured by this Deed of Trust, in such order as Beneficiary shall determine in its sole
discretion; Third, to satisfy the outstanding balance of obligations secured by any
junior liens or encumbrances in the order of their priority; and Fourth, to the
Trustor or the Trustor’s successor in interest, or in the event the Property has been sold
or transferred to another, to the vested owner of record at the time of the Trustee’s sale.

 

 

	7.5	 	WAIVER OF MARSHALING RIGHTS. Trustor, for itself and for all parties claiming
through or under Trustor, and for all parties who may acquire a lien on or interest in the
Property, hereby waives all rights to have the Property and/or any other property, including,
without limitation, the Collateral, which is now or later may be security for any Secured
Obligation, marshaled upon any foreclosure of this Deed of Trust or on a foreclosure of any
other security for any of the Secured Obligaticns.
	 
	7.6	 	NO CURE OR WAIVER. Neither Beneficiary’s nor Trustee’s nor any receiver’s entry upon
and taking possession of all or any part of the Property, nor any collection of rents, issues,
profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of
other security, or other sums, nor the application of any collected sum to any Secured
Obligation, nor the exercise of any other right or remedy by Beneficiary or Trustee or any
receiver shall cure or waive any Default or notice of default under this Deed of Trust, or
nullify the effect of any notice of default or sale (unless all Secured Obligations then due
have been paid or performed and Trustor has cured all other Defaults hereunder), or impair the
status of the security, or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease or option or a
subordination of the lien of this Deed of Trust.
	 
	7.7	 	PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES. Trustor agrees to pay to Beneficiary
immediately and upon demand all costs and expenses incurred by Trustee and Beneficiary in the
enforcement of the terms and conditions of this Deed of Trust (including, without limitation,
statutory trustee’s fees, court costs and attorneys’ fees, whether incurred in litigation or
not) with interest from the date of expenditure until said sums have been paid at the rate of
interest applicable to the principal balance of the Note as specified therein.
	 
	7.8	 	POWER TO FILE NOTICES AND CURE DEFAULTS. Trustor hereby irrevocably appoints
Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled
with an interest, to perform any obligation of Trustor hereunder upon the occurrence of an
event, act or omission which, with notice or passage of time or both, would constitute a
Default, provided, however, that: (a) Beneficiary as such attorney-in-fact shall only
be accountable for such funds as are actually received h y Beneficiary; and (b) Beneficiary
shall not be liable to Trustor or any other person or entity for any failure to act under this
Section.
	 
	7.9	 	REMEDIES CUMULAT][VE. All rights and remedies of Beneficiary and Trustee provided
hereunder are cumulative and are in addition to all rights and remedies provided by applicable
law (including specifically that of foreclosure of this instrument as though it were a
mortgage) or in any other agreements between Trustor and Beneficiary. Beneficiary may enforce
any one or more remedies or rights hereunder successively or concurrently.

ARTICLE 8. MISCELLANEOUS PROVISIONS

	8.1	 	ADDITIONAL PROVISIONS. The Loan Documents contain or incorporate by reference the
entire agreement of the parties with respect to matters contemplated herein and supersede all
prior negotiations. The Loan Documents grant further rights to Beneficiary and contain further
agreements and affirmative and negative covenants by Trustor which apply to this Deed of Trust
and to the Property and such further rights and agreements are incorporated herein by this
reference. THE OBLIGATIONS AND LIABILITIES OF TRUSTOR UNDER THIS DEED OF TRUST AND THE OTHER
LOAN DOCUMENTS ARE SUBJECT TO THE PROVISIONS OF THE SECTION IN THE NOTE ENTITLED “BORROWER’S
LIABILITY.”
	 
	8.2	 	NON-WAIVER. By accepting payment of any amount secured hereby after its due date or
late performance of any other Secured Obligation, Beneficiary shall not waive its right
against any person obligated directly or indirectly hereunder or on any Secured
Obligation, either to require prompt payment or performance when due of all other sums and
obligations so secured or to declare default for failure to make such prompt payment or
performance. No exercise of any right or remedy by Beneficiary or Trustee hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by law. No
failure by Beneficiary or Trustee to exercise any right or remedy hereunder arising upon any
Default s hall be construed to prejudice Beneficiary’s or

 

 

	 	 	Trustee’s rights or remedies upon the occurrence of any other or subsequent Default. No delay
by Beneficiary or Trustee in exercising any such right or remedy ;shall be construed to
preclude Beneficiary or Trustee from the exercise thereof at any time while that Default is
continuing. Ne notice to nor demand on Tmstor shall of itself entitle Tmstor to any other or
further notice or demand in similar or other circumstances.
	 
	8.3	 	CONSENTS AND APPROVALS. Wherever Beneficiary’s consent, approval, acceptance or
satisfaction is required under any provision of this Deed of Trust or any of the other Loan
Documents, such consent, approval, acceptance or satisfaction shall not be unreasonably
withheld, conditioned or delayed by Beneficiary unless such provision expressly so provides.
	 
	8.4	 	PERMITTED CONTESTS. After prior written notice to Beneficiary, Tmstor may contest, by
appropriate legal or other proceedings conducted in good faith and with due diligence, the
amount, validity or application, in whole or in part, of any lien, levy, tax or assessment, or
any lien of any laborer, mechanic, materialman, supplier or vendor, or the application to
Tmstor or the Property of any law or the validity thereof, the assertion or imposition of
which, or the failure to pay when due, would constitute a Default; provided that (a)
Tmstor pursues the contest diligently, in a manner which Beneficiary determines is not
prejudicial to Beneficiary, and does not impair the lien of this Deed of Trust; (b) the
Property, or any part hereof or estate or interest therein, shall not be in any danger of
being sold, forfeited or lost by reason of such proceedings; (c) in the case of the contest of
any law or other legal requirement, Beneficiary shall not be in any danger of any civil or
criminal liability; and (d) if required by Beneficiary, Tmstor deposits with Beneficiary any
funds or other forms of assurance (including a bond or letter of credit) satisfactory to
Beneficiary to protect Beneficiary from the consequences of the contest being unsuccessful.
Trustor’s right to contest pursuant to the terms of this provision shall in no way relieve
Tmstor or Borrower of its obligations under the Loan or to make payments to Beneficiary as and
when due.
	 
	8.5	 	FURTHER ASSURANCES. Tmstor shall, upon demand by Beneficiary or Trustee, execute,
acknowledge (if appropriate) and deliver any and all documents and instruments and do or cause
to be done all further acts reasonably necessary or appropriate to effectuate the provisions
hereof.
	 
	8.6	 	ATTORNEYS’ FEES. If any legal action, suit or proceeding is commenced between Tmstor
and Beneficiary regarding their respective rights and obligations under this Deed of Trust or
any of the other Loan Documents, the prevailing party shall be entitled to recover, in
addition to damages or other relief, costs and expenses, reasonable attorneys’ fees and court
costs (including, without li station, expert witness fees). As used herein the term
“prevailing party" shall mean the party which obtains the principal relief it has
sought, whether by compromise settlement or judgment. If the party which commenced or
instituted the action, suit or proceeding shall dismiss or discontinue it without the
concurrence of the other party, such other party shall be deemed the prevailing party.
	 
	8.7	 	TRUSTOR AND BENEFICIARY DEFINED. The term “Tmstor” includes both the original Tmstor
and any subsequent owner or owners of any of the Property, and the term “Beneficiary” includes
the original Beneficiary and any future owner or holder, including assignees, pledges and
participants, of the Note or any interest therein.
	 
	8.8	 	DISCLAIMERS.

	 	a.	 	Relationship. The relationship of Tmstor and Beneficiary under this Deed of
Trust and the other Loan Documents is, and shall at all times remain, solely that of
borrower and lender; and Beneficiary neither undertakes nor assumes any responsibility or
duty to Tmstor or to any third party with respect to the Property. Notwithstanding any
other provisions of this Deed of Tmst and the other Loan Documents: (i) Beneficiary is
not, and shall not be constmed to be, a partner, joint venturer, member, alter ego,
manager, controlling person or other business associate or participant of any kind of
Tmstor, and Beneficiary does not intend to ever assume such status; (ii)
Beneficiary‘s activities in connection with this Deed of Tmst and the other
Loan Documents shall not be “outside the scope of

 

 

	 	 	 	activities of a lender of money” within the meaning of California Civil Code Section
3434, as amended or recodified from time to time, and Beneficiary does not intend to
ever assume any responsibility to any person for the quality, suitability, safety or
condition of the Property; and (iii) Beneficiary shall not be deemed responsible for or
a participant in any acts, omissions or decisions of Trustor.

	 	b.	 	No Liability. Except as otherwise provided in the Loarl Documents,
Beneficiary shall not be directly or indirectly liable or responsible for any loss,
claim, cause of action, liability, indebtedness, damage or injury of any kind or
character to any person or property arising from any construction on, or occupancy or
use of, the Property., whether caused by or arising from: (i) any defect in any
building, structure, grading, fill, landscaping or other improvements thereon or in any
on-site or off-site improvement or other facility therein or thereon; (ii) any act or
omission of Trustor or any of Trustor’s agents, employees, independent contractors,
licensees or invitees; (iii) any accident in or on the Property or any fire, flood or
other casualty or hazard thereon; (iv) the failure of Trustor or any of Trustor’s
licensees, employees, invitees, agents, independent contractors or other representatives
to maintain the Property in a safe condition; or (v) any nuisance made or suffered on
any part of the Property.

	8.9	 	SEVERABILITY. If any term of this Deed of Trust, or the application thereof to any
person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder o f
this Deed of Trust, or the application of such term to persons or circumstances other than
those as to which it it invalid or unenforceable, shall not be affected thereby, and each term
of this Deed of Trust shall be valid and enforceable to the fullest extent permitted by law.
	 
	8.10	 	RELATIONSHIP OF ARTICLES. The rights, remedies and interests of Beneficiary under the
deed of trust established by Article 1 and the security agreement established by Article 4 are
independent and cumulative, and there shall be no merger of any lien created by the deed of
trust with any security interest created by the security agreement. Beneficiary may elect to
exercise or enforce any of its rights, remedies or interests under either or both the deed of
trust or the security agreement as Beneficiary may from time to time deem appropriate. The
absolute assignment of rents and leases established by Article 3 is similarly independent of
and separate from the deed of trust and the security agreement.
	 
	8.11	 	MERGER. No merger shall occur as a result of Beneficiary’s a cquiring any other
estate in, or any other lien on, the Property unless Beneficiary consents to a merger in
writing.
	 
	8.12	 	OBLIGATIONS OF TRUSTOR, JOINT AND SEVERAL. If more than one person has executed this
Deed of Trust as “Tmstor”, the obligations of all such persons hereunder shall be joint and
several.
	 
	8.13	 	SEPARATE AND COMMUNITY PROPERTY. Any married person who executes this Deed of Trust
as a Trustor agrees that any money judgment which Beneficiary or Trustee obtains pursuant to
the terms of this Deed of Trust or any other obligation of that married person secured by this
Deed of Trust may be collected by execution upon any separate property or community property
of that person.
	 
	8.14	 	INTEGRATION; INTERPRETATION•. The Loan Documents contain or expressly incorporate by
reference the entire agreement of the parties with respect to the matters contemplated therein
and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall
not be modified except by written instrument executed by all parties. Any reference in any of
the Loan Documents to the Property or Collateral shall include all or any part of the Property
or Collateral. Any reference to the Loan Documents includes any amendments, renewals or
extensions now or hereafter approved by Beneficiary in writing. When the identity of the
parties or other circumstances make it appropriate, the masculine gender includes the feminine
and/or neuter, and the singular number includes the plural.

 

 

	8.15	 	CAPITALIZED TERMS Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Note.
	 
	8.16	 	SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained shall
be binding upon and inure to the benefit of the heirs, successors and assigns of the
parties hereto. The foregoing sentence shall not be construed to permit Trustor to assign
the Loan except as otherwise permitted under the Note or the other Loan Documents.
	 
	8.17	 	GOVERNING LAW. This Deed of Trust was accepted by Beneficiary in the state of
California and the proceeds of the Note secured hereby were disbursed from the state of
California, which state the parties agree has a substantial relationship to the parties
and to the underlying transaction embodied hereby. Accordingly, in all respects,
including, without limiting the generality of the foregoing, matters of construction,
validity, enforceability and performance, this Deed of Trust, the No:e and the other Loan
Documents and the obligations arising hereunder and thereunder shall be governed by, and
construed in accordance with, the laws of the state of California applicable to contracts
made and performed in such state and any applicable law of the United States of America,
except that at all times the provisions for enforcement of Beneficiary’s STATUTORY POWER
OF SALE granted hereunder and the creation, perfection and enforcement of the security
interests created pursuant thereto and pursuant to the other Loan Documents shall be
governed by and construed according to the law of the state where the Property is
located. Except as provided in the immediately preceding sentence, Trustor hereby
unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim
to assert that the law of any jurisdiction other than California governs this Deed of
Trust, the Note and other Loan Documents.
	 
	8.18	 	CONSENT TO JURISDICTION. Tmstor irrevocably submits to the jurisdiction of: (a)
any state or federal court sitting in the state of California over any suit, action, or
proceeding, brought by Trustor against Beneficiary, arising out of or relating to this
Deed of Trust, the Note or the Loan; (b) any state or federal court sitting in the state
where the Property is located or the state in which Trustor’s principal place of business
is located over any suit, action or proceeding, brought by Beneficiary against Tmstor,
arising out of or relating to this Deed of Trust, the Note or the Loan; and (c) any state
court sitting in the county of the state where the Property is located over any suit,
action, or proceeding, brought by Beneficiary to exercise its STATUTORY POWER OF SALE
under this Deed of Trust or any action brought by Beneficiary to enforce its rights with
respect to the Collateral. Trustor irrevocably waives, to the fullest extent permitted by
law, any objection that Tmstor may now or hereafter have to the laying of venue of any
such suit, action, or proceeding brought in any such court and any claim that any such
suit, action, or proceeding brought in any such court has been brought in an inconvenient
forum.
	 
	8.19	 	EXHIBITS. Exhibit A is incorporated into this Deed of Trust by this reference.
	 
	8.20	 	ADDRESSES; REQUEST FOR NOTICE. All notices and other communications that are
required or permitted to be given to a party under this Deed of Trust shall be in
writing, refer to the Loan number, and shall be sent to such party, either by personal
delivery, by overnight delivery service, by certified first class mail, return receipt
requested, or by facsimile transmission to the addressee or facsimile number below. All
such notices and communications shall be effective upon receipt of such delivery or
facsimile transmission. The addresses of the parties are set forth on page 1 of this Deed
of Trust and the facsimile numbers for the parties are as follows:

	 	 	 	 	 	 	 
	Beneficiary:

	 	 
	 	Trustee:
	 	 
	 
	WELLS FARGO BANK, N.A.

	 	 
	 	AMERICAN SECURITIES COMPANY
	 	 
	FAX No.: (925) 691-5947

	 	 
	 	FAX No.: (925) 691-5947
	 	 

 

 

	 	 	 	 	 	 	 
	Trustor:

	 	 
	 	With copies to:
	 	 
	 
	BARBER LANE ASSOCIATES L.P.

	 	 
	 	Cooley Godward LLP
	 	 
	FAXNo.: (650) 326-9333

	 	 	 	Attn: Paul Churchill, Esq.	 	 
	 

	 	 	 	     (415) 951-3699
	 	 

Trustor’s principal place of business is at the address set forth on page 1 of this Deed of
Trust.

Any Trustor whose address is set forth on page 1 of this Deed of Trust hereby requests that a
copy of notice of default and notice of sale be delivered to it at that address. Failure to
insert an address shall constitute a designation of Trustor’s last known address as the
address for such notice. Any party shall have the right to change its address for notice
hereunder to any other location within the conrinental United States by giving 30 days notice
to the other parties in the manner set forth above.

	8.21	 	COUNTERPARTS. This Deed of Trust may be executed in any number of counterparts, each
of which, when executed and delivered, will be deemed an original and all of which taken
together, wi11 be deemed to be one and the same instrument.

 

 

	8.22	 	WAIVER OF JURY TRIAL. BENEFICIARY AND TRUSTOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WA[VE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS DEED OF TRUST OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEAL[NG, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF BENEFICIARY OR TRUSTOR. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
BENEFICIARY TO ENTER INTO THIS DEED OF TRUST.

IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year set forth above.

	 	 	 	 	 	 	 	 	 	 	 
	“TRUSTOR”	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	BARBER LANE ASSOCIATES L.P.,	 	 
	a California limited partnership	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	Menlo Equities Associates V LLC,	 	 
	 	 	a California limited liability company,	 	 
	 	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Menlo Equities LLC,	 	 
	 	 	 	 	a California limited liability company,	 	 
	 	 	 	 	Managing Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Menlo Equities, Inc.,	 	 
	 	 	 	 	 	 	a Californ corporation,	 	 
	 	 	 	 	 	 	Managing -rnber	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Henry D. Bullock	 	 
	 

	 	 	 	 	 	 	 	 

Henry D. Bullock, 
President
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Diamant Investments LLC,	 	 
	 	 	 	 	 	 	a Delaware limited liability company,	 	 
	 	 	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Richard J. Holmstrom	 	 
	 

	 	 	 	 	 	 	 	 

Richard J. Holmstrom,
	 	 
	 

	 	 	 	 	 	 	 	Managing Member	 	 

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

 

 

LoanNo.31-0900266A

EXHIBIT A

Description Of Land

Exhibit A to DEED OF TRUST AND ABSOLUTE ASSIGNMENT OF RENTS AND LEASES AND SECURITY AGREEMENT (AND
FIXTURE FILING) (“Deed of Trust") among BARBER LANE ASSOCIATES L.
P. , a California limited partnership, as “Trustor”, AMERICAN
SECURITIES COMPANY, as “Trustee”, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as “Beneficiary”.

Description of Land. The Land referred to in this Deed of Trust is situated in the county
of Santa Clara, state of California and is described as follows:

Situated in the City of Milpitas

PARCEL 2, as shown on Parcel Map filed November 4, 1998 in Book 709 of Maps, at Page(s) 41 and
42, Santa Clara County Records.

Assessor’s Parcel Number: 086-03-085exv10w1

 

EXHIBIT 10.1

COOPERATIVE DEVELOPMENT AGREEMENT

     THIS AGREEMENT, entered into as of the 8th day of November, 2002, by and between ALTUS
BIOLOGICS INC., a corporation organized and existing under the laws of the State of Delaware and
having its principal place of business at 625 Putnam Avenue, Cambridge, MA 02139 (hereinafter
called “ALTUS”), and AMANO ENZYME INC., a corporation organized and existing under the laws of
Japan and having its principal place of business at 1-2-7, Nishiki, Naka-ku, Nagoya, Japan
(hereinafter called “AMANO”),

WITNESSETH:

WHEREAS, ALTUS, through research and development for a long time, acquires and possesses certain
valuable technologies pertaining to certain pharmaceutical products known as TheraCLECTM Total and a
method for manufacturing such products and continues to develop scientific techniques pertaining to
the products, and owns and controls certain patent rights and trademark rights in the products, and

WHEREAS, AMANO has, over the years, demonstrated its expertise in development, manufacturing and
worldwide marketing of many kind of enzymes for the commercial markets especially in food industry
and pharmaceutical industry, and has thereby established a reputation of high regard in such
markets, which reputation is believed by ALTUS to be of great value to the possible success of the
joint development contemplated hereunder, and

WHEREAS, AMANO desires to undertake manufacture of enzyme materials to be used in the products of
ALTUS,

WHEREAS, ALTUS and AMANO are willing to enter into a cooperative development of certain enzyme
materials, which are fit for TheraCLECTM Total, and entire specifications of which are instructed by
ALTUS, and

WHEREAS, ALTUS and AMANO propose to decide at the end of Phase II of the U.S. clinical trial
process whether they will enter into a further manufacturing agreement.

NOW, THEREFORE, ALTUS and AMANO agree as follows:

Article 1. Definitions

	1.	 	The term “Products” shall mean the pharmaceutical products known as TheraCLECTM Total, in a
certain preparation form or forms intended for therapeutic use in humans specified, developed,
manufactured, labeled and packaged and sold by or on behalf of ALTUS.

	2.	 	The term “Materials” shall mean enzymes used as active ingredients in the Products, which are
made up of selected lipase, protease and amylase prepared by AMANO in accordance with
Specifications developed and submitted by ALTUS for use in manufacturing Products.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

1

 

	3.	 	The term “Amano Enzymes” shall mean enzymes including but not limited to lipase, protease and
amylase, which are discovered, invented, developed, produced, sold or otherwise disposed by
Amano with its sole technologies and which are basis of Materials to be develop hereunder.

	4.	 	The term “Technical Information” shall mean all of the information and knowledge now
possessed by ALTUS or AMANO and those acquired by ALTUS or AMANO during the life of this
Agreement, which relate to manufacturing process of Materials -or relate to Products.

	5.	 	The term “ALTUS’s Development” shall mean any and all works of research and development made
by ALTUS with respect to Materials and Products to be developed hereunder.

	6.	 	The term “AMANO’s Development” shall mean any and all works of research and development made
by AMANO with respect to Materials to be developed hereunder.

	7.	 	The term “Joint Development” shall mean any and all technical works of research and
development jointly made by ALTUS and AMANO with respect to Materials to be developed
hereunder.

	8.	 	The term “Development” shall mean ALTUS’s Development, AMANO’s Development and/or Joint
Development.

	9.	 	The term “ALTUS’s Technologies” shall mean any and all technologies now possessed by ALTUS
and those acquired by ALTUS during the life of this Agreement.

	10.	 	The term “AMANO’s Technologies” shall mean any and all technologies now possessed by AMANO
and those acquired by AMANO during the life of this Agreement.

	11.	 	The term “Joint Technologies” shall mean any and all technologies jointly developed by ALTUS
and AMANO as the results of working together during the life of this Agreement, which relate
to manufacturing process of Materials.

	12.	 	The term “Patents” shall mean those patents and patent applications which either party owns
or controls or which either party may obtain or both the parties may jointly obtain hereunder,
the application date of which is on or before the date of this Agreement or during the life of
this Agreement, and all of which are useful for or relating to Materials and/or Products.

	13.	 	The term “Specifications” shall mean the written specifications established for the
characteristics, quality and quality control testing procedures for each of Materials as
developed by ALTUS, and as amended or supplemented from time to time.

	14.	 	The term “Good Manufacturing Practices” shall mean good manufacturing practices as defined
in applicable laws, regulations and guidelines.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

2

 

Article 2. Purposes

ALTUS and AMANO shall together and individually make Development toward the goal of successfully
manufacturing Materials to be used in Products. ALTUS and AMANO shall exert [*****] to
successfully complete Development under the terms and conditions of this Agreement.

Article 3. Respective Charges of Development

	1.	 	ALTUS shall take charge of clinical development in the nature and characteristic of Materials
used for the preparation of Products, and chemical reaction and effect against malabsorption
resulting from pancreatic insufficiency including cystic fibrosis, and carry out such
development at ALTUS’s laboratory and AMANO’s facility during the life of this Agreement. In
the course of ALTUS’s Development, ALTUS shall:

	 	1)	 	develop and establish ALTUS’s Technologies utilized in Materials as bulk drug
active for Products,
	 
	 	2)	 	develop and establish the standard of Specifications of Materials to be
manufactured by AMANO and prototype manufacturing processes therefor,
	 
	 	3)	 	transfer to AMANO Specifications to be employed by AMANO and give AMANO a
technical guidance in the manufacture of Materials, particularly TheraCLEC Lipase and
[***] protease and amylase,
	 
	 	4)	 	inspect and approve AMANO’s Development,
	 
	 	5)	 	prepare and realize an Investigational New Drug application (“IND”) to the Food
and Drug Administration (“FDA”) for Materials and/or Products,
	 
	 	6)	 	provide assistance to AMANO in establishing Good Manufacturing Practices, and
	 
	 	7)	 	perfect the regulatory process and retain records pertaining to development of
the Materials and Products.

	2.	 	AMANO shall take charge of development in the manufacture of Materials and carry out such
development at AMANO’s laboratory during the life of this Agreement. In the course of AMANO’s
Development, AMANO shall:

	 	1)	 	arrange production facility located in Japan for Materials, which meets
requirement of Good Manufacturing Practices,
	 
	 	2)	 	establish AMANO’s Technologies of [**********] and [*********] for Materials,
	 
	 	3)	 	establish AMANO’s Technologies of the [*****] and [****] for materials,

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

3

 

	 	4)	 	develop technologies manufacturing TheraCLEC lipase and [***] protease and
amylase under AMANO’s Technologies in accordance with ALTUS’s Technologies disclosed to
AMANO,
	 
	 	5)	 	develop AMANO’s Technologies of manufacturing Materials in accordance with
Specifications and guidance given by ALTUS, and
	 
	 	6)	 	support the regulatory process and retain records pertaining to development of
the Materials.

	3.	 	ALTUS and AMANO shall jointly develop and establish a standard manufacturing management
protocol for Materials on the basis of quality control procedures originally developed by
Altus, that may need to be modified to fulfill requirements for an FDA regulated product or
other product.

Article 4. Exchange of Technical Information

Forthwith after the execution of this Agreement, both parties. shall disclose to the other party
Technical Information owned and possessed in the respective field of which either party takes
charge hereunder from time to time during the life of this Agreement. All Technical Information
that was exchanged between or developed jointly by the parties [*******] shall be deemed to be
information exchanged between or developed jointly by the parties pursuant to this Article 4. All
intellectual property provisions in this Agreement shall be effective as of the earliest date that
the parties began working together.

Article 5. Supply of Materials

	1.	 	ALTUS shall provide AMANO with forecasts setting out the amounts of Materials it expects it
will require for each month during the [***] period from the time of preparation of the
relevant forecast. The forecasts shall be updated [******]. ALTUS shall prepare a separate
forecast for the [*****] required for any [****]. Upon ALTUS’s request, AMANO shall supply
ALTUS with reasonable quantities of Materials manufactured by AMANO in accordance with
Specifications, regardless of fully finished or not, be necessary for ALTUS’s Development.

	2.	 	If ALTUS places an order for Materials with AMANO for the purpose of ALTUS’s Development
pursuant to this Agreement that does not exceed the amount of Materials set forth in the most
recent forecast for the relevant month, AMANO shall [*****]; provided, however, if ALTUS
places an order for Materials in excess of the volume
specified in the applicable forecast, supply by AMANO of such excess Materials shall be
subject to [*********] and to [******]. Supply of Materials by AMANO hereunder may be
conducted through AMANO’s subsidiary, Amano Enzyme USA Co., Ltd. based in U. S. A.

	3.	 	The parties hereto shall make a supply contract or contracts in accordance with the terms of
this Agreement, on a bona fide basis, from case to case relating to the supply of Materials as
provided hereinabove. The supply contract shall definitely provide terms

Portions
of this Exhibit were omitted and have been filed separately with the
Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

4

 

	 	 	and conditions including but not limited to kind of Materials, quantities, Specifications, time of
shipment, trade terms, price, payment and etc.

	4.	 	AMANO shall not supply [****] other than to ALTUS without prior written consent from ALTUS
except as otherwise provided in Article 12.3, provided that nothing herein contains any
restriction of supplying other party than ALTUS with any of Amano Enzymes or materials
manufactured [*********] and/or other technologies of any third party.

	5.	 	Being understood that evaluate, use or application of Materials and Specifications for
medical products are decided by ALTUS at its sole discretion, AMANO shall incur no liability
on Materials supplied hereunder, whatsoever for (a) all or any consequential or indirect
losses or damages or loss of profit suffered or incurred by ALTUS or any third party howsoever
caused; or (b) all or any actions, proceedings, demands or claims made against ALTUS or any
third party by any person whatsoever, provided AMANO prepares the Materials in accordance with
the Specifications and Good Manufacturing Practices. ALTUS shall indemnify and hold AMANO
harmless from all cost, expense and liability arising out of or related to injury to persons
or property resulting from ALTUS’s use of Materials, provided AMANO prepares the Materials in
accordance with the Specifications and Good Manufacturing Practices. ALTUS halt obtain and
maintain, at its own expense, during the life of this Agreement and thereafter, sufficient
insurance covering product liability, tort liability and other liability relating to Materials
and Products written by an insurer satisfactory to AMANO and in which insurance AMANO shall be
named as additional insured.

Article 6. Joint Development Committee

	1.	 	ALTUS and AMANO shall, within [****] after the execution of this Agreement, establish a Joint
Development Committee (“JDC”) to (a) elaborate and confirm the plan of Development
contemplated herein; (b) give each other the progress condition of Development at the time of
the meeting; (c) oversee the compliance of the facility with Good Manufacturing Practices and
the transfer of the prototype process of manufacturing Materials from ALTUS to AMANO; (d)
coordinate Development to the manufacturing process of Materials; and (e) to exercise decision
making authority, and, further, shall
make the plan and schedule of Development within [******] after the first meeting of JDC.

	2.	 	The JDC shall be comprised of [***] ALTUS representatives and [***] AMANO representatives,
who will initially be the business and technical mangers. Each party may replace its JDC
representative at any time, after discussion with the other party, with subsequent written
notice to the other party.

	3.	 	Decisions of the JDC shall be made by consensus approval. In the event the parties are
unable to agree on any issue, the dispute will be referred to the President or a person
designated by the President of each party, who shall promptly meet in person or by means of
telephone or video conference and endeavor to resolve the dispute in a timely manner.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

5

 

	 	 	In the event such individuals are unable to resolve the dispute, it shall be settled by
[****], or as otherwise agreed.

	4.	 	On and after the execution of this Agreement, the JDC shall meet at least quarterly at
regular intervals, or more often as agreed by the parties, in person at such locations as the
parties agree, or by means of telephone or video conference. With the consent of the parties,
other representatives of each party may attend JDC meetings as nonvoting observers.

	5.	 	Each party shall each bear the expenses of their respective JDC members related to their
participation on the JDC and attendance at JDC meetings.

Article 7. Expenses

	1.	 	Each party hereto shall [***], including but not limited to, the [****] in its laboratory
[****] for Development from time to time, and such party [***].

	2.	 	During ALTUS’s stay in Japan for Development, ALTUS may, [***] use all equipment in AMANO’s
laboratory, which are necessary for Development, and, during AMANO’s stay in U.S.A. for
Development, AMANO may, [*****], use all equipment in ALTUS’s laboratory, which are necessary
for Development.

	3.	 	Each party hereto [****], including but not limited to, [****] from U.S.A. to Japan and back,
[*****], which would be incurred on ALTUS or AMANO under this Agreement.

Article 8. Patents and etc.

	1.	 	Subject to Article 8(4) below, Patents and/or other industrial property rights, inventions,
discoveries, know-how and other technologies (collectively, “Intellectual Property Rights”)
solely developed, acquired or owned by either party during the life of this Agreement
[*******] Patents and/or other industrial property rights, inventions,
discoveries, know-how and other technologies in any country without a prior written consent
of such party.

	2.	 	Each party [**********] of Patents and/or other Intellectual Property Rights concerning all
discoveries, inventions and/or other technologies acquired by such party in the course of or
as the result of Development. The [***] of such Intellectual Property Rights [***] shall be
ALTUS or AMANO and[*********] for such Patents and/or other Industrial Property Rights
[*****].

	3.	 	Each party [*****] for its own Intellectual Property Rights [********].

	4.	 	All Intellectual Property Rights which constitute Joint Technologies shall be the joint
property of both parties. As to Joint Technologies resulted from Joint Development,
Intellectual Property Rights for such Joint Technologies shall be applied and registered, in
Japan and in any overseas countries, in both the names of ALTUS and AMANO as to the co-owners
and the parties shall share the costs incurred in connection with such registrations;
provided, however, that either party may refuse to apply for co-registration

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

6

 

	 	 	of Intellectual Property Right in case such party has, a sufficient reason not to apply or a
thought to hold Joint Technologies as trade secrets; and that where one party refuses or fails to
apply for co-registration of such Intellectual Property Rights within 90 days of a request for such
co-registration by the other party without such a reason or a thought, then the other party shall
be free at their own expense to file an application for registration of the Intellectual Property
Rights as sole registrant and thereafter utilize such Intellectual Property Rights without any
requirement to pay a royalty.

	5.	 	Either party may not assign, transfer, sell or otherwise dispose of its Intellectual Property
Rights and know-how acquired in Joint Development to any third party without a prior written
consent of the other party. In case either party desires to dispose such technologies, the
other party [****] as negotiated between the parties in good faith.

	6.	 	Subject to the terms of this agreement, the parties [*******] any Intellectual Property
Rights they own in accordance with Articles 8(1) and (4) above, in any manner they deem fit,
and [***], provided that, if either party desire to have a third party utilize any Joint
Technologies, such either party shall obtain a prior written consent of the other party.

Article 9. Plan, Schedule and Reports of Development

	1.	 	Both the parties apply due diligence to Development in accordance with the plan and schedule
of Development which should be prepared and amended from time to time during the life of this
Agreement by mutual consultation. Provided, however, that; (a) in the event that Development
of either party should be delayed by the force majeure or other reasonable causes to such
party, the other party shall agree to the extension [****]
in the plan and schedule of Development and continue Development during such extended
period; (b) in case any alteration of a part of whole of the plan and schedule of
Development is required by any reason, either of the parties having or knowing such reason
shall notify the other party to that effect in advance.

	2.	 	ALTUS and AMANO shall provide the other party with the written report on the results of
Development [****************] reasonably requested by the other party.

Article 10. NDA Application

	1.	 	ALTUS shall use best efforts to research, develop and conduct such research, development and
preclinical and human clinical trials as necessary or desirable to obtain all regulatory
approvals to manufacture and market, and to obtain necessary approval to market, commence
marketing and market Products in U. S. A. and any other countries in the world as ALTUS
determines are commercially feasible.

	2.	 	Within [*****] following the end of each [*****] period during the life of this Agreement,
ALTUS shall prepare and deliver to AMANO a written report which shall describe, in reasonably
sufficient detail, (a) the research performed to date employing Materials; (b) the progress of
the development, and testing of Materials and Products in all studies including clinical
trials; and (c) the status of obtaining the necessary approvals to market Products. In
addition, ALTUS shall provide AMANO with a minimum of

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

7

 

	 	 	[****] advance written notice of the contemplated filing of an NDA application, written notice of
other significant regulatory filings and submissions in a timely fashion, and written notice of all
approvals obtained after obtaining such approvals.

Article 11. Commercialization

	1.	 	In case that Development of Materials and products contemplated hereunder has been completed
and Products may be manufactured and sold on a commercial basis, [*****] manufacture and sold
Products by using all results from ALTUS’s Development, AMANO’s Development and Joint
Development as well as Patents and Technical Information, and [*********], and ALTUS shall
make its best efforts to sell Products throughout the world.

	2.	 	Notwithstanding the above, except as otherwise provided in this Agreement, [*******] to
manufacture and supply Materials [***] by using all results from ALTUS’s Development, AMANO’s
Developments and Joint Development as well as Patents and Technical Information, and [*****]
unless otherwise agreed in writing between the parties as to procurement of Materials from
other manufacturing contractor or contractors than AMANO.

	3.	 	Only ALTUS shall have a right to grant to the third party agreed upon by AMANO a license to
manufacture Products by using all results from ALTUS’s Development, Patents and Technical
Information. Except as otherwise provided in this Agreement, in case ALTUS grants to the
third party such a license, [*****].

	4.	 	In case ALTUS and/or its licensee procure Materials, which employ the results from AMANO’s
Development and Joint Development made hereunder, from other manufacturing contractor or
contractors than AMANO, ALTUS, such licensee or such manufacturing contractor or contractors
shall, unless otherwise provided herein, pay AMANO a royalty of [*****] manufactured and
supplied by such manufacturing contractor or contractors pursuant to the rate and payment as
agreed by AMANO in advance during commercialization.

	5.	 	AMANO and ALTUS agree and acknowledge that it may be necessary during Phase III of the FDA
clinical trial process to arrange for a separate manufacturer (the “Toll Manufacturer”) that
will be chosen jointly by AMANO and ALTUS to undertake certain manufacturing activities with
respect to the [*****], and that for this purpose it will be necessary for AMANO and ALTUS to
license to the Toll Manufacturer all of the necessary technology owned or licensed by AMANO
and ALTUS. Accordingly, AMANO and ALTUS each agree to license such technology to such Toll
Manufacturer on terms of confidentiality, Intellectual Property Right protection and other
matters, [***], reasonably satisfactory to AMANO and ALTUS.

	6.	 	AMANO and ALTUS agree and acknowledge that in order to ensure future supply of Materials, it
shall be necessary for ALTUS to engage a secondary supplier (the “Secondary Supplier”). AMANO
and ALTUS therefore agree that, whilst it is intended that AMANO shall be the primary supplier
of Materials, ALTUS may engage the

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

8

 

	 	 	Secondary Supplier which shall be entitled to use AMANO’s Technologies on terms satisfactory to
AMANO to produce quantities of Materials for use in clinical during the term of this Agreement.

	7.	 	AMANO and ALTUS acknowledge that:

	 	(a)	 	ALTUS proposes to proceed with manufacture of the Products if FDA approval is
obtained; and
	 
	 	(b)	 	in order to pursue full-scale manufacture, the primary manufacturer of
Materials will be required to have established a large facility suitable for commercial
production of Materials in accordance with Good Manufacturing Practices; and
	 
	 	(c)	 	the establishment of the production facility will necessarily involve
considerable investment; and
	 
	 	(d)	 	the party invested for such production facility including development works
must recover such amount as invested from the business contemplated herein.

	8.	 	ALTUS shall promptly deliver to AMANO all Phase II reports following completion of the Phase
II clinical trial (“Phase H Completion”) and statement showing definite estimation of
quantities, prices of Materials and the Products to be manufactured and/or sold for [*****]
period commencing from the day entering Phase III. AMANO shall then advise ALTUS in writing
within [***] of its receipt of such Phase II reports whether AMANO intends to act as primary
manufacturer of Materials, provided that the primary manufacture shall be deemed a
manufacturing contractor who works for or on behalf of ALTUS to manufacture Materials.

	9.	 	If AMANO decides to act as primary manufacturer of Materials following Phase II Completion,
the parties shall proceed to negotiate in good faith a Manufacturing Agreement governing the
manufacture and supply of Materials to be used by ALTUS in Phase III and/or the commercial
manufacture and supply of Materials by AMANO. At this stage, the parties tentatively expect
the Manufacturing Agreement to include the following terms and conditions:

	 	(a)	 	AMANO shall supply at least [**] of the Materials used in the Products to ALTUS
and a royalty shall be payable to AMANO in respect of any licensed AMANO’s Technologies
used in the manufacture of Materials manufactured by a Secondary Supplier, in an amount
[****];
	 
	 	(b)	 	AMANO and ALTUS agree that they shall collaborate and share details of the
process in order to drive down the costs of the Materials. Both AMANO and ALTUS shall
share equal responsibility through a joint development team that will have the function
of lowering costs of the Materials;
	 
	 	(c)	 	AMANO and ALTUS shall negotiate and decide upon the target price of the
Materials supplied by AMANO to have a target price equal to the greater of (i)

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

9

 

	 	 	 	[**] of the [***] for the Product, or (ii) an amount that provides AMANO with a [**] margin.

	10.	 	If AMANO decides not to act as primary manufacturer of Materials following Phase II
Completion, ALTUS shall be forced to cease using AMANO as the primary manufacturer of
Materials and engage an alternative primary manufacturer to carry out manufacture of
Materials. In this case, AMANO agrees that the alternative primary manufacturer shall be
entitled to use AMANO’s Technologies and Joint Technologies for the purpose of manufacture of
Materials, subject to the terms and conditions in Article 11.4.

	11.	 	Where applicable, commercialization and transactions contemplated in this Article shall be
executed under the separate agreements or contracts in writing to be duly signed by ALTUS and
AMANO.

Article 12. Restriction of Use

	1.	 	ALTUS and AMANO have provided the other party with some information on the subject herein
contemplated under Secrecy Agreement dated [****] and shall further provide each other with
some additional necessary information and materials, if available, so as to enable the other
party to conduct Development.

	2.	 	Neither ALTUS nor AMANO may use the information and materials supplied hereunder, which ALTUS
and/or AMANO is obligated to keep confidential under Article 13 hereof for any purpose other
than for fulfilling the purpose of this Agreement.

	3.	 	AMANO agrees that it shall manufacture and supply [********] to be used for the products
exclusively to ALTUS during the term of this Agreement.

Article 13. Confidentiality

	1.	 	During the life of this Agreement and thereafter, unless otherwise agreed upon in writing
between the parties hereto, ALTUS and AMANO shall hold in confidence any proprietary
information provided by the other party and any study results, and not to disclose the same to
any unauthorized third party by publication or otherwise without prior written consent by the
other party, except for such information and results which:

	 	(a)	 	on the date of ALTUS’s and AMANO’s signing this Agreement is in the public
domain;

	 	(b)	 	after the date of ALTUS’s and AMANO’s signing this Agreement becomes part of
the public domain by publication or otherwise, except by breach of this Agreement by
ALTUS and/or AMANO;

	 	(c)	 	ALTUS and/or AMANO can establish by competent proof that the information was in
its possession on the date of its signing this Agreement and was not acquired directly
or indirectly from the other party; and

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

10

 

	 	(d)	 	ALTUS and/or AMANO can establish by competent proof that the information was
received from a third party after the date of its signing this Agreement; provided,
however, that such information was not obtained by said third party directly or
indirectly from the other party.

	 	(e)	 	is required to be disclosed by ALTUS to the FDA or other governmental
authorities in order to obtain governmental approvals for the Products.

	2.	 	It is mutually understood, however, that ALTUS or AMANO is allowed to disclose said
information to a minimum number of investigators in their institutions to whom it is necessary
for it to do so for the purpose of this Agreement on condition that such investigators shall
be bound by the same obligation as provided in this Agreement.

	3.	 	ALTUS and AMANO shall hold in confidence any and all negotiations with the other party
including all past and future studies.

Article 14. Period of Agreement

This Agreement shall become effective on the date first above written in this Agreement and remain
in force for a period of five (5) years thereafter, and shall not be renewed thereafter unless
agreed by both the parties hereto in writing upon the extension of this Agreement at least six (6)
months prior to the date of expiration of this Agreement.

Article 15. Termination

	1.	 	If either party fails, refuses or neglects fully and faithfully to keep, observe or perform
any covenant herein mentioned to be kept, observed or performed by either party, then, the
other party may notify such party in writing of such default stating in such written notice
the covenant or covenants of this Agreement which such party shall have failed, refused or
neglected to keep, observe or perform, and if such party, for a period of thirty (30) days
after the service upon such party of such written notice, continues to fail, refuse or neglect
to keep, observe or perform any such covenant or covenants, then the other party may cancel or
terminate this Agreement by serving upon such party a written notice of such cancellation and
termination hereof.

	2.	 	ALTUS or AMANO may terminate this Agreement by giving the other party a written notice in the
event of following:

	 	(a)	 	liquidation, dissolution, insolvency, bankruptcy or other events similar
thereto of the other party, or

	 	(b)	 	incapability, incompetency or more than six (6) month absence of the other
party.

	3.	 	Either party hereto shall be entitled to cease any and all activity pursuant to this
Agreement based on technical, scientific, medical, regulatory, economic or commercial factors
upon one (1) year notice to the other party. In the event that such party gives the other
party notice pursuant to this Article 15.3, this Agreement shall terminate after such one (1)
year period has elapsed and such party shall not be required to pay any penalty,

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

11

 

	 	 	indemnity, damages or other amount to the other party based on the cessation of activity pursuant
to this Article 15.3.

Article 16. Effect of Termination

	1.	 	In case of termination of this Agreement: (i) by AMANO for ALTUS’s material breach; or (ii)
by ALTUS for reasons other than AMANO’s material breach, ALTUS shall retain a royalty bearing
license, for so long as the Products are sold, with right to sublicense, to AMANO’s
Technologies and Joint Technologies, to make, have made, use, sell, offer to sell and import
Materials employing such AMANO’s Technologies and Joint Technologies, the royalty shall be
[***] of net sales of the Products.

	2.	 	In case of termination of this Agreement: (i) by ALTUS for [*****]; or (ii) by AMANO as a
result of [*****], ALTUS shall retain a [*****] license, for so long as the Products are sold,
with right to sublicense, to AMANO’s Technologies and Joint Technologies, to make, have made,
use, sell, offer to sell and import Materials and Products employing such AMANO’s Technologies
and Joint Technologies as developed during the effective period of this Agreement; [****].

	3.	 	Upon the termination as set forth in Article 16.1 or Article 16.2, both the parties shall
enter into a license agreement where AMANO grants ALTUS a license to [*****] Materials and
Products employing such AMANO’s Technologies and Joint Technologies as developed during the
effective period of this Agreement.

	4.	 	Expiration or termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination

	5.	 	The following provisions shall survive termination: Articles 8, 11, 12, 14, l6 and 17.

Article 17. Arbitration

All disputes, controversies or differences which may arise between the parties hereto, out of or in
relation to or in connection with this Agreement, or the breach thereof, shall be finally settled
by arbitration in:

	 	(a)	 	where the relevant claim is brought by ALTUS — Tokyo, Japan in accordance with
the Commercial Arbitration Rules of The Japan Commercial Arbitration Association; or

	 	(b)	 	where the relevant claim is brought by AMANO — Massachusetts, United States of
America, in accordance with the rules and procedures of the American Arbitration
Association.

In either case, the award rendered by arbitrator(s) shall be final and binding upon both parties.

Article 18. Notice

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

12

 

Any notice required of permitted to be given under this Agreement by either of the parties hereto
shall be deemed to have been sufficiently given for all the purposes hereof if mailed by registered
mail, postage prepaid, addressed to the party to be notified at its address shown at the
beginning of this Agreement, or at such other address as may be furnished to the notifying party in
writing.

Article 19. Waiver

No omission or delay on the part of any party hereto in requiring a due and punctual fulfillment by
any other party hereto of the obligations of such other parry shall be deemed to constitute a
waiver by the omitting or delaying party of any of its rights to require such due and punctual
fulfillment of any other obligations hereunder whether similar or otherwise or a waiver of any
remedy it might have hereunder.

Article 20. Force Majeure

Neither party to this Agreement shall be held responsible for the damages caused by any delay or
failure to perform under this Agreement, which is the result of any happenings or events which
could not have been reasonably avoided. Such happenings or events shall include but shall not be
limited to fire, flood, explosion, action of the elements, acts of God, accidents, epidemics,
inability to obtain or shortage of material or equipment, riots, or other civil commotion, war
enemy action, or acts, demands or requirements of the Governments of U.S.A. or Japan.

Article 21. Assignment

Neither this Agreement nor any right or obligation hereunder shall be assignable in whole or in
part, whether by operation of laws, or otherwise by either party without a prior written consent of
the other party. In case of any amalgamation, merger, consolidation or sale of all or
substantially all the assets of ALTUS or AMANO without a prior written consent of the other party,
this Agreement and any right hereunder [*******] except where [*******], in such case such
assignment shall require consent from the other party, and such consent shall not be unreasonably
withheld.

Article 22. Governing Law

	1.	 	Irrespective of the place of execution or performance, this Agreement as to all matters
except with one provided in Article 22 (2) below shall be considered as having been entered
into in Japan and shall be construed and interpreted in accordance with the laws of Japan,
excluding its Law Regarding Conflict of Laws (horei).

	2.	 	Irrespective of Article 22(I) above, the laws of the United States of America (excluding its
choice of law rules) shall apply to the extent that the provisions contained in this Agreement
concern or deal with Intellectual Property Rights.

Article 23. Amendment

This Agreement sets forth the only agreement and understanding of the parties on the subject of
cooperative development and supersedes any prior negotiations, memorandum or agreement,

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

13

 

whether oral or written, and neither of the parties shall be bound by any conditions, definitions,
warranties, or representations other than as expressly provided in this Agreement, or as duly set
forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized
officer of the party to be bound thereby.

Article 24. Separability

The validity, legality and enforceability of any provision hereof shall not be affected or impaired
in any way by any holding that any other provision or provisions contained herein are invalid,
illegal or unenforceable in any respect.

Article 25. Language

This Agreement is in the English language only, which language shall control and any version in any
other language shall be for accommodation only and not bind the parties hereto.

Article 26. Headings

The heading of articles and paragraphs used in this Agreement are inserted for convenience of
reference only and shall not affect the interpretation of the respective articles and paragraphs of
this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the day and year first
above written. This Agreement is made in English, two copies and both parties duly signed and
retain each other.

	 	 	 
	ALTUS: ALTUS BIOLOGICS INC
	 	 
	 
	 	 
	     /s/ Peter Lanciano
	 	 
	 

By Peter Lanciano, President

	 	 
	 
	 	 
	AMANO: AMANO ENZYME CO., LTD.
	 	 
	 
	 	 
	     /s/ Motoyuki Amano
	 	 
	 

By Motoyuki Amano; President

	 	 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

14

 

Amendment to Cooperative Development Agreement

THIS AMENDMENT, entered into as of the 11th day of October, 2005 (this “Amendment”), by
and between Altus Pharmaceuticals Inc. (formerly known as Altus Biologics Inc.), a corporation
organized and existing under the laws of the State of Delaware and having its principal place of
business at 125 Sidney Street, Cambridge, Massachusetts 02139, USA (“Altus”), and Amano Enzyme
Inc., a corporation organized and existing under the laws of Japan and having its principal place
of business at 1-2-7, Nishiki, Naka-ku, Nagoya, Japan (“Amano”), amends the Cooperative Development
Agreement dated as of November 8, 2002, by and between Altus and Amano (the “Agreement”).
Capitalized terms used in this Amendment and not defined in this Amendment shall have the meanings
ascribed to them in the Agreement.

Background

WHEREAS, Altus and Amano desire to amend the Agreement to set forth certain mutual understandings
reached by the parties with respect to the manufacture and supply of Materials by Amano for use by
Altus in certain non-clinical studies and the phase III clinical trial of the Product
(collectively, the “Phase III Materials”) and the engagement of third party contract manufacturers
(“CMOs”) to provide manufacturing services in connection with commercial manufacture and supply;
and

WHEREAS, Altus and Amano desire to amend the Agreement to set forth certain additional
understandings in anticipation of (a) the parties entering into a Manufacturing Agreement for the
commercial manufacture and supply of Materials by Amano (if Amano elects to act as the primary
manufacturer of some of the Materials for commercial supply, it being understood by the parties
that Amano does not currently anticipate that it will elect to act as the initial primary
manufacturer of all of the Materials for commercial supply) and (b) the engagement of CMOs for the
commercial manufacture and supply of Materials for which Amano does not elect to act as the primary
manufacturer for commercial supply.

NOW, THEREFORE, Altus and Amano agree to amend the Agreement as follows:

1. The parties acknowledge that certain provisions of the Agreement anticipate that, if Amano
elects to act as the primary manufacturer of Materials following phase II Completion, the parties
will negotiate a Manufacturing Agreement to govern the manufacture and supply of Materials for both
the Phase III clinical study and the commercial supply of Products. Notwithstanding such
provisions, the parties have agreed to proceed with the manufacture and supply of Phase III
Materials as set forth below in this Amendment and to defer negotiation of a Manufacturing
Agreement until promptly after Amano makes its election pursuant to paragraph 2 below.

2. The parties expect to reach agreement regarding Altus’ anticipated needs for commercial
supply and Amano’s manufacturing capacity and capabilities prior to December 31, 2005.
With respect to Materials for which Amano has sufficient capacity and capabilities, Amano
shall make its election as to whether it will act as the initial primary manufacturer for
commercial supply on or about December 3l,
2005. The timing of such election is critical to (a) enabling the parties to negotiate
a Manufacturing Agreement, if Amano elects to act as the primary manufacturer for

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

15

 

some of the Materials, and (b) enabling Altus to engage CMOs to assist in the manufacture of
Materials necessary for commercialization, all in a timeframe that is consistent with Altus’
commercial launch goals for the Product. Amano’s right to elect to act as the initial primary
manufacturer of any or all of the Materials for commercial supply shall be subject to Altus’
right under the Agreement to engage a Secondary Supplier for up to [***] of any such Material.
Amano and Altus expect that the Manufacturing Agreement will provide that if Amano [*****] the
initial primary manufacturer of any or all of the Materials for commercial supply, but at a
later date notifies Altus that it wishes to become the primary manufacturer of any such
Materials, the parties shall [*******] on mutually agreeable terms; provided
that any such [*****] shall be accomplished in a manner that does not [******].

3. The parties are currently in the process of engaging a CMO selected by the parties to perform
[*****] in connection with Amano’s manufacture and supply of Phase III Materials. The costs of
such CM0’s services shall be borne by [***].

4. Amano shall supply GMP-compliant Phase III Materials and non-GMP compliant non-clinical material
at the following prices (excluding shipping charges):

	 	 	 	CLEC lipase: US$[***] per kilogram
	 
	 	 	 	Protease: US$[***] per kilogram
	 
	 	 	 	Amylase: US$[***] per kilogram

The currently anticipated requirements and delivery schedule for such Phase III Materials to be
supplied by Amano is set forth in Exhibit A to this Amendment. Altus shall provide Amano, with
updates to the requirements and delivery schedule set forth in Exhibit A on a [***] basis until
such time as Altus provides Amano with firm purchase order(s) for such Phase III Materials, each of
which shall be provided at least [***] prior to the final delivery date for the Phase III Materials
covered by such purchase order. Amano shall accept such purchase order(s) and shall deliver such
Phase III Materials in accordance with such purchase order(s) to Altus’ designated location(s);
provided that Amano shall not be required to provide more than [***] of the
quantities set forth in Exhibit A and Amano shall not be required to deliver Phase III Materials
other than [*****] set forth in Exhibit A.

5. Promptly after the date of this Amendment, the parties shall enter into a quality agreement
relating to Amano’s supply of Phase III Materials, which agreement shall address operational issues
relating to manufacturing quality typically addressed in pharmaceutical manufacturing quality
agreements. The Phase III Materials that Amano supplies shall conform to the requirements therefor
specified in Exhibit A and in the quality agreement described in this paragraph 5; provided
that the parties acknowledge that, as of the date of this Amendment,
certain aspects of [*******] and the parties agree to reasonably cooperate with one another to
amend Exhibit A and the quality agreement as needed to reflect [*******].

6. The parties agree that CMOs required to provide manufacturing services in connection
with the commercial manufacture and supply of Materials shall be selected in accordance
with the criteria set forth in Exhibit B and that Amano and Altus shall work
collaboratively through the JDC to select such CMOs and decide upon the desired logistics
with respect to interactions of

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

16

 

such CMOs, Amano and Altus in a timely manner so that Materials can be delivered on or before
Altus’ required delivery dates. Because the selection of satisfactory CMOs in a timely manner
is of critical importance to Altus’ regulatory and product development responsibilities,
[********] regarding the selection of any CMO [****]. Unless otherwise agreed by the parties on
a case-by-case basis, Altus will contract with and supervise any requited CMOs. It is
anticipated that Altus will be responsible for [*************] costs to the extent [***].

7. Amano and Altus shall cooperate with each other to promptly transfer any necessary manufacturing
technology to any CMO selected in accordance with this Amendment. The manufacturing technology
that Amano and Altus would transfer would include, without limitation, any Technical Information,
copies of documentation possessed by Amano or Altus, and [******] reasonably required to produce
the Materials, in each case organized and delivered in a manner reasonably designed to enable the
transferee to make efficient use of such technology. [******]

8. Amano shall grant licenses to use AMANO’s Technologies and Joint Technologies to Altus with a
right to grant sublicenses thereof to any CMOs described in paragraph 7 of this Amendment
reasonably required to enable CMOs to manufacture Materials for commercial supply to Altus. For
the purposes of clarifying Section 4 of Article 11 of the Agreement, Altus shall be responsible for
making royalty payments to Amano under that section and the royalty to be paid by Altus to Amano
with respect to Materials manufactured and supplied by a CMO using AMANO’s Technologies and/or
Joint Technologies shall be [****] of [******].

9. If Amano elects to act as the initial primary manufacturer of some of the Materials for
commercial supply, the parties shall negotiate pricing for such supply in connection with their
negotiation of the Manufacturing Agreement [************].

10. The parties acknowledge that substantial communication and cooperation will be needed in order
to facilitate the timely manufacture and supply of Materials for the Phase III clinical trial of
the Product and for commercial supply. The parties agree to coordinate their activities with
respect to such manufacture and supply matters through the JDC and to use reasonable efforts to
undertake such activities in a manner consistent with the best commercial interests of the Product.

11. Without limiting Amano’s exclusivity obligations set forth in Articles 5.4 and 12.3 of the
Agreement, Amano shall not [**************]; provided, however, for the avoidance of doubt, the
parties agree that Amano shall be permitted to market, sell and supply [*****] provided in each
case such enzymes are [*******]; and provided further, however, Amano shall be permitted to
continue supplying the enzymes that it currently supplies to customers (other than Altus) if,
[*****].

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

17

 

12. As amended by this Amendment, the Agreement remains in full force and effect.

EXECUTED by the parties as of the date first written above.

	 	 	 	 	 
	ALTUS PHARMACEUTICALS INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Sheldon Berkle
 

	 	 
	 
	Name:

	 	Sheldon Berkle	 	 
	 
	Title:

	 	President & CEO	 	 
	 
	 	 	 	 
	AMANO ENZYME INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ M. Amano
 

	 	 
	 
	Name:

	 	Motoyuki Amano	 	 
	 
	Title:

	 	President	 	 

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

18

 

Exhibit A

Currently Anticipated Requirements and Delivery Schedule for Phase III Materials to be Supplied
by Amano

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

19

 

Exhibit B

CMO Criteria

	1.	 	Capacity/Capability

	 	1.2	 	[****]

	2.	 	Timing – CRITICAL

	 	2.2	 	Ability to meet launch timeline
	 
	 	2.3	 	Complete timeline through [***]

	3.	 	Quality

	 	3.2	 	[****]
	 
	 	3.3	 	Inspection Status and Experience

	4.	 	Cost

	 	4.2	 	Capital costs – [********]
	 
	 	4.3	 	Product cost (COGs)
	 
	 	4.4	 	Start-up cost – [************].

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the
Commission pursuant to the Registrant’s application requesting confidential treatment under Rule
24b-2 of the Exchange Act.

20

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