Document:

Exhibit 10.2

 

EXECUTION
VERSION

 

FIRST AMENDMENT TO THE ARC LP GUARANTEE

 

FIRST AMENDMENT, dated as of October 14, 2005
(this “Amendment”), to the ARC LP Guarantee, dated as of April 6,
2005 (as previously amended, supplemented or otherwise modified, the “Existing
ARC LP Guarantee”, and as amended hereby and as further amended, restated,
supplemented or otherwise modified and in effect from time to time, the “ARC
LP Guarantee”), by Affordable Residential Communities LP (the “Guarantor”)
in favor of Merrill Lynch Mortgage Capital Inc. (the “Lender”).

 

RECITALS

 

The Guarantor and the Lender are parties to the
Existing ARC LP Guarantee.  Capitalized
terms used but not otherwise defined herein shall have the meanings given to
them in the Existing ARC LP Guarantee.

 

The Guarantor and the Lender have agreed, subject to
the terms and conditions of this Amendment, that the Existing ARC LP Guarantee
be amended to revise the provisions of a
covenant relating to minimum tangible net worth.

 

Accordingly, the Guarantor and the Lender hereby
agree, in consideration of the mutual premises and mutual obligations set forth
herein, that the Existing ARC LP Guarantee is hereby amended as follows:

 

SECTION 1.         Amendment.

 

1.1           Section 11
of the Existing ARC LP Guarantee is hereby amended by deleting Section 11(c) and
inserting in lieu thereof the following:

 

(c)           Minimum
Tangible Net Worth.  As of the last
day of each Fiscal Quarter, the REIT shall maintain a Tangible Net Worth of not
less than (i) $425,000,000, on and after September 30, 2005 through
and including December 31, 2006; (ii) $385,000,000, on and after January 1,
2007 through and including December 31, 2007; and (iii) $355,000,000,
on and after January 1, 2008 through and including September 30,
2008.

 

SECTION 2.         Conditions
Precedent.  This Amendment shall
become effective on the date (the “Guarantee Amendment Effective Date”)
on which the following conditions precedent shall have been satisfied:

 

2.1           Delivered
Documents.  On the Guarantee
Amendment Effective Date, the Lender shall have received the following
documents, each of which shall be satisfactory to the Lender in form and
substance:

 

(a)           Amendment.  This Amendment, duly executed and delivered
by a duly authorized officer of the Guarantor and by the Lender;

 

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(b)           First
Amendment to the Credit Agreement. The First Amendment to the Credit
Agreement, dated as of October 14, 2005, duly executed and delivered by a
duly authorized officer of ARC HousingTX LP and ARC Housing LLC and by the
Lender;

 

(c)           Legal
Opinions. Opinion, dated as of the Guarantee Amendment Effective Date and
addressed to the Lender, from Skadden, Arps, Slate, Meagher & Flom
LLP, special New York counsel to the Guarantor;

 

(d)           Resolutions,
etc.  from the Guarantor, (i) a
copy of a current good standing certificate of the Secretary of State (or
comparable official) of the jurisdiction of organization of the Guarantor and (ii) a
certificate duly executed and delivered by the Guarantor’s Secretary or Assistant
Secretary as to (A) resolutions of the Guarantor’s board of directors (or
analogous governing body as Person or Persons) then in full force and effect
authorizing the execution, delivery and performance of this Amendment and any
related documents or agreements and the transactions contemplated hereby and
thereby, (B) the incumbency and signatures of those of the Guarantor’s
officers authorized to act with respect to this Amendment, and (C) the
full force and validity of each Organic Document of the Guarantor and copies
thereof (or a certificate of the Guarantor’s Secretary or Assistant Secretary
that there have been no changes to the versions of such Organic Documents
provided to the Lender in connection with the effectiveness of the Existing ARC
LP Guarantee), upon which certificates the Lender may conclusively rely until
it shall have received a further certificate of the Secretary or Assistant
Secretary of the Guarantor canceling or amending such prior certificate; and

 

(e)           Other
Documents.  Such other documents as
the Lender or counsel to the Lender may reasonably request.

 

2.2           No
Material Adverse Change. There shall have been no material adverse change
in the financial condition of the Guarantor prior to the Guarantee Amendment
Effective Date.

 

2.5           No
Default.  On the Guarantee Amendment
Effective Date, (i) the Guarantor shall be in compliance with all the
terms and provisions set forth in the Existing ARC LP Guarantee on its part to
be observed or performed and (ii) both before and after giving effect to
the amendment, no Default shall have occurred and be continuing on such date.

 

2.6           Representations
and Warranties.  On the Guarantee
Amendment Effective Date, the representations and warranties in the Existing
ARC LP Guarantee shall be true and correct as of such date, unless such
representations and warranties relate to an earlier date, both before and after
giving effect to the Amendment.

 

SECTION 3.         Limited
Effect.  Except as expressly amended
and modified by this Amendment, the Existing ARC LP Guarantee shall continue to
be, and shall remain, in full force and effect in accordance with its terms; provided,
however, that reference therein and herein to the “Loan Documents” shall
be deemed to include, in any event, this Amendment.  Each reference to the Existing ARC LP
Guarantee in any of the Loan Documents shall be deemed to 

 

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be a reference to the Existing ARC LP Guarantee as amended hereby.  The
execution of this Amendment by the Lender shall not operate as a waiver of any
of their rights, powers or privileges under the Existing ARC LP
Guarantee or under any of the other Loan
Documents except as expressly set forth herein.

 

SECTION 4.         Counterparts.  This Amendment may be executed by each of the
parties hereto on any number of separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same
instrument.  Delivery of an executed
signature page of this Amendment in Portable Document Format (PDF) or by
facsimile transmission shall be effective as delivery of an executed original
counterpart of this Amendment.

 

SECTION 5.         GOVERNING
LAW.  THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK. THIS AMENDMENT INCORPORATES BY REFERENCE, AND THE GUARANTOR
AND LENDER HEREBY AGREE TO BE SUBJECT TO, THE PROVISIONS SET FORTH IN SECTION 19
OF THE EXISTING ARC LP GUARANTEE.

 

[SIGNATURE PAGE FOLLOWS]

 

3

 

IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered as of the day and year first
above written.

 

 

	
   

  	
  GUARANTOR

  
	
   

  	
   

  
	
   

  	
  AFFORDABLE RESIDENTIAL

  COMMUNITIES LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/Scott L.
  Gesell

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Scott L. Gesell

  
	
   

  	
   

  	
  Title: 

  	
  Vice President

  
					

 

 

FIRST AMENDMENT ARC LP GUARANTEE

 

 

	
   

  	
  ACKNOWLEDGED AND
  AGREED:

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH MORTGAGE

  CAPITAL INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/Joshua
  A. Green

  	
   

  
	
   

  	
   

  	
   Name:  Joshua A. Green

  
	
   

  	
   

  	
   Title:  Vice President

  

 

 

FIRST AMENDMENT ARC LP GUARANTEEExhibit 10.3

 

EXECUTION
VERSION

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT, dated as of October 14, 2005,
made by ARC REAL ESTATE HOLDINGS, LLC, a Delaware limited liability company
(the “Grantor”), in favor of MERRILL LYNCH MORTGAGE CAPITAL INC., as
Lender (the “Lender”).

 

RECITALS

 

Pursuant to the credit agreement, dated as of April 6,
2005 (the “Existing Credit Agreement”), among the ARC Housing LLC and
ARC HousingTX LP, as Borrowers, and the Lender, the Lender agreed to make loans
to the Borrowers upon the terms and subject to the conditions set forth
therein.

 

The Borrowers and the Lender have agreed to amend the
Existing Credit Agreement through the execution of an amendment dated as of October 14,
2005 (the “First Amendment”, and the Existing Credit Agreement, as
amended by the First Amendment, the “Credit Agreement”) to, among other
things, increase the amount of the Loans under the Credit Agreement.

 

To induce the Lender to enter into the First
Amendment, the Grantor, as the indirect 100% owner of the Borrowers and of the
Specified Subsidiaries, has agreed to provide additional collateral to secure
the performance of the Borrowers under the Credit Agreement.

 

It is a condition precedent to the effectiveness of
the First Amendment that the Grantor shall have executed and delivered this
Security Agreement to the Lender.

 

1.                                       Defined Terms.  (a) 
Unless otherwise defined herein, capitalized terms which are defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement; the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined:  Chattel Paper,
Certificated Securities, Deposit Accounts, General Intangibles, Instruments, Investment
Property, Proceeds and Supporting Obligations; and the following terms shall
have the following meanings:

 

“Account Control
Agreement”: with respect to the Excess Funds Collection Account, a control
agreement substantially in the form of Annex A or such other form approved by
the Lender, as amended, supplemented or otherwise modified from time to time.

 

“Code”: the
Uniform Commercial Code as from time to time in effect in the State of New
York.

 

“Collateral”: as
defined in Section 2 of this Security Agreement.

 

“Depository”:
JPMorgan Chase Bank, N.A.

 

“Distributions”: all non-cash dividends paid
on Equity Interests, liquidating dividends paid on Equity Interests, any Equity
Interests resulting from (or in connection with the exercise of) stock splits,
reclassifications, warrants, options, non cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Equity Interest, but excluding
Dividends.

 

“Dividends”: cash dividends and cash
distributions with respect to any Equity Interest.

 

 

“Equity Interest”:
the ownership interest held by the Grantor in each Specified Subsidiary or any
entity having an ownership interest in a Specified Subsidiary, including,
without limitation, any membership interest or partnership interest held by the
Grantor in each Specified Subsidiary.

 

“Excess Funds”:
all funds from operations received by each Specified Subsidiary less all
operating expenses and capital expenditures of said entity which shall include,
but not be limited to, debt service costs, taxes, insurance, management fees,
operating expenses, community improvements, equipment, purchases and any other
expenditure necessary to operate and maintain the assets owned by said
Specified Subsidiary.

 

“Excess Funds
Collection Account”: the certain deposit account listed on Schedule II.

 

 Excess Funds Payments”: all payments
constituting Excess Funds of each Specified Subsidiary, whether such payment is
in respect of, in the nature of, or the proceeds of, a Dividend, a
Distribution, an advance of funds, the repayment of an inter-company
obligation, or of any other nature.

 

“Secured Obligations”:  the Obligations.

 

“Security Agreement”:
this Agreement, as amended,
supplemented or otherwise modified from time to time.

 

“Specified Subsidiary”:
each entity listed on Schedule III.

 

(b)                                 The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Security Agreement shall refer to
this Security Agreement as a whole and not to any particular provision of this
Security Agreement, and Section or Schedule. Annex references are to this
Security Agreement unless otherwise specified. 
The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.

 

2.                                       Grant of
Security Interest.  As
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Grantor hereby grants to the Lender a security
interest in: (i) the Grantor’s right to receive all Excess Funds Payments,
(ii) all such Excess Funds Payments received from each Specified
Subsidiary, (iii) the Excess Funds Collection Account, (iv) all
amounts held from time to time in the Excess Funds Collection Account, (v) all
General Intangibles, Instruments, Deposit Accounts, and Investment Property
constituting or relating to the foregoing, and (vi) to the extent not
otherwise included, all Proceeds and products of any and all of the foregoing,
all Supporting Obligations in respect of any of the foregoing, and all
collateral security and guarantees given by any Person with respect to any of
the foregoing (collectively, the “Collateral”).

 

3.                                       Excess Funds Collection Account.

 

(a)                                  The Grantor shall cause each Specified
Subsidiary to deposit into the Excess Funds Collection Account all Excess Funds
Payments of such Specified Subsidiary. So long as no Default or Event of
Default shall have then occurred and be continuing, the Excess Funds Payments
in the Excess Funds Collection Account pursuant to this Section 5(a) may
be transferred from time to time to an account designated by the Grantor.

 

(b)                                 Upon the occurrence and during the
continuance of a Default or Event of Default under the Credit Agreement,
subject to the terms of the Account Control Agreement (i) the Lender may
instruct the Depository to remit the amounts therein to an account specified by
the Lender, (ii) Excess 

 

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Funds Payments in the Excess Funds Collection Account shall be
transferred from the Excess Funds Collection Account only upon the written
instructions of the Lender and (iii) the Grantor shall not issue any
instructions regarding the Excess Funds Payments to the Depository.

 

(c)                                  Notwithstanding anything to the contrary
in this Security Agreement, no provision of this Security Agreement shall be
effective to the extent that such provision (i) would violate any law
applicable to the Grantor or any Specified Subsidiary; or (ii) would
result in a breach or termination pursuant to the terms of, or a default under,
any of the Specified Subsidiaries’ loan documents (as the same may be amended,
restated, or otherwise modified time to time) or any other documents entered
into in connection with the refinancing, extension, renewal, refunding,
repayment, prepayment, redemption, defeasance, retirement or issuance of a
security or indebtedness in exchange or replacement for the indebtedness
evidenced by such loan documents.

 

4.                                       Representations and Warranties. 
The Grantor hereby represents and warrants that:

 

(a)                                  Title; No Other Liens. 
Except for the Liens granted to the Lender pursuant to this Security
Agreement, the Grantor owns each item of the Collateral free and clear of any
and all Liens or claims of others.  No
security agreement, financing statement or other public notice with respect to
all or any part of the Collateral is on file or of record in any public office,
except such as may have been filed in favor of the Lender pursuant to this
Security Agreement.

 

(b)                                 Perfected First Priority Liens. 
When financing statements have been filed in the offices in the
jurisdiction listed in Schedule I, the Liens granted pursuant to this
Security Agreement will constitute perfected Liens in favor of the Lender in
the Collateral as collateral security for the Secured Obligations, which Liens
are prior to all other Liens on the Collateral created by the Grantor and in
existence on the date hereof and which are enforceable as such against all
creditors of and purchasers from the Grantor.

 

(c)                                  Chief Executive Office. 
The Grantor’s chief executive office and chief place of business is, and
for the four (4) months preceding the date has been, located at the place
specified for such Grantor on Schedule I.

 

(d)                                 Jurisdiction of Organization. 
The Grantor, a “registered organization” as defined in the Code, is so
designated on Schedule I and is organized as the type of entity, as under
the laws of the jurisdiction, specified for such Grantor on Schedule I.

 

(e)                                  Name.  (i) The
exact legal name of the Grantor is as specified on Schedule I; and (ii) the
Grantor has not done business under a previous name, assumed name or trade
name.

 

(f)                                    Insurance Policies. 
None of the Collateral constitutes an interest or claim in or under any
policy of insurance or contract for annuity, except to the extent the same
constitutes Proceeds.

 

(g)                                 Excess Funds Collection Account. 
The Excess Funds Collection Account is listed on Schedule II,
including the institution at which the Excess Funds Collection Account is
established, the purpose thereof, the name thereon, and the account number
thereof.  The Excess Funds Collection
Account is the sole deposit account that has been established to receive the
Excess Funds Payments.

 

(h)                                 Specified Subsidiaries. 
Listed on Schedule III is each subsidiary of the Grantor as of the
date hereof (i) that is a special purpose entity whose assets consist of
ARC Communities subject 

 

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to a Master Lease, and (ii) whose collections are not subject to a
lockbox arrangement for the benefit of a third-party lender.

 

5.                                       Covenants.  The Grantor
covenants and agrees with the Lender that, from and after the date of this
Security Agreement until the Secured Obligations are paid in full and the
Commitments have expired or been terminated:

 

(a)                                  Maintenance of Perfected Security
Interests; Further Documentation; Pledge of Instruments and Chattel Paper. 
The Grantor shall maintain the security interest created by this
Security Agreement as a perfected security interest having at least the
priority described in Section 6(b) hereof and shall defend such
security interest against the claims and demands of all Persons
whomsoever.  At any time and from time to
time, upon the written request of the Lender, and at the sole expense of the
Grantor, the Grantor will promptly and duly execute and deliver such further
instruments and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and powers herein granted,
including, without limitation, (i) the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the Liens created hereby and (ii) in the case
of the Excess Funds Collection Account and any other relevant Collateral,
taking any actions (including, without limitation, entering into, and using its
best efforts to cause any relevant third party to enter into, one or more
Control Agreements) necessary to enable the Lender to obtain “control” (within
the meaning of the applicable Uniform Commercial Code) with respect
thereto.  The Grantor also hereby
authorizes the Lender to file any such financing or continuation statement
without the signature of the Grantor to the extent permitted by applicable
law.  Any such financing statement may
describe the property covered thereby.  A
carbon, photographic or other reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.  If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any Instrument,
Chattel Paper or Certificated Security, such Instrument, Chattel Paper or
Certificated Security shall be immediately delivered to the Lender, duly
endorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Security Agreement.

 

(b)                                 Indemnification. 
The Grantor agrees, jointly and severally, to pay, and to save the
Lender harmless from, any and all liabilities, costs and expenses (including,
without limitation, legal fees and expenses) (i) with respect to, or
resulting from, any delay in paying, any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (ii) with respect to, or resulting from, any delay in
complying with any Requirement of Law applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Security
Agreement.

 

(c)                                  Maintenance of Records. 
The Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral.  The Grantor will mark its books and records
pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby.  Upon
the occurrence and during the continuance of an Event of Default, the Grantor
shall turn over any books and records pertaining to the Collateral to the
Lender or to its representatives during normal business hours at the request of
the Lender.

 

(d)                                 Right of Inspection. 
The Lender shall at all times have full and free access during normal
business hours to all the books, correspondence and records of the Grantor, and
the Lender or their respective representatives may examine the same, take
extracts therefrom and make photocopies thereof, and the Grantor agrees to
render to the Lender, at the Grantor’s cost and expense, such clerical and
other assistance as may be reasonably requested with regard thereto.

 

4

 

(e)                                  Compliance with Laws, etc. 
The Grantor will comply in all material respects with all Requirements
of Law applicable to the Collateral or any part thereof or to the operation of
such Grantor’s business; provided, however, that the Grantor may
contest any Requirement of Law in any reasonable manner which shall not, in the
sole opinion of the Lender, adversely affect the Lender’s rights or the
priority of its Liens on the Collateral.

 

(f)                                    Payment of Obligations. 
The Grantor will pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of its
income or profits therefrom, as well as all claims of any kind against or with
respect to the Collateral, except that no such charge need be paid if (i) the
validity thereof is being contested in good faith by appropriate proceedings, (ii) such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest therein and (iii) such charge is
adequately reserved against on such Grantor’s books in accordance with GAAP.

 

(g)                                 Limitation on Liens on Collateral. 
The Grantor will not create, incur or permit to exist, will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien or claim on or to the Collateral, other than the liens created hereby,
and will defend the right, title and interest of the Lender in and to any of
the Collateral against the claims and demands of all Persons whomsoever.

 

(h)                                 Limitations on Dispositions of Collateral. 
The Grantor will not sell, transfer or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so, in each case in a manner
contrary to the provisions of this Security Agreement.

 

(i)                                     Further Identification of Collateral. 
The Grantor will furnish to the Lender from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.

 

(j)                                     Notices.  The Grantor
will advise the Lender promptly, in reasonable detail, at its address set forth
in the Credit Agreement, (i) of any Lien (other than Liens created hereby)
on, or claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which could reasonably be expected to have a
material adverse effect on the aggregate value of the Collateral or on the
Liens created hereunder.

 

(k)                                  Changes in Locations, Name, etc. 
The Grantor will not (i) change the location of its jurisdiction of
organization from that specified in Section 4(d), (ii) change its
name, identity or structure or (iv) reorganize under the laws of another
jurisdiction or as a different type of entity, unless it shall have given the
Lender at least 30 days prior written notice thereof.

 

(l)                                     Excess Funds Collection Account. The Grantor will not (i) upon the
occurrence and during the continuation of a Default or Event of Default,
transfer assets out of the Excess Funds Collection Account, (ii) upon the
occurrence and during the continuation of a Default or Event of Default, direct
the Excess Funds Payments to any deposit account other than the Excess Funds
Collection Account; provided  that the Grantor may transfer the
Excess Funds Collection Account to another depository if the Grantor, the
Lender, and the substitute depositary have entered into a control agreement, or
(iii) cause the Specified Subsidiaries to use, distribute or direct the
Excess Funds Payments in a manner contrary to this Security Agreement.

 

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6.                                       Lender’s Appointment as Attorney-in-Fact.

 

(a)                                  Powers.  The Grantor
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Grantor and in the name of the Grantor or in its own name, from
time to time in the Lender’s discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement, and, without
limiting the generality of the foregoing, the Grantor hereby gives the Lender
the power and right, on behalf of the Grantor, without notice to or assent by
the Grantor, to do the following:

 

(i)                                     in the name of the Grantor or its own
name, or otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys due
under any Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Lender for the purpose of collecting any and all such moneys due under any
Collateral or with respect to any other Collateral whenever payable;

 

(ii)                                  to execute, in connection with any sale
provided for in Section 9 hereof, any indorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral; and

 

(iii)                               (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Lender or as the Lender shall direct; (B) to
ask or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of
or arising out of any Collateral; (C) to sign and endorse any documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Grantor with respect to any Collateral; (F) to
settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, to give such discharges or releases as the Lender may
deem appropriate; and (G) generally, to sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Lender were the absolute owner thereof for
all purposes, and to do, at the Lender’s option and the Grantor’s expense, at
any time, or from time to time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the Collateral and the Liens of
the Lender thereon and to effect the intent of this Security Agreement, all as
fully and effectively as the Grantor might do.

 

Anything in this Section 6(a) to the
contrary notwithstanding, the Lender agrees that it will not exercise any
rights under the power of attorney provided for in this Section unless an
Event of Default has occurred and is continuing.

 

The Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof.  This power of attorney is a power coupled
with an interest and is irrevocable.

 

(b)                                 No Duty on Lender’s Part. 
The powers conferred on the Lender hereunder are solely to protect the
Lender’s interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers.  The
Lender shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Grantor for any act
or failure to act hereunder, except for its own gross negligence or willful
misconduct.

 

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7.                                       Performance by Lender of Grantor’s
Obligations.  If the Grantor fails to perform or comply
with any of its agreements contained herein, the Lender, at its option, but
without any obligation to do so, may itself perform or comply, or otherwise
cause performance or compliance, with such agreement.  The expenses of the Lender incurred in
connection with such performance or compliance, together with interest thereon
at a rate per annum 2.0% above the rate per annum applicable to Loans, shall be
payable by the Grantor, to the extent of the Collateral, to the Lender on
demand and shall constitute Secured Obligations secured hereby.

 

8.                                       Proceeds.

 

(a)                                  It is agreed that all Proceeds received
by the Grantor consisting of cash, checks and other near-cash items shall be
held by the Grantor in trust for the Lender, segregated from other funds of the
Grantor, and shall, forthwith upon receipt by the Grantor, be turned over to
the Lender in the exact form received by the Grantor (duly endorsed by the
Grantor to the Lender, if required), and held by the Lender in a deposit
account maintained under the sole dominion and control of the Lender.  Any and all such Proceeds held by the Lender
in a deposit account (or by the Grantor in trust for the Lender) shall continue
to be held as collateral security for the Secured Obligations and shall not
constitute payment thereof until applied as provided in this Section.

 

(b)                                 At such intervals as may be agreed upon
between the Lender and the Grantor or, if an Event of Default shall have
occurred and be continuing, at any time at the Lender’s election, the Lender
may apply all or any part of the Proceeds constituting Collateral, whether or
not held in any deposit account, and any Proceeds of any Loan Document, or
otherwise received by the Lender, against the Secured Obligations (whether
matured or unmatured), such application to be in the following order:

 

(i)                                     First, to pay incurred and unpaid fees
and expenses of the Lender under the Loan Documents;

 

(ii)                                  Second, to the Lender, for application by
it towards payment of amounts then due and owing and remaining unpaid in
respect of the Secured Obligations;

 

(iii)                               Third, any balance of such Proceeds remaining after
the Secured Obligations shall have been paid in full and the Commitments shall
have terminated, shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive the same.

 

9.                                       Remedies.  If an Event
of Default shall occur and be continuing, the Lender may exercise, in addition
to all other rights and remedies granted to it in this Security Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the
Code.  Without limiting the generality of
the foregoing, the Lender, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk.  The Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Grantor,
which right or equity is hereby waived or released.  The Grantor further agrees, at the Lender’s 

 

7

 

request, to assemble the Collateral and make it available to the Lender
at places which the Lender shall reasonably select, whether at any Grantor’s
premises or elsewhere.  The Lender shall
apply the net proceeds of any such collection, recovery, receipt,
appropriation, or realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Lender arising out of the exercise by the Lender
hereunder, including, without limitation, reasonable attorneys’ fees and
disbursements, to the payment in whole or in part of the Secured Obligations,
in such order as the Lender may elect, and only after such application and
after the payment by the Lender of any other amount required by any provision
of law, including, without limitation, Section 9-615 of the Code, need the
Lender account for the surplus, if any, to the Grantor.  To the extent permitted by applicable law,
the Grantor waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by the Lender of any of its rights
hereunder.  If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such
sale or other disposition.  The Grantor
shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the
Secured Obligations and the fees and disbursements of any attorneys employed by
the Lender to collect such deficiency.

 

10.                                 Limitation on Duties Regarding
Presentation of Collateral.  The Lender’s
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or
otherwise, shall be to deal with it in the same manner as the Lender deals with
similar property for its own account. Neither the Lender nor any of its
respective directors, officers, employees, agents or advisors shall be liable
for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.  The
powers conferred on the Lender hereunder are solely to protect the Lender’s
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers.  The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees, agents or advisors shall be responsible to the Grantor
for any act or failure to act hereunder, except for their own gross negligence
or willful misconduct.

 

11.                                 Powers Coupled with an Interest. 
All authorizations and agencies herein contained with respect to the
Collateral are irrevocable and powers coupled with an interest.

 

12.                                 Notices.  Notices,
requests and demands to the Lender or the Grantor shall be delivered to the
intended receipt at the “Address for Notices” specified below:

 

(a)  Grantor.

 

ARC Real Estate Holdings, LLC

600 Grant St., Ste. 900

Denver, CO 80203

Scott L. Gesell

Telecopier No.: (303) 749-2073

Telephone No.: (303) 383-7506

 

8

 

(b)  Lender.

 

Merrill Lynch Mortgage Capital Inc.

4 World Financial Center, 10th Floor

New York, New York 10080

Attention: Josh Green

Telecopier No.: (212) 449-6673

Telephone No.: (212) 449-7330

 

13.                                 Severability. 
Any provision of this Security Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

14.                                 Paragraph Headings. 
The paragraph headings used in this Security Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

 

15.                                 No Waiver; Cumulative Remedies. The Lender shall not by any act (except
by a written instrument pursuant to Section 16 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any
of the terms and conditions hereof.  No
failure to exercise, nor any delay in exercising, on the part of the Lender,
any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  A waiver by the Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Lender would otherwise have on any future occasion.  The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.

 

16.                                 Waivers and Amendments; Successors and
Assigns; Governing Law.  None of the terms or
provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Grantor and
the Lender, provided that any provision of this Security Agreement may be
waived by the Lender in a written instrument executed by the Lender.  This Security Agreement shall be binding upon
the successors and assigns of the Grantor and shall inure to the benefit of the
Lender and its respective successors and assigns.  This Security Agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the State of New
York.  This Amendment incorporates by
reference, and the Borrowers and Lender hereby agree to be subject to, the
provisions set forth in Section 11.11 of the Existing Credit Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

9

 

IN WITNESS WHEREOF, the Grantor has caused this
Security Agreement to be duly executed and delivered as of the date first above
written.

 

 

	
   

  	
  ARC
  REAL ESTATE HOLDINGS, LLC

  
	
   

  
	
   

  
	
  By

  	
   

  	
  /s/Scott L.
  Gesell

  	
   

  
	
   

  	
  Name: Scott L.
  Gesell

  
	
   

  	
  Title: Vice
  President

  
					

 

 

Schedule I

 

NAMES, FORM OF ORGANIZATION AND LOCATION OF
GRANTOR

 

	
  Exact Name of
  Grantor:

  	
  ARC Real Estate
  Holdings, LLC

  
	
  Form of Organization:

  	
  limited liability company

  
	
  Location of Grantor:

  	
  600 Grant St., Ste. 900 Denver, CO 80203

  
	
  Jurisdiction of
  Incorporation:

  	
  Delaware

  

 

 

Schedule II

 

EXCESS
FUNDS COLLECTION ACCOUNT

 

	
   

  	
   

  	
   

  	
   

  	
  Financial Institution

  	
   

  
	
  Account Name

  	
   

  	
  Account Number

  	
   

  	
  Where Maintained

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARC Real Estate Holdings, LLC

  	
   

  	
  Account No. 193365366

  	
   

  	
  JPMorgan Chase Bank, N.A.

  	
   

  

 

 

Schedule III

 

SPECIFIED SUBSIDIARIES

 

 

ANNEX A

 

FORM OF
ACCOUNT CONTROL AGREEMENT

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