Document:

<PAGE>

                                                                     EXHIBIT 4.2

This instrument prepared by,
and after recording please return to:

Greenberg Traurig, P.A.
111 North Orange Avenue, 20th Floor
Orlando, Florida 32801
Attention:   Michael J. Sullivan, Esq.

                                                                 [Beaverton, OR]

================================================================================

Note Amount:   $7,875,000                                   Date:  June 15, 2001
                                                                   --------

              FEE AND LEASEHOLD DEED OF TRUST, ASSIGNMENT OF LEASES
                        AND RENTS AND SECURITY AGREEMENT

                                  ("this Deed")

                                      FROM

                   APPLE SUITES, INC., a Virginia corporation
                                  ("Borrower")

                                       AND

              APPLE SUITES MANAGEMENT, INC., a Virginia corporation

                                   ("Lessee")

  Address of Borrower and Lessee:          Attn: Glade M. Knight
                                           9 North Third Street
                                           Richmond, Virginia 23219

                                       TO

                       TRANSNATION TITLE INSURANCE COMPANY

                                   ("Trustee")

  Address of Trustee:            12360 East Burnside
                                 Portland, OR 97233

                               FOR THE BENEFIT OF

                   PROMUS HOTELS, INC., a Delaware corporation
                                 ("Beneficiary")

  Address of Beneficiary:        755 Crossover Lane
                                 Memphis, Tennessee 38117

================================================================================

<PAGE>

                                     RECITAL

     HILTON HOSPITALITY, INC., a Nevada corporation, as successor-by-merger to
Promus Hospitality Corporation Beneficiary, as a seller, and Borrower, as buyer,
entered into an Agreement of Sale dated as of June 7, 2001 (the "Agreement of
Sale") for the purchase of certain real and personal property as more
particularly described therein, including, without limitation, the premises
described in SCHEDULE A (the "Premises"). Borrower has acquired and is the owner
of the Premises and Lessee is the owner of a leasehold interest therein. Lessee
acknowledges that it will derive substantial benefit from the making of the loan
contemplated herein and further acknowledges that the obligation of Beneficiary
to make such loan is conditioned upon, among other things, the execution and
delivery by Lessee of this Deed. In connection with the purchase of the Premises
pursuant to the Agreement of Sale, Borrower will borrow the Note Amount from
Beneficiary and has executed and delivered to Beneficiary its note, dated the
date hereof, obligating it to pay the Note Amount (said note, as the same may
hereafter be amended, modified, extended, severed, assigned, renewed, replaced
or restated, hereinafter, the "Note") and in order to secure the payment of the
Note has duly authorized the execution and delivery of this Deed. For purposes
of this Deed, "Grantor" shall mean Lessee and Borrower but only to the extent of
their respective interests in the Mortgaged Property (as herein defined) and
their respective obligations under the Note and Ground Lease.

                  CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION

     Grantor, Trustee and Beneficiary agree that, unless the context otherwise
specifies or requires, the following terms shall have the meanings herein
specified.

     "Chattels" means all fixtures, furnishings, fittings, appliances,
apparatus, equipment, building materials and components, machinery and articles
of personal property, of whatever kind or nature, including any replacements,
proceeds or products thereof and additions thereto, other than those owned by
lessees, now or at any time hereafter intended to be or actually affixed to,
attached to, placed upon, or used in any way in connection with the complete and
comfortable use, enjoyment, development, occupancy or operation of the Premises,
and whether located on or off the Premises, including, but not by way of
limitation, all gas and electric fixtures, radiators, heaters, engines and
machinery, boilers, ranges, ovens, elevators and motors, bathtubs, sinks, water
closets, basins, pipes, faucets and other air-conditioning, plumbing and heating
fixtures, mirrors, mantles, refrigerating plant, refrigerators, iceboxes,
dishwashers, carpeting, furniture, laundry equipment, cooking apparatus and
appurtenances, and all building material and equipment now or hereafter
delivered to the Premises and intended to be installed therein, fire
extinguishers and any other safety equipment required by governmental
regulations, books and records; all the right, title and interest of Grantor in
any of the foregoing property which is subject to or covered by any prior
security agreement, conditional sales contract, chattel mortgage or similar lien
or claim, together with the benefit of any deposits or payments now or hereafter
made by Beneficiary on behalf of Grantor; all trade names, trademarks, service
marks, logos and good will related thereto which in any way now or hereafter
belong, relate or appertain to the Premises or any part thereof; all renewals or
replacements thereof or articles in substitution thereof

<PAGE>

and all of the estate, right, title and interest of Grantor in and to all
property of any nature whatsoever, now or hereafter situated on the Premises or
intended to be used in connection with the operation thereof; and all inventory,
accounts, chattel paper, documents, equipment, fixtures, farm products, consumer
goods, general intangibles and personal property of every kind and nature
whatsoever constituting proceeds acquired with cash proceeds of any of the
property described hereinabove. All of the estate, right, title and interest of
Grantor in and to all the foregoing property are hereby declared and shall be
deemed to be fixtures and accessions to the freehold and a part of the Premises
as between Grantor and Trustee or Beneficiary and all persons claiming by,
through or under them or either of them, and which shall be deemed to be a
portion of the security for the indebtedness herein described and to be secured
by this Mortgage.

     "Default Rate" means the rate (or, if more than one, the highest of the
rates) of interest per annum provided in the Note plus 5%, but in no event to
exceed the maximum rate allowed by law.

     "Events of Default" means the events and circumstances described as such in
Section 2.01.

     "Ground Lease" means the lease identified in SCHEDULE A covering the
Premises described in SCHEDULE A which is subject to the Ground Lease.

     "Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes, materials or substances, as any of
those terms are defined from time to time in or for the purposes of any relevant
environmental law, rule, regulation, code, permit, order, notice, demand letter
or other binding determination (hereinafter, "Environmental Laws") including,
without limitation, asbestos fibers and friable asbestos, polychlorinated
biphenyls and any petroleum or hydrocarbon-based products or derivatives, in
each case in amounts in violation of applicable Environmental Laws.

     "Improvements" means all structures or buildings, and replacements thereof,
now or hereafter located upon the Premises, including all plant equipment,
apparatus, machinery and fixtures of every kind and nature whatsoever forming
part of said structures or buildings.

     "lease" or "leases" means any lease or leases of all or any portion of the
Premises, whether affecting the fee or leasehold portion thereof.

     "Loan" means the loan made by Beneficiary to Borrower evidenced by the Note
and secured hereby.

     "Premises" means the real property described in SCHEDULE A, together with
the leasehold interest therein created by the Ground Lease, and including all of
the easements, rights, privileges and appurtenances (including air or
development rights) thereunto belonging or in anywise appertaining, and all of
the estate, right, title, interest, claim or demand whatsoever of Grantor
therein and in the streets and ways adjacent thereto, either in law or in
equity, in possession or expectancy, now or hereafter acquired,

                                        2

<PAGE>

and as used herein shall, unless the context otherwise requires, be deemed to
include the Improvements.

     "Premises Documents" means all reciprocal easement or operating agreements,
declarations of covenants, conditions or restrictions, declarations of
condominium, developer's or utility agreements with any village, town, county or
other governmental authority, and any similar such agreements or declarations
now or hereafter affecting the Premises or any part thereof.

     All terms of this Deed which are not defined above shall have the meaning
set forth elsewhere in this Deed.

     Except as expressly indicated otherwise, when used in this Deed (i) "or" is
not exclusive, (ii) "hereunder", "herein", "hereof" and the like refer to this
Deed as a whole, (iii) "Article", "Section" and "Schedule" refer to Articles,
Sections and Schedules of this Deed, (iv) terms defined in the singular have a
correlative meaning when used in the plural and vice versa, (v) a reference to a
law or statute includes any amendment or modification to, or replacement of,
such law or statute and (vi) a reference to an agreement, instrument or document
means such agreement, instrument or document as the same may be amended,
modified or supplemented from time to time in accordance with its terms and as
permitted hereby and by the other documents executed or delivered to Beneficiary
in connection with the Loan. The cover page and all Schedules hereto are
incorporated herein and made a part hereof. Any table of contents and the
headings and captions herein are for convenience only and shall not affect the
interpretation or construction hereof.

                                 GRANTING CLAUSE

     NOW, THEREFORE, Grantor, in consideration of the premises and in order to
secure the payment of both the principal of, and the interest and any other sums
payable under, the Note or this Deed and the performance and observance of all
the provisions hereof and of the Note, hereby gives, grants, bargains, sells,
warrants, aliens, remises, releases, conveys, assigns, transfers, mortgages,
hypothecates, deposits, pledges, sets over and confirms unto Trustee, all its
estate, right, title and interest in, to and under any and all of the following
described property (hereinafter, the "Mortgaged Property") whether now owned or
held or hereafter acquired:

          (i) the Premises;

          (ii) the Improvements;

          (iii) the Chattels;

          (iv) the Premises Documents;

          (v) all rents, royalties, issues, profits, revenue, income,
     recoveries, reimbursements and other benefits of the Mortgaged Property
     (hereinafter, the

                                        3

<PAGE>

     "Rents") and all leases of the Mortgaged Property or portions thereof now
     or hereafter entered into and all right, title and interest of Grantor
     thereunder, including, without limitation, cash or securities deposited
     thereunder to secure performance by the lessees of their obligations
     thereunder, whether such cash or securities are to be held until the
     expiration of the terms of such leases or applied to one or more of the
     installments of rent coming due immediately prior to the expiration of such
     terms, and including any guaranties of such leases and any lease
     cancellation, surrender or termination fees in respect thereof, all
     subject, however, to the provisions of Section 4.01;

          (vi) all (a) development work product prepared in connection with the
     Premises, including, but not limited to, engineering, drainage, traffic,
     soil and other studies and tests; water, sewer, gas, electrical and
     telephone approvals, taps and connections; surveys, drawings, plans and
     specifications; and subdivision, zoning and platting materials; (b)
     building and other permits, rights, licenses and approvals relating to the
     Premises; and (c) contracts and agreements (including, without limitation,
     contracts with architects and engineers, construction contracts and
     contracts for the maintenance or management of the Premises), contract
     rights, logos, trademarks, trade names, copyrights and other general
     intangibles used or useful in connection with the ownership, operation or
     occupancy of the Premises or any part thereof;

          (vii) all proceeds of the conversion, voluntary or involuntary, of any
     of the foregoing into cash or liquidated claims, including, without
     limitation, proceeds of insurance and condemnation awards, and all rights
     of Grantor to refunds of real estate taxes and assessments;

          (viii) all revenue and income received by or on behalf of Grantor
     resulting from the operation of the Premises as a hotel, including all sums
     (1) paid by customers for the use of hotel rooms located within the
     Premises, (2) derived from food and beverage operations located within the
     Premises, (3) generated by other hotel operations, including any parking,
     convention, sports and recreational facilities and (4) business
     interruption insurance proceeds;

          (ix) all accounts and accounts receivable, including all present and
     future right to payment from any consumer credit or charge card
     organization or entity (such as those organizations which sponsor or
     administer the American Express, Carte Blanche, Discover Card, Diners Club,
     Visa and Master Card) arising out of the leasing and operation of, or the
     business conducted at or in relation to, all or any part of the Premises;
     and

          (x) any deposit, operating or other account including the entire
     balance therein (now or hereafter existing) of Grantor containing proceeds
     of the operation of the Premises with any banking or financial institution
     and all money, instruments, securities, documents, chattel paper, credits,
     demands, and any other property, rights, or interests of Grantor relating
     to the operation of the Premises

                                        4

<PAGE>

     which at any time shall come into the possession, custody or control of any
     banking or financial institution.

     TO HAVE AND TO HOLD unto Trustee, its successors and assigns forever.

     IN TRUST, to secure the payment to Beneficiary of the principal of and
interest on the Note at the maturity thereof and all other sums due hereunder or
under the Note and the performance of all covenants and agreements herein and in
the Note, whereupon this Deed shall cease and be void and the Mortgaged Property
shall be released at the cost of Grantor.

                                   ARTICLE I

                              COVENANTS OF GRANTOR

     Grantor represents, except as known by Beneficiary or its affiliates to the
contrary, or disclosed to Beneficiary in connection with the sale of the
Mortgaged Property to Grantor, and Grantor covenants and agrees as follows:

     Section 1.01. (a) Warranty of Title; Power and Authority. Grantor warrants
                       --------------------------------------
that, with respect to the fee interest in the Premises, it has a good and
marketable title to an indefeasible fee estate subject to no lien, charge or
encumbrance, that the Ground Lease is subject to no lien, charge or encumbrance
of any kind and is prior to all liens, charges and encumbrances whatsoever on
the fee interest of the landlord thereunder, except in either case such as are
listed as exceptions to title in the title policy insuring the lien hereof; and,
Grantor further warrants that, with respect to the leasehold interest in the
Premises, that it is the owner of a valid and subsisting interest as tenant
under the Ground Lease, that the Ground Lease is in full force and effect, there
are no defaults thereunder and no event has occurred or is occurring which after
notice or passage of time or both will result in such a default; that it owns
the Chattels, all leases and the Rents in respect of the Mortgaged Property and
all other personal property encumbered hereby free and clear of liens and
claims; and Grantor warrants that this Deed is and will remain a valid and
enforceable lien on the Mortgaged Property subject only to the exceptions
referred to above. Grantor has full power and lawful authority to subject the
Mortgaged Property to the lien hereof in the manner and form herein done or
intended hereafter to be done. Grantor will preserve such title, will preserve
such leasehold estate created by the Ground Lease and will forever warrant and
defend the same to Trustee and Beneficiary and will forever warrant and defend
the validity and priority of the lien hereof against the claims of all persons
and parties whomsoever. Grantor will perform or cause to be performed all of the
covenants and conditions required to be performed by it under the Ground Lease,
will do all things necessary to preserve unimpaired its rights thereunder, and
will not (i) enter into any agreement modifying or amending the Ground Lease
that would reduce the term of the Ground Lease, increase the amount of rent
payable thereunder (except as contemplated by the provisions of the Ground
Lease) or have a material adverse effect on the lien created by this Deed or the
rights of Beneficiary hereunder or (ii) for so long as the Ground Lease is in
effect, release the landlord thereunder from any obligations imposed upon it
thereby. If Grantor receives a notice of default under the Ground Lease,

                                        5

<PAGE>

it shall immediately cause a copy of such notice to be sent by registered United
States mail to Beneficiary.

     (b) Hazardous Materials. To the best of Grantor's knowledge, Grantor
         -------------------
represents and warrants that (i) the Premises and the improvements thereon and
the surrounding areas are not currently and have never been subject to Hazardous
Materials or their effects, in each case in amounts in violation of applicable
Environmental Laws, (ii) neither it nor any portion of the Premises or
improvements thereon is in violation of, or subject to any existing, pending or
threatened investigation or proceeding by any governmental authorities under,
any Environmental Law, (iii) there are no claims, litigation, administrative or
other proceedings, whether actual or threatened, or judgments or orders,
concerning Hazardous Materials relating in any way to the Premises or the
improvements thereon and (iv) Grantor is not required by any Environmental Law
to obtain any permits or licenses to construct or use any improvements, fixtures
or equipment with respect to the Premises, or if any such permit or license is
required it has been obtained and is capable of being mortgaged and assigned
hereby. Grantor will comply with all applicable Environmental Laws and will, at
its sole cost and expense, promptly remove, or cause the removal of, any and all
Hazardous Materials or the effects thereof at any time identified as being on,
in, under or affecting the Premises.

     (c) Flood Hazard Area. Grantor represents that neither the Premises nor any
         -----------------
part thereof is located in an area identified by the Secretary of the United
States Department of Housing and Urban Development or by any applicable federal
agency as having special flood hazards or, if it is, Grantor has obtained the
insurance required by Section 1.09.

     Section 1.02. (a) Further Assurances. Grantor will, at its sole cost and
                       ------------------
expense, do, execute, acknowledge and deliver all and every such further acts,
deeds, conveyances, mortgages, assignments, notices of assignment, transfers and
assurances as Trustee or Beneficiary shall from time to time reasonably require,
for the better assuring, conveying, assigning, transferring and confirming unto
Trustee the property and rights hereby conveyed or assigned or intended now or
hereafter so to be, or which Grantor may be or may hereafter become bound to
convey or assign to Trustee, or for carrying out the intention or facilitating
the performance of the terms hereof, or for filing, registering or recording
this Deed and, on demand, will execute and deliver, and hereby authorizes
Trustee or Beneficiary to execute and file in Grantor's name, to the extent they
may lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence or perfect more effectively
Beneficiary's security interest in and the lien hereof upon the Chattels and
other personal property encumbered hereby.

     (b) Information Reporting and Back-up Withholding. Grantor will, at its
         ---------------------------------------------
sole cost and expense, do, execute, acknowledge and deliver all and every such
acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the

                                        6

<PAGE>

Premises and all transactions related to the Premises, and will at all times
provide Beneficiary with satisfactory evidence of such compliance and notify
Beneficiary of the information reported in connection with such compliance.

     Section 1.03. (a) Filing and Recording of Documents. Grantor forthwith upon
                       ---------------------------------
the execution and delivery hereof, and thereafter from time to time, will cause
this Deed and any security instrument creating a lien or evidencing the lien
hereof upon the Chattels and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect the
lien hereof upon, and the title of Trustee to, the Mortgaged Property.

     (b) Filing and Recording Fees and Other Charges. Grantor will pay all
         -------------------------------------------
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any deed of trust supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any reasonable expenses (including attorneys' fees and
disbursements) incurred by Beneficiary in connection with the Loan, and will pay
all federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of the Note, this Deed, any deed of trust supplemental
hereto, any security instrument with respect to the Chattels or any instrument
of further assurance.

     Section 1.04. Payment and Performance of Loan Documents. Grantor will
                   -----------------------------------------
punctually pay the principal and interest and all other sums to become due in
respect hereof and of the Note at the time and place and in the manner specified
therein, according to the true intent and meaning thereof, all in currency of
the United States of America which at the time of such payment shall be legal
tender for the payment of public and private debts. Grantor will duly and timely
comply with and perform all of the terms, provisions, covenants and agreements
contained in said documents and in all other documents or instruments executed
or delivered by Grantor to Beneficiary in connection with the Loan, and will
permit no failures of performance thereunder.

     Section 1.05. Maintenance of Existence; Compliance with Laws. Grantor, if
                   ----------------------------------------------
other than a natural person, will, so long as it is owner of all or part of the
Mortgaged Property, do all things necessary to preserve and keep in full force
and effect its existence, franchises, rights and privileges as a business or
stock corporation, partnership, limited liability company, trust or other entity
under the laws of the state of its formation. Grantor will duly and timely
comply with all laws, regulations, rules, statutes, orders and decrees of any
governmental authority or court applicable to it or to the Mortgaged Property or
any part thereof.

     Section 1.06. After-Acquired Property. All right, title and interest of
                   -----------------------
Grantor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property, hereafter acquired by, or released to, Grantor or
constructed, assembled or placed by Grantor on the Premises, and all conversions
of the security constituted thereby, immediately upon such

                                        7

<PAGE>

acquisition, release, construction, assembling, placement or conversion, as the
case may be, and in each such case, without any further deed of trust,
conveyance, assignment or other act by Grantor, shall become subject to the lien
hereof as fully and completely, and with the same effect, as though now owned by
Grantor and specifically described in the Granting Clause hereof, but at any and
all times Grantor will execute and deliver to Trustee or Beneficiary any and all
such further assurances, deeds of trust, conveyances or assignments thereof as
Trustee or Beneficiary may reasonably require for the purpose of expressly and
specifically subjecting the same to the lien hereof.

     Section 1.07. (a) Payment of Taxes and Other Charges. Grantor, from time to
                       ----------------------------------
time before the same shall become delinquent, will pay and discharge all taxes
of every kind and nature (including real and personal property taxes and income,
franchise, withholding, profits and gross receipts taxes), all general and
special assessments, levies, permits, inspection and license fees, all water and
sewer rents and charges, and all other public charges whether of a like or
different nature, imposed upon or assessed against it or the Mortgaged Property
or any part thereof or upon the revenues, rents, issues, income and profits of
the Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Grantor will, upon Beneficiary's request, deliver to Beneficiary
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other public charges imposed upon or assessed against it or the
Mortgaged Property or any portion thereof.

     Beneficiary may, at its option following the occurrence of an Event of
Default, to be exercised by thirty (30) days' notice to Grantor, require the
deposit by Grantor, at the time of each payment of an installment of interest or
principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Beneficiary, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Beneficiary in
its sole discretion. Such amounts shall be held by Beneficiary without interest
and applied to the payment of the obligations in respect of which such amounts
were deposited or, at Beneficiary's option, to the payment of said obligations
in such order or priority as Beneficiary shall determine, on or before the
respective dates on which the same or any of them would become delinquent. If
one (1) month prior to the due date of any of the aforementioned obligations the
amounts then on deposit therefor shall be insufficient for the payment of such
obligation in full, Grantor within ten (10) days after demand shall deposit the
amount of the deficiency with Beneficiary. Nothing herein contained shall be
deemed to affect any right or remedy of Beneficiary under any provisions hereof
or of any statute or rule of law to pay any such amount and to add the amount so
paid, together with interest at the Default Rate, to the indebtedness hereby
secured.

     (b) Payment of Mechanics and Materialmen. Grantor will pay, from time to
         ------------------------------------
time when the same shall become due, all lawful claims and demands of mechanics,
materialmen, laborers, and others which, if unpaid, might result in, or permit
the creation of, a lien on the Mortgaged Property or any part thereof, and in
general will do or cause to be done everything necessary so that the lien hereof
shall be fully preserved, at the cost of Grantor and without expense to Trustee
or Beneficiary, other than those liens which

                                        8

<PAGE>

Beneficiary or its affiliates have indemnified Grantor pursuant to the
provisions set forth in the Agreement of Sale.

     (c) Good Faith Contests. Nothing in this Section 1.07 shall require the
         -------------------
payment or discharge of any obligation imposed upon Grantor by this Section so
long as Grantor shall in good faith and at its own expense contest the same or
the validity thereof by appropriate legal proceedings which shall operate to
prevent the collection thereof or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to satisfy the same;
provided, however, that (i) during such contest Grantor shall set aside reserves
--------  -------
sufficient to discharge Grantor's obligation hereunder and of any additional
charge, penalty or expense arising from or incurred as a result of such contest
and (ii) if at any time payment of any obligation imposed upon Grantor by clause
(a) above shall become necessary to prevent the delivery of a tax deed or other
instrument conveying the Mortgaged Property or any portion thereof because of
non-payment, then Grantor shall pay the same in sufficient time to prevent the
delivery of such tax deed or other instrument.

     Section 1.08. Taxes on Trustee or Beneficiary. Grantor will pay any taxes,
                   -------------------------------
except income taxes, imposed on Trustee or Beneficiary by reason of their
ownership of the Note or this Deed, provided that Beneficiary can require
payment of the Note in full within ninety (90) days if it shall be illegal for
Grantor to pay any tax or if the payment of such tax by Grantor would result in
the violation of applicable usury laws .

     Section 1.09. Insurance. (a) Grantor will at all times (directly or
                   ---------
indirectly) provide, maintain and keep in force:

          (i) policies of insurance insuring the Premises, Improvements and
     Chattels against loss or damage by fire and lightning; against loss or
     damage by other risks embraced by coverage of the type now known as All
     Risk Replacement Cost Insurance with agreed amount endorsement, including
     but not limited to riot and civil commotion, vandalism, malicious mischief
     and theft; and against such other risks or hazards as Beneficiary from time
     to time reasonably may designate in an amount sufficient to prevent
     Beneficiary or Grantor from becoming a co-insurer under the terms of the
     applicable policies, but in any event in an amount not less than 100% of
     the then full replacement cost of the Improvements (exclusive of the cost
     of excavations, foundations and footings below the lowest basement floor)
     without deduction for physical depreciation;

          (ii) policies of insurance insuring the Premises against the loss of
     "rental value" of the buildings which constitute a part of the Improvements
     on a "rented or vacant basis" arising out of the perils insured against
     pursuant to clause (i) above in an amount equal to not less than one (1)
     year's gross "rental value" of the Improvements. "Rental value" as used
     herein is defined as the sum of (A) the total anticipated gross rental
     income from tenant occupancy of such buildings as furnished and equipped,
     (B) the amount of all charges which are the legal obligation of tenants and
     which would otherwise be the obligation of Grantor and (C) the fair rental
     value of any portion of such buildings which is occupied by

                                        9

<PAGE>

     Grantor. Grantor hereby assigns the proceeds of such insurance to
     Beneficiary, to be applied by Beneficiary in payment of the interest and
     principal on the Note, insurance premiums, taxes, assessments and private
     impositions until such time as the Improvements shall have been restored
     and placed in full operation, at which time, provided Grantor is not then
     in default hereunder, the balance of such insurance proceeds, if any, held
     by Beneficiary shall be paid over to Grantor;

          (iii) if all or part of the Premises are located in an area identified
     by the Secretary of the United States Department of Housing and Urban
     Development or by any applicable federal agency as a flood hazard area,
     flood insurance in an amount at least equal to the maximum limit of
     coverage available under the National Flood Insurance Act of 1968,
     provided, however, that Beneficiary reserves the right to require flood
     --------  -------
     insurance in excess of said limit if such insurance is commercially
     available up to the amount provided in clause (i) above;

          (iv) during any period of restoration under this Section 1.09 or
     Section 1.13, a policy or policies of builder's "all risk" insurance,
     written on a Standard Builder's Risk Completed Value Form (100%
     non-reporting), in an amount not less than the full insurable value of the
     Premises against such risks (including, without limitation, fire and
     extended coverage, collapse and earthquake coverage to agreed limits) as
     Beneficiary may reasonably request, in form and substance acceptable to
     Beneficiary;

          (v) a policy or policies of workers' compensation insurance as
     required by workers' compensation insurance laws (including employer's
     liability insurance, if requested by Beneficiary) covering all employees of
     Grantor;

          (vi) comprehensive liability insurance on an "occurrence" basis
     against claims for "personal injury" liability, including, without
     limitation, bodily injury, death or property damage liability, with a limit
     of not less than $15,000,000 in the event of "personal injury" to any
     number of persons or of damage to property arising out of one "occurrence".
     Such policies shall name Beneficiary as additional insured by an
     endorsement, and shall contain cross-liability and severability of interest
     clauses, all satisfactory to Beneficiary; and

          (vii) such other insurance (including, but not limited to, earthquake
     insurance), and in such amounts, as may from time to time be reasonably
     required by Beneficiary against the same or other insurable hazards.

     Notwithstanding anything herein to the contrary, for so long as that
certain Management Agreement of even date herewith between Lessee and
Beneficiary remains in full force and effect (as the same may be amended, the
"Management Agreement"), the types and amounts of insurance required by the
Management Agreement to the extent inconsistent with those set forth above shall
govern and control Grantor's obligations in respect thereof.

                                       10

<PAGE>

     (b) All policies of insurance required under this Section 1.09 shall be
issued by companies having Best's ratings and being otherwise reasonably
acceptable to Beneficiary, shall be subject to the reasonable approval of
Beneficiary as to amount, content, form and expiration date and, except for the
liability policies described in clauses (a)(v) and (vi) above, shall contain a
Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable
Endorsement, or their equivalents, in favor of Beneficiary, and shall provide
that the proceeds thereof shall be payable to Beneficiary. Beneficiary shall be
furnished with the original of each policy required hereunder, which policies
shall provide that they shall not lapse, nor be modified or cancelled, without
thirty (30) days' written notice to Beneficiary. At least thirty (30) days prior
to expiration of any policy required hereunder, Grantor shall furnish
Beneficiary appropriate proof of issuance of a policy continuing in force the
insurance covered by the policy so expiring. Grantor shall furnish to
Beneficiary, promptly upon request, receipts or other satisfactory evidence of
the payment of the premiums on such insurance policies. In the event that
Grantor does not deposit with Beneficiary a new certificate or policy of
insurance with evidence of payment of premiums thereon at least thirty (30) days
prior to the expiration of any expiring policy, then Beneficiary may, but shall
not be obligated to, procure such insurance and pay the premiums therefor, and
Grantor agrees to repay to Beneficiary the premiums thereon promptly on demand,
together with interest thereon at the Default Rate.

     (c) Grantor hereby assigns to Beneficiary all proceeds of any insurance
required to be maintained by this Section 1.09 which Grantor may be entitled to
receive for loss or damage to the Premises, Improvements or Chattels. All such
insurance proceeds shall be payable to Beneficiary, and Grantor hereby
authorizes and directs any affected insurance company to make payment thereof
directly to Beneficiary subject, however, to clause (f) below. Grantor shall
give prompt notice to Beneficiary of any casualty, whether or not of a kind
required to be insured against under the policies to be provided by Grantor
hereunder, such notice to generally describe the nature and cause of such
casualty and the extent of the damage or destruction. Grantor may settle, adjust
or compromise any claims for loss, damage or destruction, regardless of whether
or not there are insurance proceeds available or whether any such insurance
proceeds are sufficient in amount to fully compensate for such loss or damage,
subject to Beneficiary's prior consent. Notwithstanding the foregoing,
Beneficiary shall have the right to join Grantor in settling, adjusting or
compromising any loss of $100,000 or more. Grantor hereby authorizes the
application or release by Beneficiary of any insurance proceeds under any policy
of insurance, subject to the other provisions hereof. The application or release
by Beneficiary of any insurance proceeds shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.

     (d) In the event of the foreclosure hereof or other transfer of the title
to the Mortgaged Property in extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and interest of Grantor in and to
any insurance policy, or premiums or payments in satisfaction of claims or any
other rights thereunder then in force, shall pass to the purchaser or grantee
notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until

                                       11

<PAGE>

such time as insurance proceeds are actually received and applied to reduce the
principal balance outstanding.

     (e) Grantor shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 1.09 unless Beneficiary is included thereon as a named insured with loss
payable to Beneficiary under standard mortgage endorsements of the character and
to the extent above described. Grantor shall promptly notify Beneficiary
whenever any such separate insurance is taken out and shall promptly deliver to
Beneficiary the policy or policies of such insurance.

     (f) Any and all monies received as payment which Grantor may be entitled to
receive for loss or damage to the Premises, Improvements or Chattels under any
insurance maintained pursuant to this Section 1.09 (other than proceeds under
the policies required by clause (a)(ii) above) shall be paid over to Beneficiary
and, at Beneficiary's option, either applied to the prepayment of the Note and
all interest and other sums accrued and unpaid in respect thereof or disbursed
from time to time to Grantor in reimbursement of its costs and expenses incurred
in the restoration of the Improvements in accordance with Beneficiary's standard
construction lending practices, terms and conditions, in either case, less
Beneficiary's reasonable expenses for collecting and, if applicable, disbursing
the insurance proceeds, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no default exists hereunder, Beneficiary agrees to apply any such proceeds
received by it to the reimbursement of Grantor's costs of restoring the
Improvements. Advances of insurance proceeds shall be made to Grantor from time
to time in accordance with Beneficiary's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Beneficiary's option, to the prepayment of the Note and to interest
accrued and unpaid thereon in such order and proportions as Beneficiary may
elect. In no event shall Beneficiary be required to advance such proceeds to
Grantor unless Beneficiary shall have (i) received satisfactory evidence that
the funding/expiration dates of the commitment, if any, for the permanent
financing of the Improvements have been extended for such period of time as is
reasonably necessary to complete said restoration and (ii) reasonably determined
that the restoration of the Improvements can be completed by the Maturity Date
of the Note at a cost which does not exceed the amount of available insurance
proceeds or, in the event that such proceeds are reasonably determined by
Beneficiary to be inadequate, Beneficiary shall have received from Grantor a
cash deposit equal to the excess of said estimated cost of restoration over the
amount of said available proceeds. If the conditions for the advance of
insurance proceeds for restoration set forth in clauses (i) and (ii) above are
not satisfied within sixty (60) days of Beneficiary's receipt thereof or if the
actual restoration shall not have been commenced within such period, Beneficiary
shall have the option at any time thereafter to apply such insurance proceeds to
the payment of the Note and to interest accrued and unpaid thereon in such order
and proportions as Beneficiary may elect.

     Section 1.10. Protective Advances by Beneficiary. If Grantor shall fail to
                   ----------------------------------
perform any of the covenants contained herein, Trustee or Beneficiary may make
advances to perform the same on its behalf and all sums so advanced shall be a
lien upon

                                       12

<PAGE>

the Mortgaged Property and shall be secured hereby. Grantor will repay on demand
all sums so advanced on its behalf together with interest thereon at the Default
Rate. The provisions of this Section shall not prevent any default in the
observance of any covenant contained herein from constituting an Event of
Default.

     Section 1.11. (a) Visitation and Inspection. Grantor will keep adequate
                       -------------------------
records and books of account in accordance with generally accepted accounting
principles and will permit each of Trustee and Beneficiary, by their agents,
accountants and attorneys, to visit and inspect the Mortgaged Property and
examine its records and books of account and make copies thereof or extracts
therefrom, and to discuss its affairs, finances and accounts with the officers
or general partners, as the case may be, of Grantor, at such reasonable times as
may be requested by Trustee or Beneficiary.

     (b) Financial and Other Information. Grantor will deliver to Beneficiary
         -------------------------------
with reasonable promptness such financial information with respect to Grantor or
the Premises as Beneficiary may reasonably request from time to time. All
financial statements of Grantor shall be prepared in accordance with generally
accepted accounting principles and shall be accompanied by the certificate of a
principal financial or accounting officer or general partner, as the case may
be, of Grantor, dated within five (5) days of the delivery of such statements to
Beneficiary, stating that he or she knows of no Event of Default, nor of any
event which after notice or lapse of time or both would constitute an Event of
Default, which has occurred and is continuing, or, if any such event or Event of
Default has occurred and is continuing, specifying the nature and period of
existence thereof and what action Grantor has taken or proposes to take with
respect thereto, and, except as otherwise specified, stating that Grantor has
fulfilled all of its obligations hereunder and otherwise in respect of the Loan
which are required to be fulfilled on or prior to the date of such certificate.

     (c) Estoppel Certificates. Grantor, within three (3) days upon request in
         ---------------------
person or within five (5) days upon request by mail, will furnish a statement,
duly acknowledged, of the amount due whether for principal or interest on this
Deed and whether any offsets, counterclaims or defenses exist against the
indebtedness secured hereby.

     Section 1.12. Maintenance of Premises and Improvements. Grantor will not
                   ----------------------------------------
commit any waste on the Premises or make any change in the use of the Premises
which will in any way increase any ordinary fire or other hazard arising out of
construction or operation. Grantor will, or shall cause its Lessee to, at all
times, maintain the Improvements and Chattels in good operating order and
condition and will promptly make, from time to time, all repairs, renewals,
replacements, additions and improvements in connection therewith which are
needful or desirable to such end. The Improvements shall not be demolished or
substantially altered, nor shall any Chattels be removed without Beneficiary's
prior consent except where appropriate replacements free of superior title,
liens and claims are immediately made of value at least equal to the value of
the removed Chattels.

                                       13

<PAGE>

     Section 1.13. Condemnation. Grantor, immediately upon obtaining knowledge
                   ------------
of the institution or pending institution of any proceedings for the
condemnation of the Premises or any portion thereof, will notify Trustee and
Beneficiary thereof. Trustee and Beneficiary may participate in any such
proceedings and may be represented therein by counsel of Beneficiary's
selection. Grantor from time to time will deliver to Beneficiary all instruments
requested by it to permit or facilitate such participation. In the event of such
condemnation proceedings, the award or compensation payable is hereby assigned
to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to
question the amount of any such award or compensation and may accept the same in
the amount in which the same shall be paid. The proceeds of any award or
compensation so received shall, at Beneficiary's option, either be applied to
the prepayment of the Note and all interest and other sums accrued and unpaid in
respect thereof at the rate of interest provided therein regardless of the rate
of interest payable on the award by the condemning authority, or be disbursed to
Grantor from time to time for restoration of the Improvements in accordance with
Beneficiary's standard construction lending practices, terms and conditions, in
either case, less Beneficiary's reasonable expenses for collecting and, if
applicable, disbursing the award, or otherwise incurred in connection therewith.
Notwithstanding the provisions of the immediately preceding sentence, provided
no monetary or bankruptcy related default or any Event of Default exists
hereunder, Beneficiary agrees to apply any such condemnation award proceeds
received by it to the reimbursement of Grantor's costs of restoring the
Improvements. Advances of condemnation award proceeds shall be made to Grantor
from time to time in accordance with Beneficiary's standard construction lending
practices, terms and conditions; amounts not required for such purposes shall be
applied, at Beneficiary's option, to the prepayment of the Note and to interest
accrued and unpaid thereon (at the rate of interest provided therein regardless
of the rate of interest payable on the award by the condemning authority) in
such order and proportions as Beneficiary may elect.

     Section 1.14. Leases. (a) Grantor will not (i) execute an assignment of the
                   ------
rents or any part thereof from the Premises without Beneficiary's prior consent,
(ii) except where the lessee is in default thereunder, terminate or consent to
the cancellation or surrender of any lease of the Premises or of any part
thereof, now existing or hereafter to be made, having an unexpired term of one
(1) year or more, provided, however, that any lease may be cancelled if promptly
                  --------  -------
after the cancellation or surrender thereof a new lease is entered into with a
new lessee having a credit standing at least equivalent to that of the lessee
whose lease was cancelled, on substantially the same terms as the terminated or
cancelled lease, (iii) modify any such lease so as to shorten the unexpired term
thereof or so as to decrease, waive or compromise in any manner the amount of
the rents payable thereunder or materially expand the obligations of the lessor
thereunder, (iv) accept prepayments of more than one month of any installments
of rents to become due under such leases, except prepayments in the nature of
security for the performance of the lessees thereunder, (v) modify, release or
terminate any guaranties of any such lease or (vi) in any other manner impair
the value of the Mortgaged Property or the security hereof.

     (b) Grantor will not execute any lease of all or a substantial portion of
the Premises except for actual occupancy by the lessee thereunder or its
property manager,

                                       14

<PAGE>

and will at all times promptly and faithfully perform, or cause to be performed,
all of the covenants, conditions and agreements contained in all leases of the
Premises or portions thereof now or hereafter existing, on the part of the
lessor thereunder to be kept and performed and will at all times do all things
reasonably necessary to compel performance by the lessee under each lease of all
obligations, covenants and agreements by such lessee to be performed thereunder.
If any of such leases provide for the giving by the lessee of certificates with
respect to the status of such leases, Grantor shall exercise its right to
request such certificates within five (5) days of any demand therefor by
Beneficiary and shall deliver copies thereof to Beneficiary promptly upon
receipt.

     (c) In the event of the enforcement by Trustee or Beneficiary of the
remedies provided for hereby or by law, the lessee under each of the leases of
the Premise will, upon request of any person succeeding to the interest of
Grantor as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
       --------  -------
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or
modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.

     Section 1.15. Premises Documents. Grantor shall (a) do all things
                   ------------------
reasonably necessary to cause the due compliance and faithful performance by the
other parties to the Premises Documents with and of all obligations and
agreements by such other parties to be complied with and performed thereunder,
except for any continuing failure of the Premises to comply with the Premises
Documents of the date of the acquisition hereof from Beneficiary or its
affiliate, and (b) deliver promptly to Beneficiary copies of any notices which
it gives or receives under any of the Premises Documents.

     Section 1.16. Trust Fund; Lien Laws. Grantor will receive the advances
                   ---------------------
secured hereby and will hold the right to receive such advances as a trust fund
to be applied first for the purpose of paying the costs of improvements on the
Premises and will apply the same first to the payment of such costs before using
any part of the total of the same for any other purpose. Grantor will indemnify
and hold Trustee and Beneficiary harmless against any loss or liability, cost or
expense, including, without limitation, any judgments, attorney's fees, costs of
appeal bonds and printing costs, arising out of or relating to any proceeding
instituted by any claimant alleging a violation by Grantor of any applicable
lien law.

     Section 1.17. Expenses of Trustee. Grantor shall pay all costs, fees and
                   -------------------
expenses of Trustee, its agents and counsel in connection with the performance
of its duties hereunder.

                                       15

<PAGE>

                                   ARTICLE II

                         EVENTS OF DEFAULT AND REMEDIES

     Section 2.01. Events of Default and Certain Remedies. If one or more of the
                   --------------------------------------
following Events of Default shall happen, that is to say:

          (a) if (i) default shall be made in the payment of any principal,
     interest, fees or other sums under the Note, in any such case, when and as
     the same shall become due and payable, whether at maturity or by
     acceleration or as part of any payment or prepayment or otherwise, in each
     case, as herein or in the Note provided, and such default shall have
     continued for a period of ten (10) days or (ii) default shall be made in
     the payment of any tax or other charge required by Section 1.07 to be paid
     and said default shall have continued for a period of twenty (20) days; or

          (b) if default shall be made in the due observance or performance of
     any covenant, condition or agreement in the Note, this Deed or in any other
     document executed or delivered to Beneficiary in connection with the Loan,
     and such default shall have continued for a period of thirty (30) days
     after notice thereof shall have been given to Grantor by Beneficiary, or,
     in the case of such other documents, such shorter grace period, if any, as
     may be provided for therein; or

          (c) if any representation or warranty made by Grantor in Section 1.01
     shall be incorrect, or if any other representation or warranty made to
     Beneficiary in this Deed, or in any other document, certificate or
     statement executed or delivered to Beneficiary in connection with the Loan
     shall be incorrect in any material respect when made or remade; or

          (d) if by order of a court of competent jurisdiction, a trustee,
     receiver or liquidator of the Mortgaged Property or any part thereof, or of
     Grantor shall be appointed and such order shall not be discharged or
     dismissed within sixty (60) days after such appointment; or

          (e) if Grantor shall file a petition in bankruptcy or for an
     arrangement or for reorganization pursuant to the Federal Bankruptcy Act or
     any similar federal or state law, or if, by decree of a court of competent
     jurisdiction, Grantor shall be adjudicated a bankrupt, or be declared
     insolvent, or shall make an assignment for the benefit of creditors, or
     shall admit in writing its inability to pay its debts generally as they
     become due, or shall consent to the appointment of a receiver or receivers
     of all or any part of its property; or

          (f) if any of the creditors of Grantor shall file a petition in
     bankruptcy against Grantor or for reorganization of Grantor pursuant to the
     Federal Bankruptcy Act or any similar federal or state law, and if such
     petition shall not

                                       16

<PAGE>

     be discharged or dismissed within sixty (60) days after the date on which
     such petition was filed; or

          (g) if final judgment for the payment of money shall be rendered
     against Grantor and Grantor shall not discharge the same or cause it to be
     discharged within sixty (60) days from the entry thereof, or shall not
     appeal therefrom or from the order, decree or process upon which or
     pursuant to which said judgment was granted, based or entered, and secure a
     stay of execution pending such appeal; or

          (h) if default shall be made in the due observance or performance of
     any covenant, condition or agreement in any other note or document executed
     or delivered to Beneficiary by Grantor, and such default shall have
     continued for a period of thirty (30) days after notice thereof shall have
     been given to Grantor by Beneficiary, or such shorter grace period, if any,
     as may be provided for therein; or

          (i) if there shall occur a default which is not cured within the
     applicable grace period, if any, under any mortgage, deed of trust or other
     security instrument covering all or part of the Mortgaged Property
     regardless of whether any such mortgage, deed of trust or other security
     instrument is prior or subordinate hereto or under any mortgage, deed of
     trust or other security instrument now or hereafter securing the Note; it
     being further agreed by Grantor that an Event of Default hereunder shall
     constitute an Event of Default under any such mortgage, deed of trust or
     other security instrument held by or for the benefit of Beneficiary; or

          (j) if there shall occur a default which is not cured within the
     applicable grace period, if any, under any of the Premises Documents,
     except for any continuing failure of the Premises to comply with the
     Premises Documents of the date of the acquisition hereof from Beneficiary
     or its affiliate; or if any of the Premises Documents is amended, modified,
     supplemented or terminated without Beneficiary's prior consent; or

          (k) if Grantor shall transfer, or agree to transfer (or suffer or
     permit the transfer or agreement to transfer), in any manner, either
     voluntarily or involuntarily, by operation of law or otherwise, all or any
     portion of the Mortgaged Property, or any interest or rights therein
     (including air or development rights) without, in any such case,
     Beneficiary's prior consent. As used in this clause, "transfer" shall
     include, without limitation, any sale, assignment, lease (other than to
     Lessee) or conveyance except leases for occupancy subordinate hereto and to
     all advances made and to be made hereunder or, in the event Grantor (or a
     general partner or co-venturer thereof) is a partnership, joint venture,
     limited liability company, trust or closely-held corporation, the sale,
     conveyance, transfer or other disposition of more than 10%, in the
     aggregate, of any class of the issued and outstanding capital stock of such
     closely-held corporation or of the beneficial interest of such partnership,
     venture,

                                       17

<PAGE>

     limited liability company or trust, or a change of any general partner,
     joint venturer, member or beneficiary, as the case may be. In the event
     Grantor is a limited partnership, and so long as a limited partner has
     contributed to (or remains personally liable for) the present and future
     partnership capital contributions required of such limited partner by the
     partnership agreement, such partner may sell, convey, devise, transfer or
     dispose of all or a part of his limited partnership interest to his spouse,
     children, grandchildren or a family trust in which his spouse, children or
     grandchildren are sole beneficiaries; or

          (l) if Grantor shall encumber, or agree to encumber, in any manner,
     either voluntarily or involuntarily, by operation of law or otherwise, all
     or any portion of the Mortgaged Property, or any interest or rights therein
     (including air or development rights) without, in any such case,
     Beneficiary's prior consent. As used in this clause, "encumber" shall
     include, without limitation, the placing or permitting the placing of any
     mortgage, deed of trust, assignment of rents or other security device.
     (Beneficiary may grant or deny its consent under this clause and the
     immediately preceding clause in its sole discretion and, if consent should
     be given, any such transfer or encumbrance shall be subject hereto and to
     any other documents which evidence or secure the Loan, and, if a transfer,
     any such transferee shall assume all of Grantor's obligations hereunder and
     thereunder and agree to be bound by all provisions and perform all
     obligations contained herein and therein; consent to one such transfer or
     encumbrance shall not be deemed to be a waiver of the right to require
     consent to future or successive transfers or encumbrances);

then and in every such case:

          I. During the continuance of any such Event of Default, Beneficiary,
     by notice to Grantor, may declare the entire principal of the Note then
     outstanding (if not then due and payable), and all accrued and unpaid
     interest and other sums in respect thereof, to be due and payable
     immediately, and upon any such declaration the principal of the Note and
     said accrued and unpaid interest and other sums shall become and be
     immediately due and payable, anything herein or in the Note (other than
                                                                  ----- ----
     Section 4.08 hereof, the provisions thereof limiting interest payable
     thereunder to the maximum amount permitted by applicable law) to the
     contrary notwithstanding.

          II. During the continuance of any such Event of Default, Trustee or
     Beneficiary personally, or by their agents or attorneys, may enter into and
     upon all or any part of the Premises, and each and every part thereof, and
     are each hereby given a right and license and appointed Grantor's
     attorney-in-fact and exclusive agent to do so, and may exclude Grantor, its
     agents and servants wholly therefrom; and having and holding the same, may
     use, operate, manage and control the Premises and conduct the business
     thereof, either personally or by their superintendents, managers, agents,
     servants, attorneys or receivers; and upon every such entry, Trustee or
     Beneficiary, at the expense of the Mortgaged Property, from time to time,
     either by purchase, repairs or construction, may

                                       18

<PAGE>

     maintain and restore the Mortgaged Property, whereof they shall become
     possessed as aforesaid; and likewise, from time to time, at the expense of
     the Mortgaged Property, Trustee or Beneficiary may make all necessary or
     proper repairs, renewals and replacements and such useful alterations,
     additions, betterments and improvements thereto and thereon as Beneficiary
     may seem advisable; and in every such case Trustee or Beneficiary shall
     have the right to manage and operate the Mortgaged Property and to carry on
     the business thereof and exercise all rights and powers of Grantor with
     respect thereto either in the name of Grantor or otherwise as Beneficiary
     shall deem best; and Trustee or Beneficiary shall be entitled to collect
     and receive the Rents and every part thereof, all of which shall for all
     purposes constitute property of Grantor; and in furtherance of such right
     Beneficiary may collect the rents payable under all leases of the Premises
     directly from the lessees thereunder upon notice to each such lessee that
     an Event of Default exists hereunder accompanied by a demand on such lessee
     for the payment to Beneficiary of all rents due and to become due under its
     lease, and Grantor FOR THE BENEFIT OF BENEFICIARY AND EACH SUCH LESSEE
     hereby covenants and agrees that the lessee shall be under no duty to
     question the accuracy of Beneficiary's statement of default and shall
     unequivocally be authorized to pay said rents to Beneficiary without regard
     to the truth of Beneficiary's statement of default and notwithstanding
     notices from Grantor disputing the existence of an Event of Default such
     that the payment of rent by the lessee to Beneficiary pursuant to such a
     demand shall constitute performance in full of the lessee's obligation
     under the lease for the payment of rents by the lessee to Grantor; and
     after deducting the expenses of conducting the business thereof and of all
     maintenance, repairs, renewals, replacements, alterations, additions,
     betterments and improvements and amounts necessary to pay for taxes,
     assessments, insurance and prior or other proper charges upon the Mortgaged
     Property or any part thereof, as well as just and reasonable compensation
     for the services of Trustee and Beneficiary and for all attorneys, counsel,
     agents, clerks, servants and other employees by them engaged and employed,
     Trustee or Beneficiary, as the case may be, shall apply the moneys arising
     as aforesaid, first, to the payment of the principal of the Note and the
                   -----
     interest thereon, when and as the same shall become payable and in such
     order and proportions as Beneficiary shall elect and second, to the payment
                                                          ------
     of any other sums required to be paid by Grantor hereunder.

          III. Trustee or Beneficiary, as the case may be, with or without
     entry, personally or by their agents or attorneys, insofar as applicable,
     may:

               (1) sell the Mortgaged Property and all estate, right, title and
          interest, claim and demand therein, at public auction at such time and
          place, and upon such terms and conditions as Beneficiary may deem
          expedient or as may be required or permitted by applicable law, having
          first given such notice prior to the sale of such time, place and
          terms as Trustee or Beneficiary may deem desirable or as may be
          required or permitted by applicable law. In the event of any sale of
          all or part of the Mortgaged Property under the terms hereof, Grantor
          shall pay (in addition

                                       19

<PAGE>

          to taxable costs) a reasonable fee to Trustee which shall be in lieu
          of all other fees and commission permitted by statute or custom to be
          paid, reasonable attorneys' fees and all expenses incurred in
          obtaining or continuing abstracts of title for the purpose of any such
          sale; or

               (2) institute proceedings for the complete or partial foreclosure
          hereof; or

               (3) take such steps to protect and enforce their rights whether
          by action, suit or proceeding in equity or at law for the specific
          performance of any covenant, condition or agreement in the Note or
          herein, or in aid of the execution of any power herein granted, or for
          any foreclosure hereunder, or for the enforcement of any other
          appropriate legal or equitable remedy or otherwise as Trustee or
          Beneficiary shall elect.

          IV. If Grantor shall default hereunder, Grantor hereby authorizes and
     empowers Trustee, at the request of Beneficiary (which request shall be
     presumed made), at any time during the continuance of any default, to sell
     all or any portion of the Mortgaged Property, at public auction, to the
     highest bidder, for cash, in the area at the County Courthouse of the
     county in which the Mortgaged Property or any part thereof is situated
     which has been designated by the commissioner's court of such county as the
     area where such sales are to take place (as such designation is recorded in
     the real property records of such county) or, if no such area has been
     designated by the commissioner's court of such county, in the area at such
     County Courthouse which has been designated in the notice of sale, between
     the hours of 10:00 o'clock A.M. and 4:00 o'clock P.M. on the first Tuesday
     of any month, after giving notice of the time, place and terms of said
     sale, and of the property to be sold as follows or in any other manner now
     or hereafter required or permitted by applicable law:

          Notice of such proposed sale shall be given by posting written notice
          thereof at least twenty-one (21) days preceding the date of the sale
          at the Courthouse door of the county in which the sale is to be made,
          and by filing a copy of the notice in the office of the county clerk
          of the county in which the sale is to be made at least twenty-one (21)
          days preceding the date of the sale, and if the property to be sold is
          situated in more than one county, one notice shall be posted at the
          Courthouse door of each county in which the property to be sold is
          situated and one copy of the notice shall be filed in the office of
          the county clerk in each county in which the property to be sold is
          situated (such notice shall designate the county where such property
          will be sold). In addition, Beneficiary shall, at least twenty-one
          (21) days preceding the date of sale, serve written notice of the
          proposed sale by certified mail on each debtor obligated to pay the
          Indebtedness secured hereby according to the records of Beneficiary.
          Service of such notice shall be completed upon deposit of the notice,
          enclosed in a postpaid wrapper, properly addressed to such debtor at
          the most recent address as shown by the records of Beneficiary, in a
          post

                                       20

<PAGE>

          office or official depository under the care and custody of the United
          States Postal Service. The affidavit of any person having knowledge of
          the facts to the effect that such service was completed shall be prima
          facie evidence of the fact of service.

Any sale of the Mortgaged Property covered by this Deed may be conducted in the
manner provided in this Deed without the necessity for Trustee to have physical
or constructive possession of the Mortgaged Property (Grantor hereby covenanting
and agreeing to deliver to Trustee any portion of the Mortgaged Property not
actually or constructively possessed by Trustee immediately upon demand by
Trustee) and the title to and right of possession of that property will pass to
the purchaser as completely as if it had been actually present and delivered to
purchaser at the sale.

     Any notice that is required or permitted to be given to Grantor may be
addressed to Grantor at Grantor's address as stated above. Any notice that is to
be given by certified mail to any other debtor may, if the address for such
other debtor is not shown by the records of Beneficiary, be addressed to such
other debtor at the address of Grantor as is shown by the records of
Beneficiary. Notwithstanding the foregoing provisions of this paragraph, notice
of such sale given in accordance with the requirements of the applicable law of
the State of Oregon in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers Trustee
to sell all or any portion of the Mortgaged Property, together or in lots or
parcels, as Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of Grantor. In no event shall Trustee be required to exhibit, present or display
at any such sale, any of the personalty described herein to be sold at such
sale. Payment of the purchase price to Trustee shall satisfy the obligation of
the purchaser at such sale therefor, and such purchaser shall not be bound to
look after the application thereof. The sale or sales by Trustee of less than
the whole of the Mortgaged Property shall not exhaust the power of sale herein
granted, and Trustee is specifically empowered to make successive sale or sales
under such power until the whole of the Mortgaged Property shall be sold; and if
the proceeds of such sale or sales of less than the whole of such Mortgaged
Property shall be less than the aggregate of the Indebtedness secured hereby and
the expense of executing this trust, this Deed and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Mortgaged Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
--------  -------
or sales of less than the whole of the Mortgaged Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Mortgaged Property. If default is made hereunder, the holder of the
Indebtedness or any part thereof on which the payment is delinquent shall have
the option to proceed with foreclosure in satisfaction of such item either
through judicial proceedings or by directing Trustee to proceed as if under a
full foreclosure, conducting the sale as herein provided without declaring the
entire Indebtedness secured hereby due, and if sale is made because of default
of an installment, or a part of an installment, such sale may be made subject to
the unmatured part of the Note and other Indebtedness secured by this Deed; and
it is agreed that such sale, if so made, shall not in any manner affect the
unmatured part of the Indebtedness

                                       21

<PAGE>

secured by this Deed, but as to such unmatured part, this Deed shall remain in
full force and effect as though no sale had been made under the provisions of
this paragraph. Several sales may be made hereunder without exhausting the right
of sale for any unmatured part of the Indebtedness secured hereby. The
provisions of this paragraph IV shall control all other conflicting provisions
of this deed with respect to the sale of the Mortgaged Property pursuant to this
Deed.

     Section 2.02. Other Matters Concerning Sales. (a) Trustee or Beneficiary
                   ------------------------------
may adjourn from time to time any sale by it to be made hereunder or by virtue
hereof by announcement at the time and place appointed for such sale or for such
adjourned sale or sales; and, except as otherwise provided by any applicable
provision of law, Trustee or Beneficiary, as the case may be, without further
notice or publication, may make such sale at the time and place to which the
same shall be so adjourned.

     (b) Upon the completion of any sale or sales made by Trustee or
Beneficiary, as the case may be, under or by virtue of this Article II, Trustee,
or an officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument or instruments
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. Trustee is hereby appointed the true and
lawful attorney irrevocable of Grantor, in its name and stead, to make all
necessary conveyances, assignments, transfers and deliveries of the Mortgaged
Property and rights so sold and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment and transfer, and may substitute
one or more persons with like power, Grantor hereby ratifying and confirming all
that its said attorney or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, Grantor, if requested by Trustee or Beneficiary,
shall ratify and confirm any such sale or sales by executing and delivering to
Trustee or to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of Trustee or Beneficiary, for the purpose, and as
may be designated in such request. Any such sale or sales made under or by
virtue of this Article II, whether made under the power of sale herein granted
or under or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, shall operate to divest all the estate, right, title,
interest, claim and demand whatsoever, whether at law or in equity, of Grantor
in and to the properties and rights so sold, and shall be a perpetual bar both
at law and in equity against Grantor and against any and all persons claiming or
who may claim the same, or any part thereof from, through or under Grantor.

     (c) In the event of any sale or sales made under or by virtue of this
Article II (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale), the entire principal of, and interest and other sums on, the Note, if not
previously due and payable, and all other sums required to be paid by Grantor
pursuant hereto, immediately thereupon shall, anything in any of said documents
(other than Section 4.08 hereof) to the contrary notwithstanding, become due and
payable.

     (d) The purchase money, proceeds or avails of any sale or sales made under
or by virtue of this Article II, together with any other sums which then may be
held by

                                       22

<PAGE>

Trustee or Beneficiary hereunder, whether under the provisions of this Article
II or otherwise, shall be applied as follows:

          First: To the payment of the costs and expenses of such sale,
          -----
     including reasonable compensation to Trustee and Beneficiary, their agents
     and counsel, and of any judicial proceedings wherein the same may be made,
     and of all expenses, liabilities and advances made or incurred by Trustee
     hereunder, together with interest at the Default Rate on all advances made
     by Trustee, and of all taxes, assessments or other charges, except any
     taxes, assessments or other charges subject to which the Mortgaged Property
     shall have been sold.

          Second: To the payment of the whole amount then due, owing or unpaid
          ------
     upon the Note for principal and interest, with interest on the unpaid
     principal at the Default Rate from and after the happening of any Event of
     Default described in clause (a) of Section 2.01 from the due date of any
     such payment of principal until the same is paid, in such order and amounts
     as Beneficiary may elect.

          Third: To the payment of any other sums required to be paid by Grantor
          -----
     pursuant to any provision hereof or of the Note, including all expenses,
     liabilities and advances made or incurred by Beneficiary hereunder or in
     connection with the enforcement hereof, together with interest at the
     Default Rate on all such advances.

          Fourth: To the payment of the surplus, if any, to whomsoever may be
          ------
     lawfully entitled to receive the same.

     (e) Upon any sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale,
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash therefor may make settlement for the purchase price
by crediting upon the indebtedness secured hereby the net sales price after
deducting therefrom the expenses of the sale and the costs of the action and any
other sums which Trustee or Beneficiary are authorized to deduct hereunder.

     Section 2.03. Payment of Amounts Due. (a) In case an Event of Default
                   ----------------------
described in clause (a) of Section 2.01 shall have happened and be continuing,
then, upon demand of Beneficiary, Grantor will pay to Beneficiary the whole
amount which then shall have become due and payable on the Note, for principal
or interest or both, as the case may be, and after the happening of said Event
of Default will also pay to Beneficiary interest at the Default Rate on the then
unpaid principal of the Note, and the sums required to be paid by Grantor
pursuant to any provision hereof, and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to Trustee and Beneficiary, their agents and counsel and
any expenses incurred by Trustee or Beneficiary hereunder. In the event Grantor
shall fail forthwith to pay all such amounts upon such demand, Beneficiary shall
be entitled and empowered to institute such action or proceedings at law or in
equity as may

                                       23

<PAGE>

be advised by its counsel for the collection of the sums so due and unpaid, and
may prosecute any such action or proceedings to judgment or final decree, and
may enforce any such judgment or final decree against Grantor and collect, out
of the property of Grantor wherever situated, as well as out of the Mortgaged
Property, in any manner provided by law, moneys adjudged or decreed to be
payable.

     (b) Beneficiary shall be entitled to recover judgment as aforesaid either
before, after or during the pendency of any proceedings for the enforcement of
the provisions hereof; and the right of Beneficiary to recover such judgment
shall not be affected by any entry or sale hereunder, or by the exercise of any
other right, power or remedy for the enforcement of the provisions hereof, or
the foreclosure of the lien hereof; and in the event of a sale of the Mortgaged
Property, and of the application of the proceeds of sale, as herein provided, to
the payment of the debt hereby secured, Beneficiary shall be entitled to enforce
payment of, and to receive all amounts then remaining due and unpaid upon, the
Note, and to enforce payment of all other charges, payments and costs due
hereunder or otherwise in respect of the Loan, and shall be entitled to recover
judgment for any portion of the debt remaining unpaid, with interest at the
Default Rate. In case of proceedings against Grantor in insolvency or bankruptcy
or any proceedings for its reorganization or involving the liquidation of its
assets, then Beneficiary shall be entitled to prove the whole amount of
principal, interest and other sums due upon the Note to the full amount thereof,
and all other payments, charges and costs due hereunder or otherwise in respect
of the Loan, without deducting therefrom any proceeds obtained from the sale of
the whole or any part of the Mortgaged Property, provided, however, that in no
                                                 --------  -------
case shall Beneficiary receive, from the aggregate amount of the proceeds of the
sale of the Mortgaged Property and the distribution from the estate of Grantor,
a greater amount than such principal and interest and such other payments,
charges and costs.

     (c) No recovery of any judgment by Beneficiary and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Grantor shall affect in any manner or to any extent, the lien hereof upon the
Mortgaged Property or any part thereof, or any liens, rights, powers or remedies
of Trustee or Beneficiary hereunder, but such liens, rights, powers and remedies
of Trustee or Beneficiary shall continue unimpaired as before.

     (d) Any moneys thus collected by Beneficiary under this Section 2.03 shall
be applied by Beneficiary in accordance with the provisions of clause (d) of
Section 2.02.

     Section 2.04. Actions; Receivers. After the happening of any Event of
                   ------------------
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Trustee or Beneficiary to obtain judgment for the principal of,
or interest on, the Note and other sums required to be paid by Grantor pursuant
to any provision hereof, or of any other nature in aid of the enforcement of the
Note or hereof, Grantor will (a) waive the issuance and service of process and
enter its voluntary appearance in such action, suit or proceeding and (b) if
required by Beneficiary, consent to the appointment of a receiver or receivers
of all or part of the Mortgaged Property and of any or all of the Rents in
respect thereof. After the happening of any Event of Default and during its
continuance, or upon

                                       24

<PAGE>

the commencement of any proceedings to foreclose this Deed or to enforce the
specific performance hereof or in aid thereof or upon the commencement of any
other judicial proceeding to enforce any right of Trustee or Beneficiary,
Trustee or Beneficiary shall be entitled, as a matter of right, if they shall so
elect, without the giving of notice to any other party and without regard to the
adequacy or inadequacy of any security for the indebtedness secured hereby,
forthwith either before or after declaring the unpaid principal of the Note to
be due and payable, to the appointment of such a receiver or receivers.

     Section 2.05. Beneficiary's Right to Possession. Notwithstanding the
                   ---------------------------------
appointment of any receiver, liquidator or trustee of Grantor, or of any of its
property, or of the Mortgaged Property or any part thereof, Trustee and
Beneficiary shall be entitled to retain possession and control of all property
now or hereafter held hereunder.

     Section 2.06. Remedies Cumulative. No remedy herein conferred upon or
                   -------------------
reserved to Trustee or Beneficiary is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative, and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity or by statute. No delay or omission of Trustee or
Beneficiary to exercise any right or power accruing upon any Event of Default
shall impair any such right or power, or shall be construed to be a waiver of
any such Event of Default or any acquiescence therein; and every power and
remedy given hereby to Trustee or Beneficiary may be exercised from time to time
as often as may be deemed by them expedient. Nothing herein or in the Note shall
affect the obligation of Grantor to pay the principal of, and interest and other
sums on, the Note in the manner and at the time and place therein respectively
expressed.

     Section 2.07. Moratorium Laws; Right of Redemption. Grantor will not at any
                   ------------------------------------
time insist upon, or plead, or in any manner whatever claim or take any benefit
or advantage of any stay or extension or moratorium law, any exemption from
execution or sale of the Mortgaged Property or any part thereof, wherever
enacted, now or at any time hereafter in force, which may affect the covenants
and terms of performance hereof, nor claim, take or insist upon any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Mortgaged Property, or any part thereof, prior to any sale or
sales thereof which may be made pursuant to any provision herein, or pursuant to
the decree, judgment or order of any court of competent jurisdiction; nor, after
any such sale or sales, claim or exercise any right under any statute heretofore
or hereafter enacted to redeem the property so sold or any part thereof and
Grantor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Trustee or Beneficiary, but to suffer and permit
the execution of every power as though no such law or laws had been made or
enacted. Grantor, for itself and all who may claim under it, waives, to the
extent that it lawfully may, all right to have the Mortgaged Property marshaled
upon any foreclosure hereof.

     Section 2.08. Intentionally Omitted.
                   ---------------------

                                       25

<PAGE>

     Section 2.09. Beneficiary's Rights Concerning Application of Amounts
                   ------------------------------------------------------
Collected. Notwithstanding anything to the contrary contained herein, upon the
---------
occurrence of an Event of Default, Beneficiary may apply, to the extent
permitted by law, any amount collected hereunder to principal, interest or any
other sum due under the Note or otherwise in respect of the Loan in such order
and amounts, and to such obligations, as Beneficiary shall elect in its sole and
absolute discretion.

                                  ARTICLE III

                               CONCERNING TRUSTEE

     Section 3.01. Trustee's Performance. Trustee, by its acceptance hereof,
                   ---------------------
covenants faithfully to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by it in accordance with the terms hereof.

     Section 3.02. Resignation by Trustee. Trustee may resign at any time upon
                   ----------------------
giving thirty (30) days' notice to Grantor and Beneficiary.

     Section 3.03. Removal of Trustee; Successors. Beneficiary may remove
                   ------------------------------
Trustee at any time or from time to time and select a successor trustee. In the
event of the death, removal, resignation or refusal or inability to act of
Trustee, or in its sole discretion for any reason whatsoever, Beneficiary may,
without notice and without specifying any reason therefor and without applying
to any court, select and appoint a successor Trustee, and all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. In such connection, Beneficiary may, on its and Grantor's
behalf, execute, acknowledge and record an instrument or agreement of such
substitution, and Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, with full power of substitution, to do so. Such substitute
trustee shall not be required to give bond for the faithful performance of its
duties unless required by Beneficiary.

                                   ARTICLE IV

                                  MISCELLANEOUS

     Section 4.01. Assignment of Rents. This Deed is intended to constitute a
                   -------------------
present, absolute and irrevocable assignment of all of the Rents now or
hereafter accruing, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely and irrevocably assigns
all of the Rents now or hereafter accruing to Beneficiary. The aforesaid
assignment shall be effective immediately upon the execution hereof and is not
conditioned upon the occurrence of any Event of Default hereunder or any other
contingency or event, provided, however, that Beneficiary hereby grants to
                      --------  -------
Grantor the right and license to collect and receive the Rents as they become
due, and not in advance, so long as no Event of Default exists hereunder.
Immediately upon the occurrence of any such Event of Default, the foregoing
right and

                                       26

<PAGE>

license shall be automatically terminated and of no further force or effect.
Nothing contained in this Section or elsewhere herein shall be construed to make
Beneficiary a mortgagee in possession unless and until Beneficiary actually
takes possession of the Mortgaged Property, nor to obligate Beneficiary to take
any action or incur any expense or discharge any duty or liability under or in
respect of any leases or other agreements relating to the Mortgaged Property or
any part thereof.

     Section 4.02. Security Agreement. This Deed constitutes a security
                   ------------------
agreement under the applicable Uniform Commercial Code with respect to the
Chattels and such other of the Mortgaged Property which is personal property. In
addition to the rights and remedies granted to Beneficiary by other applicable
law or hereby, Beneficiary shall have all of the rights and remedies with
respect to the Chattels and such other personal property as are granted to a
secured party under the applicable Uniform Commercial Code. Upon Beneficiary's
request after an Event of Default, Grantor shall promptly and at its expense
assemble the Chattels and such other personal property and make the same
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor, after an Event of Default, shall pay to Beneficiary on demand, with
interest at the Default Rate, any and all expenses, including attorneys' fees,
incurred by Beneficiary in protecting its interest in the Chattels and such
other personal property and in enforcing its rights with respect thereto. Any
notice of sale, disposition or other intended action by Beneficiary with respect
to the Chattels and such other personal property sent to Grantor in accordance
with the provisions hereof at least five (5) days prior to such action shall
constitute reasonable notice to Grantor. The proceeds of any such sale or
disposition, or any part thereof, may be applied by Beneficiary to the payment
of the indebtedness secured hereby in such order and proportions as Beneficiary
in its discretion shall deem appropriate. To the extent Grantor may lawfully do
so and without limiting any rights and/or privileges herein granted to
Beneficiary, Grantor agrees that Beneficiary and/or Trustee and any successor
Trustee may dispose of any or all of the Chattels at the same time and place and
after giving the same notices provided in this Deed in connection with a
non-judicial foreclosure sale under the terms and conditions set forth in
Article II, Section 2.01, III or IV, of this Deed. In this connection, Grantor
agrees that the sale may be conducted by Trustee or successor Trustee; that the
sale of the real estate and improvements described in this Deed and the Chattels
or any part thereof, may be sold separately or together; and that in the event
the Premises and the Chattels or any part thereof are sold together, Beneficiary
will not be obligated to allocate the consideration received as between the
Premises and the Chattels.

     Section 4.03. Application of Certain Payments. In the event that all or any
                   -------------------------------
part of the Mortgaged Property is encumbered by one or more deeds of trust held
by or for the benefit of Beneficiary, Grantor hereby irrevocably authorizes and
directs Beneficiary to apply any payment received by Beneficiary in respect of
any note secured hereby or by any other such deed of trust to the payment of
such of said notes as Beneficiary shall elect in its sole and absolute
discretion, and Beneficiary shall have the right to apply any such payment in
reduction of principal and/or interest and in such order and amounts as
Beneficiary shall elect in its sole and absolute discretion without regard to
the priority of the deed of trust securing the note so repaid or to contrary
directions from Grantor or any other party.

                                       27

<PAGE>

     Section 4.04. Severability. In the event any one or more of the provisions
                   ------------
contained herein or in the Note shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but this Deed
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein or therein.

     Section 4.05. Modifications and Waivers in Writing. No provision hereof may
                   ------------------------------------
be changed, waived, discharged or terminated orally or by any other means except
an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. Any agreement hereafter made
by Grantor and Beneficiary relating hereto shall be superior to the rights of
the holder of any intervening or subordinate lien or encumbrance.

     Section 4.06. Notices. All notices, demands, consents, approvals and
                   -------
statements required or permitted hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes when presented
personally, three (3) days after mailing by registered or certified mail,
postage prepaid, or one (1) day after delivery to a nationally recognized
overnight courier service providing evidence of the date of delivery, if to
Grantor at its address stated above, with a copy to Thomas E. Davis, Esq.,
Jenkens & Gilchrist, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202-2799, and
if to Beneficiary at its address stated above, or at such other address of which
a party shall have notified the party giving such notice in accordance with the
provisions of this Section.

     Section 4.07. Successors and Assigns. All of the grants, covenants, terms,
                   ----------------------
provisions and conditions herein shall run with the land and shall apply to,
bind and inure to the benefit of, the successors and assigns of Grantor, the
successors in trust of Trustee and the endorsees, transferees, successors and
assigns of Beneficiary.

     Section 4.08. Limitation on Interest. Anything herein or in the Note to the
                   ---------------------
contrary notwithstanding, the obligations of Grantor hereunder and under the
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by Beneficiary would be
contrary to provisions of law applicable to Beneficiary limiting the maximum
rate of interest that may be charged or collected by Beneficiary.

     Section 4.09. Counterparts. This Deed may be executed in any number of
                   ------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same deed.

     Section 4.10. Substitute Deeds. Grantor and Beneficiary shall, upon their
                   ----------------
mutual agreement to do so, execute such documents as may be necessary in order
to effectuate the modification hereof, including the execution of substitute
deeds of trust, so as to create two (2) or more liens on or security titles in
respect of the Mortgaged Property in such amounts as may be mutually agreed upon
but in no event to exceed, in the aggregate, the unpaid principal portion of the
Note Amount; in such event, Grantor

                                       28

<PAGE>

covenants and agrees to pay the reasonable fees and expenses of Beneficiary and
its counsel in connection with any such modification.

     Section 4.11. Beneficiary's Sale of Interests in Loan. Grantor recognizes
                   ---------------------------------------
that Beneficiary may sell and transfer interests in the Loan to one or more
participants or assignees and that all documentation, financial statements,
appraisals and other data, or copies thereof, relevant to Grantor, any Guarantor
or the Loan, may be exhibited to and retained by any such participant or
assignee or prospective participant or assignee.

     Section 4.12. No Merger of Interests. Unless expressly provided otherwise,
                   ----------------------
in the event that ownership hereof and title to the fee and/or leasehold estates
in the Premises encumbered hereby shall become vested in the same person or
entity, this Deed shall not merge in said title but shall continue to be and
remain a valid and subsisting lien and/or trust deed on said estates in the
Premises for the amount secured hereby.

     Section 4.13. CERTAIN WAIVERS. BY EXECUTION OF THIS DEED AND BY INITIALING
                   ---------------                            -----------------
THIS SECTION 4.13, GRANTOR EXPRESSLY AND UNCONDITIONALLY: (A) ACKNOWLEDGES THE
-----------------          ---------
RIGHT OF BENEFICIARY TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND
ANY OTHER INDEBTEDNESS IN ACCORDANCE WITH THE LOAN DOCUMENTS AND THE POWER OF
ATTORNEY GIVEN HEREIN TO BENEFICIARY TO SELL THE MORTGAGED PROPERTY BY
NON-JUDICIAL FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING
AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY
REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED OR BY LAW; (B) WAIVES ANY
AND ALL RIGHTS THAT GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES
OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS
THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR
BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR
TO THE EXERCISE BY BENEFICIARY OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO
BENEFICIARY, EXCEPT SUCH NOTICE (IF ANY) IS SPECIFICALLY REQUIRED TO BE GIVEN
UNDER THE LOAN DOCUMENTS OR UNDER THE RIGHTS OR BENEFITS OF ANY STATUTE OF
LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE,
APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION BY
LAW; (C) WAIVES BY EXECUTION HEREOF, AND BENEFICIARY WAIVES BY ACCEPTANCE
HEREOF, IN CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE
BROUGHT BY BENEFICIARY ASSERTING AN EVENT OF DEFAULT UNDER CLAUSE (A) OF SECTION
2.01 OF THIS DEED, ANY AND EVERY RIGHT IT MAY HAVE TO A TRIAL BY JURY; (D)
ACKNOWLEDGES THAT GRANTOR HAS READ THIS DEED AND ITS PROVISIONS HAVE BEEN
EXPLAINED FULLY TO GRANTOR, AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR'S
CHOICE PRIOR TO EXECUTING THIS DEED AND INITIALING THIS SECTION 4.13; AND (E)
ACKNOWLEDGES THAT ALL

                                       29

<PAGE>

WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY GRANTOR AS A PART OF A BARGAINED-FOR LOAN
TRANSACTION AND THAT THIS DEED IS VALID AND ENFORCEABLE BY BENEFICIARY AGAINST
GRANTOR IN ACCORDANCE WITH ALL THE TERMS, PROVISIONS AND CONDITIONS HEREOF.

     Section 4.14. GOVERNING LAW. THE PERFORMANCE REQUIRED BY THIS DEED SHALL,
                   -------------  --------------------------------------------
INSOFAR AS IS POSSIBLE, BE RENDERED TO THE BENEFICIARY AT ITS OFFICE IN
-----------------------------------------------------------------------
TENNESSEE. GRANTOR AND BENEFICIARY INTEND THAT THE VALIDITY AND CONSTRUCTION OF
-------------------------------------------------------------------------------
THE OBLIGATIONS SECURED BY THIS DEED BE GOVERNED BY THE LAWS OF THE STATE OF
----------------------------------------------------------------------------
TENNESSEE INCLUDING ALL OBLIGATIONS AND LIABILITIES HEREUNDER WITH RESPECT TO
-----------------------------------------------------------------------------
THE PAYMENT OF INTEREST OR ANY OTHER COMPENSATION FOR THE USE, FORBEARANCE OR
--------------------------------------------------------------------------------
DETENTION OF MONEY. THIS DEED SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
--------------------------------------------------------------------------------
THE LAWS OF THE STATE OF TENNESSEE, WITHOUT REFERENCE TO THE CONFLICTS OF LAW
-----------------------------------------------------------------------------
PRINCIPLES OF THAT STATE, EXCEPT ONLY TO THE EXTENT THAT OREGON LAW EXPRESSLY
-----------------------------------------------------------------------------
PROVIDES THAT IT GOVERNS AND THAT A CONTRARY AGREEMENT BY THE PARTIES IS
------------------------------------------------------------------------
INEFFECTIVE AND EXCEPT THAT THE LAW OF THE STATE OF OREGON SHALL APPLY TO ANY
-----------------------------------------------------------------------------
AND ALL ACTS WITH RESPECT TO THE CREATION AND PRIORITY OF THE LIEN OF THE DEED
------------------------------------------------------------------------------
AND ASSIGNMENT OF LEASES AND RENTS ON THE MORTGAGED PROPERTY HEREBY EVIDENCED
-----------------------------------------------------------------------------
AND FORECLOSURE BY TRUSTEE ON THE MORTGAGED PROPERTY. GRANTOR, BENEFICIARY AND
------------------------------------------------------------------------------
TRUSTEE COVENANT AND AGREE TO TAKE ANY AND ALL ACTION WHICH MAY BE NECESSARY
----------------------------------------------------------------------------
UNDER OREGON LAW WITH RESPECT TO FORECLOSURE UNDER THE LAWS OF THE STATE OF
---------------------------------------------------------------------------
OREGON. SHOULD ANY OBLIGATION OR REMEDY UNDER THIS DEED BE INVALID OR
---------------------------------------------------------------------
UNENFORCEABLE UNDER THE LAWS PROVIDED HEREIN TO GOVERN, THE LAWS OF ANOTHER
---------------------------------------------------------------------------
STATE WHOSE LAWS CAN VALIDATE AND APPLY TO THIS DEED SHALL APPLY.
-----------------------------------------------------------------

     Section 4.15. ADDITIONAL WAIVER. GRANTOR HEREBY ACKNOWLEDGES AND AGREES
                   -----------------
THAT: (I) BENEFICIARY IS ACTING AS A LENDER SOLELY AT THE REQUEST OF GRANTOR;
(II) THE ACTIONS OF PROMUS HOTELS, INC., AS THE MANAGER OF THE MORTGAGED
PROPERTY PURSUANT TO THE MANAGEMENT AGREEMENT ARE SEPARATE, UNRELATED TO AND
INDEPENDENT OF THE ACTIONS OF THE BENEFICIARY PURSUANT TO THIS DEED, THE NOTE OR
THE LOAN DOCUMENTS; AND (III) GRANTOR KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO RAISE ANY DEFENSES TO THE
ENFORCEMENT OF THIS DEED, THE NOTE, OR THE LOAN DOCUMENTS BY GRANTOR BASED ON
ANY AND ALL ACTIONS, INACTIONS, DEFAULTS, ERRORS OR OMISSIONS, NEGLIGENCE AND
BREACH OF FIDUCIARY OR OTHER DUTY ALLEGED TO HAVE BEEN COMMITTED BY PROMUS
HOTELS, INC., AS THE MANAGER OF

                                       30

<PAGE>

THE MORTGAGED PROPERTY, INCLUDING, WITHOUT LIMITATION, DEFENSES OF EQUITABLE
SUBORDINATION, LENDER LIABILITY, WASTE, MISAPPROPRIATION OF FUNDS, EXCESSIVE
EXPENDITURES IN "CONSPIRACY" WITH BENEFICIARY TO CAUSE A DEFAULT UNDER THE THIS
DEED, THE NOTE OR LOAN DOCUMENTS, AND PRECIPITATING THE EXERCISE OF REMEDIES
UNDER THIS DEED, THE NOTE OR THE LOAN DOCUMENTS IN FAVOR OF BENEFICIARY.

                            [SIGNATURE PAGE FOLLOWS]

                                       31

<PAGE>

     IN WITNESS WHEREOF, this Deed has been duly executed and delivered by
Grantor.

                                                APPLE SUITES, INC., a Virginia
                                                corporation

                                                By:   /s/ Glade M. Knight
                                                      --------------------------
                                                      Glade M. Knight, President

                                                APPLE SUITES MANAGEMENT, INC., a
                                                Virginia corporation

                                                By:    /s/ Glade M. Knight
                                                       -------------------------
                                                      Glade M. Knight, President

<PAGE>

STATE OF Virginia
         --------

CITY OF Richmond
        --------

          THIS INSTRUMENT was acknowledged before me on the 14th day of June
                                                            ----        ----
2001, by Glade M. Knight, President of APPLE SUITES, INC., a Virginia
corporation, on behalf of the corporation.

                                                /s/ Jacquelyn B. Owens
                                                --------------------------------
                                                Notary Public, State of Virginia
                                                                        --------

                                                Printed Name Jacquelyn B. Owens
                                                             ------------------

                                                Commission Expires 6/30/03
                                                                   -------

STATE OF Virginia
         --------

CITY OF Richmond
        --------

          THIS INSTRUMENT was acknowledged before me on the 14th day of June,
                                                            ----
2001, by Glade M. Knight, President of APPLE SUITES MANAGEMENT, INC., a Virginia
-----
corporation, on behalf of the corporation.

                                                /s/ Jacquelyn B. Owens
                                                --------------------------------
                                                Notary Public, State of Virginia
                                                                        --------

                                                Printed Name Jacquelyn B. Owens
                                                             ------------------

                                                Commission Expires 6/30/03
                                                                   -------

<PAGE>

                                   SCHEDULE A
                                   ----------

                             DESCRIPTION OF PREMISES
                             -----------------------

                                    [OMITTED]<PAGE>

                                                                     EXHIBIT 4.3

                       ASSIGNMENT AND ASSUMPTION AGREEMENT
                       -----------------------------------
                             (Leases and Agreements)
                               (Beaverton, Oregon)

     THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, made and entered into as of this
15 day of June 2001, between HILTON HOSPITALITY, INC., a Nevada corporation, as
--        ----
successor-by-merger to Promus Hospitality Corporation, having an office c/o
Promus Hotels, Inc., 9336 Civic Center Drive, Beverly Hills, California 90210
("Assignor") and APPLE SUITES MANAGEMENT, INC., a Virginia corporation, having
an address at 9 North Third Street, Richmond, Virginia 23219 ("Assignee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

          That Assignor for ten dollars and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
hereby conveys, grants, bargains, sells, transfers, sets over, assigns,
releases, delivers and confirms to Assignee all of Assignor's right, title and
interest in and to (w) the leases and occupancy agreements identified on Exhibit
                                                                         -------
A hereto (the "Existing Leases"), (x) the agreements, documents and instruments
-
identified on Exhibit B hereto (the "Assigned Existing Agreements"), which shall
              ---------
include, without limitation, the Service Contracts, and (y) the leases of any
FF&E and other contracts permitting the use of any FF&E at the Improvements
identified on Exhibit C hereto (the "FF&E Leases").
              ---------

          Assignee hereby (i) expressly assumes the obligation for the
performance of any and all of the obligations of Assignor under the Existing
Leases, the Assigned Existing Agreements and the FF&E Leases in respect of the
period on or after the date hereof (the "Indemnified Matters") and (ii)
indemnifies, defends and holds harmless Assignor from and against any and all
claims, actions, demands, liabilities, suits, causes of action, damages, costs
or expenses (including, without limitation, attorneys' fees and disbursements)
relating to the Indemnified Matters. Assignor hereby agrees to indemnify, defend
and hold Assignee harmless from and against claims, actions, demands,
liabilities, suits, causes of action, damages, costs or expenses (including,
without limitation, attorneys' fees and disbursements) relating to the
obligations of Assignor under the Existing Leases, the Assigned Existing
Agreements and the FF&E Leases in respect of the period prior to the date
hereof.

          Terms not defined herein shall have the meanings ascribed thereto in
the Agreement of Sale dated June 7, 2001, between Hilton Hospitality, Inc.,
Chesterfield Village Hotel, LLC, and Apple Suites, Inc. ("Agreement of Sale").

          This Assignment and Assumption shall inure to the benefit of all
parties hereto and their respective heirs, successors and assigns.

<PAGE>

          THIS ASSIGNMENT IS MADE WITHOUT RECOURSE AND WITHOUT ANY
REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED) WHATSOEVER EXCEPT AS MAY
EXPRESSLY BE SET FORTH IN THE AGREEMENT OF SALE.

          IN WITNESS WHEREOF, the parties have executed this Assignment and
Assumption as of the day and year first above written.

                                          ASSIGNOR:
                                          --------

                                          HILTON HOSPITALITY, INC., a Nevada
                                          corporation, as successor-by-merger to
                                          Promus Hospitality Corporation

                                          By /s/ Mariel C. Albrecht
                                             ----------------------------------
                                                 Mariel C. Albrecht
                                                 Senior Vice President

                                          ASSIGNEE:
                                          --------

                                          APPLE SUITES MANAGEMENT, INC., a
                                          Virginia corporation

                                          By /s/ Glade M. Knight
                                             ----------------------------------
                                                 Glade M. Knight, President

Exhibit A - Existing Leases
---------
Exhibit B - Assigned Existing Agreements
---------
Exhibit C - FF&E Leases
---------

<PAGE>

                           Exhibit A - Existing Leases
                           ---------   ---------------

                                      NONE

                    Exhibit B - Assigned Existing Agreements
                    ---------   ----------------------------

     1.   Commercial Landscape Management Contract, dated November 17, 2000,
          with Dennis' Seven Dees Landscaping, Inc.

     2.   Maintenance Agreement, dated September 3, 1999, with Pavarini Business
          Communications, Inc.

     3.   Commercial Services Agreement, dated March 2, 2000, with Orkin
          Exterminating Company, Inc.

     4.   Hydraulic Elevator Maintenance Agreement, dated August 29, 1999, with
          Schindler Elevator Corporation.

     5.   Maintenance Agreement, dated June 17, 1998, with Xerox Corporation.

     6.   Software Service and Maintenance Agreement, dated April 3, 1998, with
          System 21(TM).

     7.   Music Service Agreement, dated June 25, 1998, with Entouch Systems, a
          Muzak Affiliate.

     8.   Central Station Fire Alarm Monitoring Agreement, dated June 24, 1998,
          with Advanced Services Corporation.

     9.   Entertainment Television Programming LodgeNet Guest Pay Agreement,
          dated July 25, 1998, with LodgeNet Entertainment Corporation.

     10.  Entertainment Television Programming Agreement, dated July 25, 1998,
          with Primestar by LodgeNet Entertainment.

                             Exhibit C - FF&E Leases
                             ---------   -----------

1.   Linen Rental Agreement, dated January 24, 2001, with New System Laundry
     LLC.

2.   Equipment and Software Lease, dated November 20, 1998, with Comdisco, Inc.

3.   Fax Equipment Lease, dated December 28, 2000, with Pacific Office
     Automation.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}]]