Document:

THIS MORTGAGE AND SECURITY  AGREEMENT  (the "Security  Instrument")  is
made as of June 1, 2002, by Polymer Research Corporation of America, a New York
corporation,  whose address is 2186 Mill Avenue,  Brooklyn,  New York 11234,  as
mortgagor  ("Borrower")  to Bayview  Financial  Trading Group,  L.P., a Delaware
limited  partnership,  whose  address is 2665 South  Bayshore  Drive,  Ste. 300,
Miami, Florida 33133, as mortgagee ("Lender").

                                    RECITALS:

Borrower,  by its  Promissory  Note of even date  herewith  given to Lender,  is
indebted to Lender in the principal sum of One Million Four Hundred Thousand and
No/100 Dollars  ($1,400,000.00)  in lawful money of the United States of America
(the Note together with all extensions, renewals,  modifications,  substitutions
and amendments  thereof shall  collectively be referred to as the "Note"),  with
interest from the date thereof at the rates set forth in the Note, principal and
interest to be payable in accordance  with the terms and conditions  provided in
the Note and with a maturity date of June 1, 2017.

 By its  execution  hereof,  Borrower  desires to secure the payment of the Debt
 (hereinafter  defined) and the performance of all of its obligations  under the
 Note and the  Other  Obligations  (hereinafter  defined)  and any and all other
 indebtedness now or hereafter owing by Borrower to Lender.

                         ARTICLE 1. - GRANTS OF SECURITY

Section 1.1.  PROPERTY  MORTGAGED.  Borrower does hereby  irrevocably  mortgage,
grant, bargain,  sell, pledge,  assign,  warrant,  transfer and convey to Lender
with mortgage  covenants upon the Statutory  Condition  and, as provided  and/or
authorized by applicable  law,  with the  STATUTORY  POWER OF SALE,  and grant a
security interest to Lender in, the following  property,  rights,  interests and
estates now owned,  or  hereafter  acquired  by  Borrower to the fullest  extent
permitted by applicable law (collectively, the "Property"):

         (a) LAND.  The real property  described in EXHIBIT "A" attached  hereto
and made a part hereof (the "Land");

         (b)  ADDITIONAL  LAND. All additional  lands,  estates and  development
rights  hereafter  acquired by Borrower for use in connection  with the Land and
the  development of the Land and all additional  lands and estates therein which
may, from time to time, by supplemental  mortgage or otherwise be expressly made
subject to the lien of this Security Instrument;

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

         (d) EASEMENTS.  All  easements,   servitudes,   rights-of-way  or  use,
rights, strips and gores of land, streets, ways, alleys, passages, sewer rights,
water,  water  courses,  water  rights and  powers,  air rights and  development
rights,  and all estates,  rights,  titles,  interests,  privileges,  liberties,
servitudes, tenements, hereditaments and appurtenances of any nature whatsoever,
in any way now or hereafter  belonging,  relating or  pertaining to the Land and
the Improvements and the reversion and reversions, remainder and remainders, and
all land lying in the bed of any street, road or avenue,  opened or proposed, in
front of or adjoining  the Land, to the center line thereof and all the estates,
rights,  titles,  interests,  dower and rights of dower,  courtesy and rights of
courtesy, property,  possession, claim and demand whatsoever, both at law and in
equity,  of Borrower of, in and to the Land and the  Improvements and every part
and parcel thereof, with the appurtenances thereto;

         (e) FIXTURES AND PERSONAL PROPERTY. All machinery,  equipment, fixtures
(including,  but not  limited  to,  all  heating,  air  conditioning,  plumbing,
lighting,  communications  and  elevator  fixtures)  trade  fixtures  and  other
property  of every kind and nature  whatsoever  owned by  Borrower,  or in which
Borrower has or shall have an interest, including without limitation,  letter of
credit rights,  deposit  accounts,  payment  intangibles,  investment  property,
electronic  chattel  paper,  timber  to be cut  and  farm  animals  and,  now or
hereafter  located upon the Land and the Improvements,  or appurtenant  thereto,
and usable in connection  with the present or future  operation and occupancy of
the Land and the Improvements and all building equipment, materials and supplies
of any nature  whatsoever  owned by Borrower,  or in which Borrower has or shall
have an interest,  now or hereafter  located upon the Land and the Improvements,
or  appurtenant  thereto,  or usable in  connection  with the  present or future
operation  and  occupancy of the Land and the  Improvements  (collectively,  the
"Personal  Property"),  and the right,  title and interest of Borrower in and to
any of the Personal Property which may be subject to any security interests,  as
defined in the Uniform  Commercial  Code, as adopted and enacted by the state or
states  where any of the Property is located (the  "Uniform  Commercial  Code"),
superior in lien to the lien of this Security  Instrument,  and all proceeds and
products of all of the above;

         (f)  LEASES AND  RENTS.  All  leases,  subleases  and other  agreements
affecting  the use,  enjoyment or occupancy of the Land and/or the  Improvements
heretofore  or  hereafter  entered  into  and  all  extensions,  amendments  and
modifications thereto, whether before or after the filing by or against Borrower
of any petition for relief under  Creditors  Rights Laws  (hereinafter  defined)
(the "Leases") and all right, title and interest of Borrower, its successors and
assigns therein and thereunder, including, without limitation, any guaranties of
the lessees' obligations thereunder,  cash or securities deposited thereunder to
secure the  performance by the lessees of their  obligations  thereunder and all
rents, additional rents, revenues, room revenues, accounts, accounts receivable,
issues and profits  (including  all oil and gas or other  mineral  royalties and
bonuses) from the Land and the  Improvements  whether paid or accruing before or
after the filing by or against  Borrower of any  petition  for relief  under the
Creditors  Rights Laws (the  "Rents")  and all  proceeds  from the sale or other
disposition  of the Leases  and the right to receive  and apply the Rents to the
payment of the Debt;

         (g) INSURANCE  PROCEEDS.  All proceeds of and any unearned  premiums on
any insurance policies covering the Property, including, without limitation, the
right to  receive  and  apply  the  proceeds  of any  insurance,  judgments,  or
settlements made in lieu thereof, for damage to the Property;

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

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         (i) TAX CERTIORARI All refunds, rebates or credits in connection with a
reduction in real estate taxes and assessments charged against the Property as a
result of tax certiorari or any applications or proceedings for reduction;

         (j)   CONVERSION   All  proceeds  of  the   conversion,   voluntary  or
involuntary, of any of the foregoing including, without limitation,  proceeds of
insurance and condemnation awards, into cash or liquidation claims;

         (k) RIGHTS. The right, in the name and on behalf of Borrower, to appear
in and defend any action or proceeding  brought with respect to the Property and
to commence  any action or  proceeding  to protect the interest of Lender in the
Property;

                 (l)  AGREEMENTS.  All  agreements,   contracts,   certificates,
instruments,  franchises,  permits,  licenses,  plans,  specifications and other
documents,  now or hereafter  entered into,  and all rights therein and thereto,
respecting  or pertaining to the use,  occupation,  construction,  management or
operation of the Land and any part thereof and any  Improvements  or  respecting
any  business or  activity  conducted  on the Land and any part  thereof and all
right, title and interest of Borrower therein and thereunder, including, without
limitation,  the right,  upon the  occurrence  and during the  continuance of an
Event of Default (hereinafter  defined), to receive and collect any sums payable
to Borrower thereunder;

         (m)  INTANGIBLES.  All trade names,  trademarks,  servicemarks,  logos,
copyrights,  goodwill,  books and  records and all other  intellectual  property
rights  and  general  intangibles  relating  to or used in  connection  with the
operation of the Property; and

         (n) OTHER  RIGHTS.  Any and all other  rights of Borrower in and to the
items set forth in Subsections (a) through (m) above.

Section 1.2.  ASSIGNMENT OF LEASES AND RENTS.  Borrower  hereby  absolutely  and
unconditionally assigns to Lender Borrower's right, title and interest in and to
all current and future Leases and Rents; it being intended by Borrower that this
assignment constitutes a present,  absolute assignment and not an assignment for
additional  security  only.  Notwithstanding  the  foregoing,  Lender  grants to
Borrower a revocable  license to collect and receive the Rents.  Borrower  shall
hold a portion of the Rents  sufficient to discharge all current sums due on the
Debt, for use in the payment of such sums.

Section  1.3.  SECURITY  AGREEMENT.  This  Security  Instrument  is  both a real
property  mortgage and a "security  agreement" within the meaning of the Uniform
Commercial Code. The Property  includes both real and personal  property and all
other  rights and  interests,  whether  tangible  or  intangible  in nature,  of
Borrower in the Property.  By executing and delivering this Security Instrument,
Borrower hereby grants to Lender,  as security for the Obligations  (hereinafter
defined),  a security  interest  in the  Personal  Property as well as all other
property and  interests  set forth in Section 1.1 herein to the full extent that
the same may be subject to the Uniform  Commercial  Code. If required by Lender,
Borrower  shall execute UCC-1  Financing  Statements  covering said property for
filing with the appropriate  county and/or state filing  offices.  In any event,
Lender is permitted to unilaterally  file a UCC-1 Financing  Statement  covering
all of the Property.

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<PAGE>

Section 1.4.  PLEDGE OF MONIES  HELD.  Borrower  hereby  pledges to and grants a
continuing  security  interest  in favor of  Lender  any and all  monies  now or
hereafter held by Lender, including,  without limitation,  any sums deposited in
the Escrow Fund (hereinafter  defined),  Net Proceeds  (hereinafter defined) and
condemnation awards or payments  (hereinafter  described) as additional security
for the  Obligations  until  expended or applied as  provided  in this  Security
Instrument.

                              CONDITIONS TO GRANT

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

PROVIDED,  HOWEVER,  these  presents  are upon the express  condition  that,  if
Borrower  shall  well and truly  pay to  Lender  the Debt at the time and in the
manner  provided in the Note and this  Security  Instrument,  shall  perform the
Other  Obligations  as set forth in this Security  Instrument and shall abide by
and comply with each and every  covenant and  condition  set forth herein and in
the Note,  these presents and the estate hereby  granted shall cease,  terminate
and be void,  except to the extent any provision  herein  provides that it shall
survive the repayment of the obligations.

                   ARTICLE 2. - DEBT AND OBLIGATIONS SECURED

Section 2.1.  DEBT.  This Security  Instrument and the grants,  assignments  and
transfers  made  pursuant  to the terms  hereafter  are given for the purpose of
securing the payment of the  following,  in such order of priority as Lender may
determine in its sole discretion (the "Debt"):

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

         (b)  interest,  default  interest,  late  charges  and other  sums,  as
provided in the Note, this Security  Instrument or the Other Security  Documents
(hereinafter defined);

         (c) the Prepayment Consideration (defined in the Note), if any;

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

         (e) all sums advanced  pursuant to this Security  Instrument to protect
and preserve the Property and the lien and the security interest created hereby;
and

         (f) all sums  advanced  and costs and  expenses  incurred  by Lender in
connection with the Debt or any part thereof, any renewal,  extension, or change
of or  substitution  for the Debt or any part  thereof,  or the  acquisition  or
perfection of the security therefor,  whether made or incurred at the request of
Borrower or Lender; and

         (g)  any  and all  additional  advances  made  by  Lender  to  complete
Improvements or to preserve or protect the Property,  or for taxes,  assessments
or insurance premiums,  or for the performance of any of Borrower's  obligations
hereunder or under the Other Security Documents (hereinafter defined).

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<PAGE>

Section  2.2.  OTHER  OBLIGATIONS.  This  Security  Instrument  and the  grants,
assignments  and transfers  made pursuant to the terms hereof are also given for
the  purpose  of  securing  the   performance   of  the  following  (the  "Other
Obligations"):

         (a) all other obligations of Borrower contained herein;

         (b) each obligation of Borrower  contained in the Note and in the Other
Security Documents; and

         (c) each  obligation of Borrower  contained in any renewal,  extension,
amendment,   modification,   consolidation,   change  of,  or   substitution  or
replacement  for, all or any part of the Note,  this Security  Instrument or the
Other Security Documents.

         (d) any and all other  indebtedness  now or hereafter owing by Borrower
to Lender.

Section 2.3. DEBT AND OTHER OBLIGATIONS.  Borrower's obligations for the payment
of the Debt and the  performance of the Other  Obligations  shall be referred to
collectively as the "Obligations."

Section  2.4.  PAYMENTS. Unless  payments  are made in the  required  amount in
immediately available funds at the place where the Note is payable,  remittances
in payment of all or any part of the Debt shall not,  regardless  of any receipt
or credit  issued  therefor,  constitute  payment  until the required  amount is
actually  received by Lender in funds  immediately  available at the place where
the Note is payable (or any other place as Lender,  in Lender's sole discretion,
may have  established  by delivery of written  notice  thereof to Borrower)  and
shall be made and accepted  subject to the condition that any check or draft may
be handled for collection in accordance with the practice of the collecting bank
or banks; provided,  however, Lender shall not be required to accept payment for
any  Obligation  in cash.  Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only,  and the
failure to pay the entire  amount then due shall be and  continue to be an Event
of Default.

                         ARTICLE 3. - BORROWER COVENANTS

Borrower covenants and agrees that:

Section 3.1.  PAYMENT OF DEBT AND PERFORMANCE OF OBLIGATIONS.  Borrower will pay
the Debt at the time and in the manner provided in the Note and in this Security
Instrument  without  relief  from  valuation  or  appraisement  laws,  and shall
promptly and fully perform all of the Obligations in this Security Agreement and
the Other Security Documents (hereinafter defined).

Section 3.2.  INCORPORATION  BY REFERENCE.  All the  covenants,  conditions  and
agreements  contained in (a) the Note and (b) all and any of the documents other
than the Note or this Security  Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender,  which wholly or partially secure or
guaranty  payment  of the  Note  or are  otherwise  executed  and  delivered  in
connection with the Loan (the "Other Security Documents") are hereby made a part
of this  Security  Instrument  to the same  extent and with the same force as if
fully set forth herein.

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<PAGE>

Section 3.3. INSURANCE.

         (a) Borrower  shall  obtain and  maintain,  or cause to be  maintained,
insurance  for  Borrower  and the  Property  providing  at least  the  following
coverages:

               (i)   PROPERTY   INSURANCE.   Insurance   with   respect  to  the
          Improvements and Personal  Property  insuring against any peril now or
          hereafter included within the classification  "Special Perils" or "All
          Risk" in amounts at all times  sufficient  to  prevent  Borrower  from
          becoming a co-insurer  within the terms of the applicable  policies on
          an agreed amount basis and under applicable  insurance law, but in any
          event such  insurance  shall be maintained  in an amount which,  after
          application of deductible,  shall be equal to the full insurable value
          of the  Improvements and Personal  Property,  the term "full insurable
          value" to mean the actual  replacement  cost of the  Improvements  and
          Personal Property  (without taking into account any depreciation,  and
          exclusive of excavations,  footings and  foundations,  landscaping and
          paving) determined  annually by an insurer,  a recognized  independent
          insurance  broker or an  independent  appraiser  selected  and paid by
          Borrower and in no event less than the coverage  required  pursuant to
          the terms of any Lease;

               (ii) LIABILITY INSURANCE.  Commercial general liability insurance
          on the so-called "occurrence" form, including bodily injury, death and
          property  damage  liability,  insurance  against  any and all  claims,
          including all legal liability to the extent insurable and imposed upon
          Lender and all court costs and attorneys'  fees and expenses,  arising
          out of or connected  with the  possession,  use,  leasing,  operation,
          maintenance  or  condition  of the  Property  in such  amounts  as are
          generally  available  at  commercially  reasonable  premiums  and  are
          generally required by institutional  lenders for properties comparable
          to the  Property  but in any event for a limit  per  occurrence  of at
          least $1,000,000 and an annual aggregate of at least $3,000,000;

               (iii)  WORKERS'   COMPENSATION   INSURANCE.   Statutory  workers'
          compensation  insurance  with  respect  to any  work on or  about  the
          Property;

               (iv) BUSINESS INTERRUPTION.  Business interruption and/or loss of
          "rental  income"  insurance  in an  amount  sufficient  to  avoid  any
          co-insurance penalty and to provide proceeds which will cover a period
          of not less than twelve (12) months from the date of casualty or loss,
          the  term  "rental  income"  to mean  the sum of (A)  the  total  then
          ascertainable  Rents  payable  under  the  Leases  and (B)  the  total
          ascertainable  amount of all other  amounts to be received by Borrower
          from third  parties  which are the legal  obligation  of the  tenants,
          reduced to the extent such  amounts  would not be received  because of
          operating  expenses not incurred during a period of  non-occupancy  of
          that portion of the Property then not being occupied;

               (v)  BOILER  AND  MACHINERY  INSURANCE.  Broad  form  boiler  and
          machinery  insurance  (without  exclusion for explosion)  covering all
          boilers or other pressure  vessels,  machinery,  and equipment located
          in, on or about the Property and  insurance  against loss of occupancy
          or use arising from any  breakdown  in such  amounts as are  generally
          required by  institutional  lenders for  properties  comparable to the
          Property;

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<PAGE>

               (vi) FLOOD INSURANCE.  If required  pursuant to the terms hereof,
          flood  insurance  in an amount at least equal to the lesser of (a) the
          principal  balance of the Note,  or (b) the maximum  limit of coverage
          available for the Property under the National  Flood  Insurance Act of
          1968, The Flood Disaster Protection Act of 1973 and the National Flood
          Insurance  Reform  Act of 1994,  as each may be  amended  (the  "Flood
          Insurance Acts");

               (vii)  BUILDER'S  RISK  INSURANCE.  At  all  times  during  which
          structural  construction,  repairs or alterations  are being made with
          respect to the  Improvements  (A)  owner's  contingent  or  protective
          liability  insurance covering claims not covered by or under the terms
          or  provisions of the above  mentioned  commercial  general  liability
          insurance  policy;  and (B) the  insurance  provided for in Subsection
          3.3(a)(i)  written in a so-called  builder's risk completed value form
          (1) on a  non-reporting  basis,  (2) against all risks insured against
          pursuant to Subsection  3.3(a)(i),  (3) including permission to occupy
          the  Property,  and (4)  with an  agreed  amount  endorsement  waiving
          co-insurance provisions; and

               (viii) OTHER INSURANCE.  Such other insurance with respect to the
          Property  against  loss  or  damage  of the  kinds  from  time to time
          customarily  insured  against  and in  such  amounts  as  required  by
          institutional lenders for properties comparable to the Property.

         (b) All insurance provided for herein shall be obtained under valid and
enforceable  policies (the  "Policies" or in the singular,  the  "Policy"),  and
shall be issued by either the insurers who insure the  Improvements  on the date
of this Security  Instrument or one or more other  domestic  primary  insurer(s)
having a general  policy rating of A or better and a financial  class of VIII or
better by A.M. Best  Company,  Inc. (or if a rating of A.M. Best Company Inc. is
no longer available, a similar rating from a similar or successor service) (each
such insurer shall be referred to below as a "Qualified Insurer").  All insurers
providing insurance required by this Security Instrument shall be authorized and
admitted to issue  insurance in the state in which the Property is located.  The
Policy  referred  to in  Subsection  3.3(a)(ii)  above shall name Lender as an
additional insured and the Policies referred to in Subsection  3.3(a)(i),  (iv),
(v),  (vi) and (vii),  and as  applicable  (viii),  above shall provide that all
proceeds  be  payable  to  Lender.  The  Policies  referred  to  in  Subsections
3.3(a)(i),   (v),   (vi)  and  (vii)   shall  also   contain:   (i)  a  standard
"noncontributory  mortgagee" endorsement or its equivalent relating, INTER ALIA.
to recovery by Lender notwithstanding the negligent or willful acts or omissions
of Borrower; (ii) a waiver of subrogation endorsement as to Lender; and (iii) an
endorsement  providing for a deductible per loss of an amount not more than that
which is customarily  maintained by prudent owners of similar  properties in the
general  vicinity  of the  Property,  but in no event in excess OF  $5,000.  The
Policy  referred to in Subsection  3.3(a)(i)  above shall  provide  coverage for
contingent  liability  from  Operation of Building  Laws,  Demolition  Costs and
Increased Cost of Construction Endorsements,  together with an "Ordinance or Law
Coverage"  or   "Enforcement"   endorsement  to  the  extent  available  in  the
jurisdiction in which the Property is located.  All Policies shall contain (i) a
provision that such Policies  shall not be denied  renewal,  materially  changed
(other than to increase  the coverage  provided),  canceled or  terminated,  nor
shall they expire,  without at least thirty (30) days' prior  written  notice to
Lender in each instance;  and (ii) include  effective  waivers by the insurer of
all claims for applicable premiums ("Insurance Premiums") against any mortgagee,
loss payees,  additional  insureds  and named  insureds  (other than  Borrower).
Certificates of insurance with respect to all renewal and  replacement  Policies
shall be delivered to Lender not less than twenty (20) days prior to the

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expiration date of any of the Policies required to be maintained hereunder which
certificates  shall bear  notations  evidencing  payment of Insurance  Premiums.
Originals or  certificates  of such  replacement  Policies shall be delivered to
Lender promptly after  Borrower's  receipt thereof but in any case within thirty
(30) days after the effective  date thereof.  If Borrower  fails to maintain and
deliver to Lender the original Policies or certificates of insurance required by
this Security Instrument,  upon ten (10) days' prior notice to Borrower,  Lender
may procure such insurance at Borrower's sole cost and expense.

         (c) Borrower shall comply with all insurance requirements and shall not
bring  or keep or  permit  to be  brought  or kept any  article  upon any of the
Property  or cause or permit  any  condition  to exist  thereon  which  would be
prohibited  by an  insurance  requirement,  or would  invalidate  the  insurance
coverage  required  hereunder to be maintained by Borrower on or with respect to
any part of the Property.

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

Section 3.4. PAYMENT OF TAXES, ETC.

         (a) Borrower shall promptly pay by the date same are initially  payable
all taxes, assessments,  impact fees, levies, inspection and license fees, water
rates,  sewer  rents  and other  governmental  impositions,  including,  without
limitation,  vault and meter  charges  and  license  fees for the use of vaults,
chutes and similar areas adjoining the Land, now or hereafter levied or assessed
or imposed  against the Property or any part thereof (the "Taxes") not paid from
the Escrow Fund (hereinafter defined), all ground rents, maintenance charges and
similar  charges,  now or  hereafter  levied or assessed or imposed  against the
Property or any part thereof (the "Other Charges"),  and all charges for utility
services provided to the Property as same become due and payable.  Borrower will
deliver to Lender,  receipts or other,  evidence satisfactory to Lender that the
Taxes,  Other Charges and utility  service  charges have been so paid or are not
then  delinquent.  Borrower shall not suffer and shall promptly cause to be paid
and discharged any lien or charge  whatsoever,  which may be or become a lien or
charge  against the  Property,  except to the extent sums  sufficient to pay all
Taxes and Other Charges have been deposited  with Lender in accordance  with the
terms of this Security Instrument.

         (b) After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due  diligence,  the amount or  validity or  application  in
whole or in part of any of the Taxes,  provided that (i) no Event of Default has
occurred and is continuing  under the Note,  this Security  Instrument or any of
the Other  Security  Documents,  (ii)  Borrower is  permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt affecting
the Property,  (iii) such  proceeding  shall suspend the collection of the Taxes
from Borrower and from the Property or Borrower shall have paid all of the Taxes
under protest, (iv) such proceeding shall be permitted under and be conducted in
accordance  with the  provisions of any other  instrument  to which  Borrower is
subject and shall not constitute a default thereunder,  (v) neither the Property

                                       8
<PAGE>

nor any part  thereof  or  interest  therein  will be in danger  of being  sold,
forfeited,  terminated,  canceled or lost and (vi) Borrower shall have deposited
with Lender adequate reserves  (determined by Lender in its sole discretion) for
the payment of the Taxes,  together  with all  interest and  penalties  thereon,
unless Borrower has paid all of the Taxes under protest, and Borrower shall have
furnished such other security as may be required in the proceeding, or as may be
reasonably  requested  by Lender to insure the payment of any  contested  Taxes,
together with all interest and penalties thereon,  taking into consideration the
amount in the Escrow Fund available for payment of Taxes.

Section 3.5.  ESCROW FUND.  In addition to the initial  deposits with respect to
Taxes and Insurance Premiums made by Borrower to Lender on the date hereof to be
held by Lender in escrow,  Borrower shall pay to Lender on the first day of each
calendar  month (a)  one-twelfth of an amount which would be sufficient to cover
the payment of the Taxes payable,  or estimated by Lender to be payable,  during
the next ensuing twelve (12) months and (b) one-twelfth of an amount which would
be sufficient to pay the Insurance  Premiums due for the renewal of the coverage
afforded by the Policies upon the expiration thereof (the amounts in (a) and (b)
above  shall be called the  "Escrow  Fund").  Borrower  agrees to notify  Lender
immediately  of any  changes to the  amounts,  schedules  and  instructions  for
payment of any Taxes and Insurance Premiums of which it has or obtains knowledge
and  authorizes  Lender or its agent to obtain the bills for Taxes directly from
the appropriate  taxing authority.  The Escrow Fund and the payments of interest
or principal or both,  payable  pursuant to the Note shall be added together and
shall be paid as an  aggregate  sum by  Borrower to Lender.  Provided  there are
sufficient  amounts in the Escrow  Fund and no Event of Default  exists,  Lender
shall be obligated to pay the Taxes and Insurance Premiums as they become due on
their  respective due dates on behalf of Borrower by applying the Escrow Fund to
the  payments  of such  Taxes  and  Insurance  Premiums  required  to be made by
Borrower.  If the amount of the Escrow Fund shall exceed the amounts  reasonably
necessary for the payment of Taxes and Insurance Premiums,  Lender shall, in its
discretion,  return any excess to Borrower or credit such excess  against future
payments to be made to the Escrow Fund.  In allocating  such excess,  Lender may
deal  with the  person  shown on the  records  of  Lender to be the owner of the
Property. If the Escrow Fund is not sufficient to pay the items set forth in (a)
and (b) above as and when they are due,  Borrower  shall promptly pay to Lender,
upon demand,  an amount which Lender shall reasonably  estimate as sufficient to
make up the deficiency. Unless otherwise required by applicable state or federal
law,  the Escrow Fund shall not  constitute  a trust fund and may be  commingled
with other monies held by Lender.  Unless otherwise required by applicable state
or federal  law,  no earnings or interest on the Escrow Fund shall be payable to
Borrower.  Upon  payment  in full  of the  Debt,  and  full  performance  of the
Obligations,  the funds  remaining in the Escrow Fund, if any,  shall be paid to
the record owner of the Land encumbered by the lien of this Security  Instrument
within  a  reasonable   time  following  the  date  of  such  full  payment  and
performance.

Section 3.6.  CONDEMNATION.  Borrower  shall  promptly give Lender notice of the
actual  or  threatened  commencement  of  any  condemnation  or  eminent  domain
proceeding and shall deliver to Lender copies of any and all papers,  documents,
surveys  and   correspondence   served  or  received  in  connection  with  such
proceedings.  Notwithstanding any taking by any public or quasi-public authority
through eminent domain or otherwise (including,  but not limited to any transfer
made in lieu of or in  anticipation  of the exercise of such  taking),  Borrower
shall  continue to pay the Debt at the time and in the manner  provided  for its
payment in the Note and in this  Security  Instrument  and the Debt shall not be

                                       9
<PAGE>

reduced until any award or payment  therefor  shall have been actually  received
and applied by Lender,  after the  deduction of expenses of  collection,  to the
reduction or discharge of the Debt.  Lender shall not be limited to the interest
paid on the award by the  condemning  authority but shall be entitled to receive
out of the award  interest at the rate or rates  provided in the Note.  Borrower
hereby assigns and shall cause all awards and payments made in any  condemnation
or eminent domain  proceeding,  to be paid directly to Lender.  Lender may apply
any award or payment to the  reduction  or  discharge of the Debt whether or not
then due and payable. If the Property is sold, through foreclosure or otherwise,
prior to the  receipt by Lender of the award or payment,  Lender  shall have the
right,  whether or not a deficiency judgment on the Note shall have been sought,
recovered  or denied,  to receive  the award or  payment,  or a portion  thereof
sufficient to pay the Debt. In addition, Borrower authorizes Lender, at Lender's
option but without any obligation, as attorney-in-fact for Borrower to commence,
appear  in and  prosecute,  in  Borrower's  or  Lender's  name,  any  action  or
proceeding relating to any condemnation (which term for purposes hereunder shall
mean any  action  regarding  damage  or taking  by any  governmental  authority,
quasi-governmental  authority,  any party having power of  condemnation,  or any
transfer by private sale in lieu thereof) or other taking of the Property and to
settle or compromise  any claim in connection  with such  condemnation  or other
taking.  Notwithstanding  any application of condemnation  proceeds by Lender to
the Debt,  Borrower shall repair,  restore and rebuild the Property  affected by
the  condemnation  to a  condition  as  close  to that  existing  prior  to such
condemnation as is reasonable practicable,  and otherwise sufficient for the use
and enjoyment thereof as determined by Lender.

Section 3.7 CASUALTY.

         (a) If all or any part of the Property shall be damaged or destroyed by
a casualty  covered by insurance,  Lender is authorized  and empowered  (but not
obligated or required) to make proof of loss,  damage or  destruction  under any
policies of insurance  required under this  Mortgage.  All proceeds of insurance
shall be paid to Lender and shall be applied  first to the  payment of all costs
and  expenses  (including  without  limitation  reasonable  attorneys'  fees and
expenses)  incurred by Lender in obtaining  such  proceeds,  and second,  at the
option of Lender, either to the payment of the Debt, whether or not due, in such
order as Lender may elect, or to the  restoration,  repair or replacement of the
Property.  If Lender  elects,  in its sole  discretion,  to apply the  insurance
proceeds  to the  restoration,  repair  or  replacement  of the  Property,  such
proceeds  shall be disbursed  to or for  Borrower's  account as work  progresses
pursuant  to a  construction  and  disbursing  agreement  in  form  and  content
satisfactory to Lender in its sole  discretion.  The election by Lender to apply
the insurance proceeds to the restoration, repair or replacement of the Property
shall not affect the lien of this  Security  Instrument  or affect or reduce the
sums secured  hereby  (including  but not limited to the  continuing  accrual of
interest  under the Note);  and this  Security  Instrument  shall remain in full
force  and  effect,  and  Borrower  shall  not  be  excused  in the  payment  or
performance thereof.

         (b) If all or any part of the Property shall be damaged or destroyed by
a casualty  (whether or not covered by insurance),  Borrower  shall  immediately
give written notice thereof to Lender and the appropriate  insurer,  if any, and
Borrower shall promptly and diligently,  at Borrower's sole cost and expense and
regardless of whether the  insurance  proceeds,  if any,  shall be sufficient or
available  for the  purpose,  restore,  repair and rebuild  the  Property to the
equivalent of its condition immediately prior to the casualty.

                                       10
<PAGE>

         (c) If any work  required  to be  performed  under this  Section  shall
involve an estimated  expenditure  of more than Ten Thousand and No/100  Dollars
($10,000.00),  no such work shall be undertaken  until plans and  specifications
thereof, prepared by an architect satisfactory to Lender, have been submitted to
and approved in writing by Lender.

Section 3.8. LEASES AND RENTS.

         (a)  Borrower  may  from  time  to  time  enter  into  proposed  Leases
(including  the renewals or  extensions of existing  Leases ("a Renewal  Lease")
without the prior written consent of Lender, so long as (A) there is no Event of
Default (or other default, but for the passing of any applicable grace period or
cure period would be an Event of Default) and (B) such proposed Lease or Renewal
Lease (i)  provides  for rental  rates and terms  comparable  to existing  local
market rates and terms  (taking into account the type and quality of the tenant)
as of the date such Lease is  executed  by  Borrower  (unless,  in the case of a
Renewal  Lease,  the rent  payable  during such  renewal,  or a formula or other
method to compute such rent, is provided for in the original Lease),  (ii) is an
arms-length  transaction with a bona fide, independent third party tenant, (iii)
does not have a materially  adverse effect on the value of the Property taken as
a whole,  (iv) is subject and  subordinate  to the Security  Instrument  and the
lessee  thereunder  agrees to subordinate the Lease or Renewal Lease to the lien
of this Security  Instrument,  and (v) if required by Lender,  is written on the
standard  form of lease  approved by Lender.  All  proposed  Leases which do not
satisfy the  requirements  set forth in this  paragraph  shall be subject to the
prior approval of Lender and its counsel, at Borrower's expense.  Borrower shall
promptly  deliver to Lender copies of all Leases which are entered into pursuant
to this Subsection together with Borrower's  certification that it has satisfied
all of the conditions of this Subsection.

         (b) Borrower (i) shall observe and perform all the obligations  imposed
upon the lessor under the Leases and shall not do or permit to be done  anything
to impair the value of any of the  Leases as  security  for the Debt;  (ii) upon
request,  shall  promptly  send copies to Lender of all notices of default which
Borrower  shall send or  receive  thereunder;  (iii)  shall  enforce  all of the
material terms,  covenants and conditions  contained in the Leases upon the part
of the tenant thereunder to be observed or performed; (iv) shall not collect any
of the Rents more than one (1) month in advance (security  deposits shall not be
deemed Rents collected in advance);  (v) shall not execute any other  assignment
of the lessor's  interest in any of the Leases or the Rents;  and (vi) shall not
consent to any  assignment of or  subletting  under any Leases not in accordance
with their terms, without the prior written consent of Lender.

         (c) Borrower may, without the consent of Lender, amend, modify or waive
any provisions of any Lease or terminate, reduce rents under, accept a surrender
of space  under,  or shorten  the term of, any Lease  (including  any  guaranty,
letter of credit or other credit  support with respect  thereto)  provided  that
such action  (taking into account,  in the case of a  termination,  reduction in
rent,  surrender of space or shortening of term, the planned  alternative use of
the affected  space) does not have a materially  adverse  effect on the value of
the Property taken as a whole and provided that such Lease, as amended, modified
or waived,  is otherwise in compliance  with the  requirements  of this Security
Instrument and any  subordination  agreement binding upon Lender with respect to
such  Lease.  A  termination  of a Lease with a tenant who is in default  beyond
applicable  notice and grace periods shall not be considered an action which has

                                       11
<PAGE>

a materially  adverse effect on the value of the Property taken as a whole.  Any
amendment, modification, waiver, termination, rent reduction, space surrender or
term  shortening  which  does not  satisfy  the  requirements  set forth in this
Subsection shall be subject to the prior approval of Lender and its counsel,  at
Borrower's  expense.  Borrower  shall  promptly  deliver  to  Lender  copies  of
amendments,  modifications  and waivers  which are entered into pursuant to this
Subsection  together with Borrower's  certification that it has satisfied all of
the conditions of this Subsection.

         (d) Notwithstanding anything contained herein to the contrary, Borrower
shall not,  without the prior  written  consent of Lender,  enter  into,  renew,
extend,  amend, modify, waive any provisions of, terminate,  reduce rents under,
accept a surrender of space under, or shorten the term of, any Major Lease.  The
term  "Major  Lease"  shall  mean any  Lease  under  which the base  rents  will
contribute  in  excess  of twenty  percent  (20%) of the gross  cash flow of the
Property,  together with any instrument guaranteeing or providing credit support
therefor.

Section 3.9. MAINTENANCE AND USE OF PROPERTY.  Borrower shall cause the Property
to be maintained in a good and safe condition and repair.  The  Improvements and
the Personal  Property  shall not be removed,  demolished or materially  altered
(except  for  normal  replacement  of the  Personal  Property  with  replacement
property of equal or greater  value)  without  the  consent of Lender.  Borrower
shall promptly repair,  replace or rebuild any part of the Property which may be
destroyed by any casualty,  or become damaged,  worn or dilapidated or which may
be affected by any condemnation or taking  proceeding and shall complete and pay
for any  structure at any time in the process of  construction  or repair on the
Land.  Borrower  shall not  initiate,  join in,  acquiesce in, or consent to any
change  in any  private  restrictive  covenant,  zoning  law or other  public or
private restriction,  limiting,  defining or changing the uses which may be made
of the Property or any part thereof.  If under applicable  zoning provisions the
use of all or any  portion of the  Property is or shall  become a  nonconforming
use,  Borrower will not cause or permit the nonconforming use to be discontinued
or the  nonconforming  Improvement to be abandoned  without the express  written
consent  of Lender,  and  Borrower  shall  take such  other  steps as Lender may
require to establish the legality of such non-conforming use.

Section  3.10.  WASTE.  Borrower  shall not  commit  or suffer  any waste of the
Property  or make any  change in the use of the  Property  which will in any way
materially  increase  the  risk of  fire  or  other  hazard  arising  out of the
operation  of the  Property,  or take any action that might  invalidate  or give
cause for  cancellation  of any  Policy,  or  substantially  increase  the rates
thereunder,  or do or permit  to be done  thereon  anything  that may in any way
impair the value of the  Property or the security of this  Security  Instrument.
Borrower  will not,  without  the prior  written  consent of Lender,  permit any
drilling  or  exploration  for or  extraction,  removal,  or  production  of any
minerals from the surface or the subsurface of the Land, regardless of the depth
thereof or the method of mining or extraction thereof.

Section 3.11. COMPLIANCE WITH LAWS.

         (a)  Borrower  shall  promptly  comply  with all  existing  and  future
federal,  state and  local  laws,  orders,  ordinances,  governmental  rules and
regulations  or  court  orders  affecting  the  Property,  and the use  thereof,
including any Environmental Law (hereinafter defined) ("Applicable Laws").

                                       12
<PAGE>

         (b) Borrower shall from time to time,  upon Lender's  request,  provide
Lender  with  evidence  reasonably  satisfactory  to  Lender  that the  Property
complies with all Applicable  Laws or is exempt from  compliance with Applicable
Laws.

         (c)  Notwithstanding any provisions set forth herein or in any document
regarding  Lender's approval of alterations of the Property,  Borrower shall not
alter the  Property in any manner  which would  materially  increase  Borrower's
responsibilities  for compliance  with Applicable Laws without the prior written
approval of Lender. Lender's approval of the plans,  specifications,  or working
drawings for  alterations  of the Property  shall  create no  responsibility  or
liability on behalf of Lender for their  completeness,  design,  sufficiency  or
their  compliance  with  Applicable  Laws.  The foregoing  shall apply to tenant
improvements  constructed  by  Borrower  or by any of its  tenants.  Lender  may
condition any such approval  upon receipt of a  certificate  of compliance  with
Applicable  Laws  from an  independent  architect,  engineer,  or  other  person
acceptable to Lender.

         (d)  Borrower  shall  give  prompt  notice to Lender of the  receipt by
Borrower of any notice  related to a violation  or  threatened  violation of any
Applicable  Laws  and of the  commencement  or  threatened  commencement  of any
proceedings or investigations which relate to compliance with Applicable Laws.

         (e) After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal  proceedings,  promptly initiated and conducted
in good  faith  and  with due  diligence,  the  Applicable  Laws  affecting  the
Property,  provided  that (i) no Event of Default has occurred and is continuing
under the Note, this Security Instrument or any of the Other Security Documents;
(ii) Borrower is permitted to do so under the provisions of any other  mortgage,
deed of  trust  or deed to  secure  debt  affecting  the  Property;  (iii)  such
proceeding  shall be permitted  under and be conducted  in  accordance  with the
provisions of any other  instrument to which Borrower or the Property is subject
and shall not constitute a default  thereunder;  (iv) neither the Property,  any
part  thereof or  interest  therein,  any of the tenants or  occupants  thereof,
Borrower,  nor Lender shall be affected in any material  adverse way as a result
of such proceeding; (v) non-compliance with the Applicable Laws shall not impose
civil or criminal  liability on Borrower or Lender; and (vi) Borrower shall have
furnished to Lender all other items reasonably requested by Lender.

Section 3.12. BOOKS AND RECORDS

         (a) Borrower and any Guarantors (hereinafter defined) and Indemnitor(s)
(hereinafter  defined), if any, shall keep adequate books and records of account
in accordance with generally  accepted  accounting  principles  ("GAAP"),  or in
accordance  with  other  methods  acceptable  to Lender in its sole  discretion,
consistently applied and furnish to Lender:

               (i) monthly (or if the Loan (defined below) has been  securitized
          or sold as a whole loan by  Lender,  quarterly)  and annual  certified
          rent rolls  signed and dated by Borrower,  detailing  the names of all
          tenants of the Improvements,  the portion of Improvements  occupied by
          each tenant,  the base rent and any other  charges  payable under each
          Lease and the term of each Lease,  including the expiration  date, the
          extent to which any  tenant is in  default  under any  Lease,  and any
          other information as is reasonably  required by Lender,  within twenty
          (20) days after the end of each calendar month, thirty (30) days after
          the end of each  fiscal  quarter or sixty (60) days after the close of
          each fiscal year of Borrower, as applicable;

                                       13
<PAGE>

               (ii) quarterly and annual  operating  statements of the Property,
          prepared  and  certified  by Borrower in the form  required by Lender,
          detailing  the revenues  received,  the expenses  incurred and the net
          operating  income  before  and  after  debt  service   (principal  and
          interest) and major capital improvements for each month and containing
          appropriate  year to date  information,  within twenty (20) days after
          the end of each calendar month, thirty (30) days after the end of each
          fiscal  quarter or sixty (60) days after the close of each fiscal year
          of Borrower, as applicable;

               (iii) an annual operating statement of the Property detailing the
          total revenues received,  total expenses  incurred,  total cost of all
          capital  improvements,  total debt service and total cash flow,  to be
          prepared and certified by Borrower in the form required by Lender,  or
          if required by Lender, an audited annual operating  statement prepared
          and certified by an independent certified public accountant acceptable
          to Lender,  within sixty (60) days after the close of each fiscal year
          of Borrower; and

               (iv)  quarterly  and  annual  balance  sheet and  profit and loss
          statements of Borrower,  any Guarantors and any  Indemnitor(s)  in the
          form  required by Lender,  prepared and  certified  by the  respective
          Borrower,  Guarantors and/or Indemnitor(s),  or if required by Lender,
          audited  financial  statements  prepared by an  independent  certified
          public accountant  acceptable to Lender, within thirty (30) days after
          the end of each  fiscal  quarter or sixty (60) days after the close of
          each fiscal year of Borrower,  Guarantors  and  Indemnitor(s),  as the
          case may be; and

               (v) within  sixty (60) days after the close of each fiscal  year,
          copies of each  Borrower's,  Guarantor's  and  Indemnitor's  state and
          federal income tax returns,  as same had been filed,  and certified by
          such party as true and complete.

         (b)  Upon  request  from  Lender,   Borrower,  any  Guarantor  and  any
Indemnitor shall furnish in a timely manner to Lender:

               (i)  a  property   management   report  for  the  Property,   any
          information  reasonably  requested by Lender, in reasonable detail and
          certified  by Borrower  (or an  officer,  general  partner,  member or
          principal of Borrower if Borrower is not an individual) to be true and
          complete, but no more frequently than quarterly; and

               (ii) an  accounting  of all security  deposits held in connection
          with any  Lease of any part of the  Property,  including  the name and
          identification  number of the accounts in which such security deposits
          are held, the name and address of the financial  institutions in which
          such security  deposits are held and the name of the person to contact
          at such  financial  institution,  along with any  authority or release
          necessary  for Lender to obtain  information  regarding  such accounts
          directly from such financial institutions.

         (c) Borrower,  any Guarantor and any  Indemnitor  shall furnish  Lender
with such other additional financial or management  information (including State
and Federal tax returns) as may, from time to time,  be  reasonably  required by
Lender in form and substance satisfactory to Lender.

                                       14
<PAGE>

         (d) Borrower,  any Guarantor and any Indemnitor shall furnish to Lender
and its agents convenient  facilities for the examination,  copying and audit of
any such books and records.

Section 3.13.  PAYMENT FOR LABOR AND MATERIALS.  Borrower will promptly pay when
due all bills  and  costs for  labor,  materials,  and  specifically  fabricated
materials  incurred in connection with the Property and never permit to exist in
respect of the Property or any part thereof any lien or security interest,  even
though inferior to the liens and the security interests hereof, and in any event
never  permit to be  created or exist in  respect  of the  Property  or any part
thereof any other or additional  lien or security  interest other than the liens
or security  interests  hereof,  except for the  Permitted  Exceptions  (defined
below).

Section  3.14.  PERFORMANCE  OF OTHER  AGREEMENTS.  Borrower  shall  observe and
perform each and every term to be observed or performed by Borrower  pursuant to
the terms of any agreement or recorded instrument affecting or pertaining to the
Property,  or given by Borrower to Lender for the purpose of further securing an
Obligation and any amendments, modifications or changes thereto.

Section 3.15. CHANGE OF NAME,  IDENTITY OR STRUCTURE.  Borrower shall not change
Borrower's  name  identity  (including  its trade  name or names)  or, if not an
individual,   Borrower's  corporate,  partnership  or  other  structure  without
notifying  the Lender of such change in writing at least  thirty (30) days prior
to the effective  date of such change and, in the case of a change in Borrower's
structure, without first obtaining the prior written consent of the Lender.

Section 3.16.  EXISTENCE.  Borrower will continuously maintain (a) its existence
and shall not dissolve or permit its dissolution,  (b) its rights to do business
in the state  where the  Property is located  and (c) its  franchises  and trade
names.

Section 3.17. MANAGEMENT.  The Property shall be managed by either: (a) Borrower
or an entity  affiliated  with  Borrower  and  approved by Lender for so long as
Borrower or said  affiliated  entity is managing  the  Property in a first class
manner; or (b) a professional  property  management  company approved by Lender.
Management by an affiliated entity or a professional property management company
shall be pursuant to a written  agreement  approved by Lender  which shall be in
all respects  subordinate  to this  Security  Instrument.  In no event shall any
manager be removed or replaced or the terms of any management agreement modified
or amended  without  the prior  written  consent of Lender.  In the event (x) of
default hereunder or under any management contract then in effect, which default
is not cured within any applicable grace or cure period or (y) of the bankruptcy
or  insolvency  of the  manager,  Lender  shall  have the  right to  immediately
terminate,  or to direct  Borrower to  immediately  terminate,  such  management
contract and to retain,  or to direct Borrower to retain, a new management agent
approved by Lender.  All Rents  generated by or derived from the Property  shall
first be  utilized  solely for current  expenses  directly  attributable  to the
ownership and operation of the Property, including, without limitation,  current
expenses relating to Borrower's  liabilities and obligations with respect to the
Note, this Security Instrument and the Other Security Documents, and none of the
Rents  generated by or derived  from the Property  shall be diverted by Borrower
and utilized for any other purpose unless all such current expenses attributable
to the  ownership  and  operation  of the  Property  have  been  fully  paid and
satisfied.

                                       15
<PAGE>

Section  3.18.  PRINCIPAL  PLACE OF  BUSINESS.  Borrower  shall not  change  the
principal place of business or chief executive office, or, in the event Borrower
is one or more natural persons, the location of its permanent residence,  all as
set forth  herein  without the  consent of Lender,  which  consent  shall not be
unreasonably  withheld.  Lender's consent shall be conditioned upon, among other
things, the execution and delivery of additional financing statements,  security
agreements and other instruments which may be necessary to effectively  evidence
or perfect Lender's security interest in the Property as a result of such change
of principal place of business.

                  ARTICLE 4. - REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that:

Section 4.1.  WARRANTY OF TITLE.  Borrower has good and marketable  title to the
Property and has the right to mortgage,  grant, bargain,  sell, pledge,  assign,
warrant,   transfer  and  convey  the  same  and  that  Borrower   possesses  an
unencumbered  fee simple  absolute estate in the Land and the  Improvements  and
that it owns the Property free and clear of all liens,  encumbrances and charges
whatsoever  except  for those  exceptions  shown in the title  insurance  policy
insuring the lien of this  Security  Instrument  (the  "Permitted  Exceptions").
Borrower shall forever  warrant,  defend and preserve the title and the validity
and priority of the lien of this Security  Instrument and shall forever  warrant
and defend the same to Lender against the claims of all persons whomsoever,  and
shall make such further  assurances  to perfect fee simple title to the Property
as Lender may reasonably require.

Section 4.2. LEGAL STATUS AND AUTHORITY. Borrower (a) is duly organized, validly
existing and in good  standing  under the laws of its state of  organization  or
incorporation;  (b) is  duly  qualified  to  transact  business  and is in  good
standing in the state where the Property is located;  and (c) has all  necessary
approvals,  governmental  and  otherwise,  and full power and  authority to own,
operate and lease the Property.  Borrower (and the undersigned representative of
Borrower,  if any) has full power,  authority  and legal  right to execute  this
Security Instrument,  and to mortgage,  grant,  bargain,  sell, pledge,  assign,
warrant,  transfer and convey the  Property  pursuant to the terms hereof and to
keep and observe all of the terms of this Security Instrument on Borrower's part
to be performed.

Section 4.3. VALIDITY OF DOCUMENTS. (a) The execution,  delivery and performance
of the Note, this Security  Instrument and the Other Security  Documents and the
borrowing  evidenced  by the Note (i) are  within  the  power and  authority  of
Borrower;  (ii) have been  authorized  by all requisite  organizational  action;
(iii)  have   received  all  necessary   approvals   and  consents,   corporate,
governmental  or otherwise;  (iv) will not violate,  conflict with,  result in a
breach of or constitute  (with notice or lapse of time, or both) a default under
any  provision  of law,  any  order or  judgment  of any  court or  governmental
authority,  the  articles  of  incorporation,   by-laws,  partnership  or  trust
agreement,  articles of organization,  operating  agreement,  or other governing
instrument of Borrower, or any indenture, agreement or other instrument to which
Borrower  is a party or by which it or any of its assets or the  Property  is or
may be bound or affected;  (v) will not result in the creation or  imposition of
any lien,  charge or encumbrance  whatsoever upon any of its assets,  except the
lien and  security  interest  created  hereby;  and (vi)  will not  require  any
authorization  or license from, or any filing with,  any  governmental  or other
body (except for the recordation of this

                                       16
<PAGE>

Security  Instrument in appropriate land records in the State where the Property
is located  and except for  Uniform  Commercial  Code  filings  relating  to the
security  interest created hereby),  and (b) the Note, this Security  Instrument
and the Other  Security  Documents  constitute  the  legal,  valid  and  binding
obligations of Borrower, enforceable in accordance with their terms.

 Section 4.4.  LITIGATION.  There is no action,  suit or  proceeding,  judicial,
 administrative or otherwise (including any condemnation or similar proceeding),
 pending or, to the best of Borrower's  knowledge,  threatened  or  contemplated
 against  Borrower,  a Guarantor,  if any, an Indemnitor,  if any, or against or
 affecting  the  Property  that has not been  disclosed to Lender by Borrower in
 writing.

 Section 4.5. STATUS OF PROPERTY.

         (a)  Borrower has obtained  all  necessary  certificates,  licenses and
other approvals,  governmental and otherwise, necessary for the operation of the
Property and the conduct of its business and all required zoning, building code,
land use, environmental and other similar permits or approvals, all of which are
in full force and effect as of the date  hereof and not  subject to  revocation,
suspension, forfeiture or modification.

         (b) The Property  and the present and  contemplated  use and  occupancy
thereof are in full compliance with all applicable zoning  ordinances,  building
codes, land use laws, Environmental Laws and other similar laws.

         (c) The Property is served by all utilities required for the current or
contemplated  use thereof.  All utility service is provided by public  utilities
and the Property has accepted or is equipped to accept such utility service.

         (d) All public roads and streets necessary for service of and access to
the Property for the current or  contemplated  use thereof have been  completed,
are  serviceable  and all-weather and are physically and legally open for use by
the public,  and have been  dedicated to and accepted for public  maintenance by
the applicable municipal or county authorities.

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

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

         (g) All costs and  expenses of any and all labor,  materials,  supplies
and equipment used in the  construction  of the  Improvements  have been paid in
full.

         (h)  Borrower  has  paid  in  full  for,  and  is  the  owner  of,  all
furnishings,  fixtures and  equipment  (other than  tenants'  property)  used in
connection  with the  operation of the  Property,  free and clear of any and all
security interests, liens or encumbrances, except the lien and security interest
created hereby.

         (i) All  liquid and solid  waste  disposal,  septic  and sewer  systems
located  on the  Property  are in a good and safe  condition  and  repair and in
compliance with all Applicable Laws.

                                       17
<PAGE>

         (j) No portion of the  Improvements is located in an area identified by
the  Emergency  Management  Agency or any  successor  thereto as an area  having
special  Federal flood hazards  pursuant to the Flood  Insurance Acts or, if any
portion of the  Improvements is located within such area,  Borrower has obtained
and will maintain the insurance required pursuant to the terms hereof.

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

Section 4.6. NO FOREIGN  PERSON.  Borrower is not a "foreign  person" within the
meaning of Section  1445(f)(3) of the Internal  Revenue Code of 1986, as amended
and the related Treasury Department regulations.

Section  4.7.  SEPARATE  TAX LOT.  The  Property is assessed for real estate tax
purposes as one or more wholly  independent  tax lot or lots,  separate from any
adjoining land or improvements  not constituting a part of such lot or lots, and
no other land or  improvements  is assessed and taxed together with the Property
or any portion thereof.

Section  4.8.  LEASES.  Except as  disclosed  in the rent roll for the  Property
delivered  to and  approved  by Lender,  (a)  Borrower  is the sole owner of the
entire lessor's interest in the Leases; (b) the Leases are valid and enforceable
and in full force and effect;  (c) all of the Leases are arms-length  agreements
with bona fide,  independent  third parties;  (d) no party under any Lease is in
default;  (e) all  Rents  due  have  been  paid in  full;  (f) the  terms of all
alterations,  modifications  and  amendments  to the Leases are reflected in the
certified  occupancy  statement delivered to and approved by Lender; (g) none of
the Rents  reserved in the Leases have been  assigned  or  otherwise  pledged or
hypothecated;  (h) none of the Rents have been  collected  for more than one (1)
month in advance  (except a security  deposit shall not be deemed rent collected
in advance);  (i) the premises  demised under the Leases have been  completed in
accordance  with the Leases,  and the tenants under the Leases have accepted the
same and have taken  possession  of the same on a rent-paying  basis;  (j) there
exist no  offsets or  defenses  to the  payment of any  portion of the Rents and
Borrower has no monetary  obligation to any tenant under any Lease; (k) Borrower
has   received  no  notice  from  any  tenant   challenging   the   validity  or
enforceability  of any Lease; (l) there are no agreements with the tenants under
the Leases  other than  expressly  set forth in each  Lease;  (m) the Leases are
valid and enforceable against Borrower and the tenants set forth therein; (n) no
Lease contains an option to purchase,  right of first refusal to purchase, right
of first  refusal to relet,  or any other  similar  provision;  (o) no person or
entity has any possessory  interest in, or right to occupy,  the Property except
under and pursuant to a Lease;  (p) each Lease is  subordinate  to this Security
Instrument,   either  pursuant  to  its  terms  or  a  recordable  subordination
agreement;  (q) no Lease has the  benefit of a  non-disturbance  agreement  that
would be  considered  unacceptable  to prudent  institutional  lenders;  (r) all
security  deposits  relating to the Leases  reflected on the certified rent roll
delivered  to Lender  have been  collected  by  Borrower;  and (s) no  brokerage
commissions or finders fees are due and payable regarding any Lease.

Section 4.9. FINANCIAL CONDITION.

         (a) (i) Borrower is solvent and no proceeding  under  Creditors  Rights
Laws (hereinafter defined) with respect to Borrower has been initiated, and (ii)
Borrower  has  received  reasonably  equivalent  value for the  granting of this
Security Instrument.

                                       18
<PAGE>

         (b) No petition in  bankruptcy  has been filed by or against  Borrower,
any Guarantor,  any Indemnitor or any related entity, or any principal,  general
partner or member thereof,  in the last seven (7) years,  and neither  Borrower,
any Guarantor, any Indemnitor nor any related entity, or any principal,  general
partner  or  member  thereof,  in the last  seven  (7)  years  has ever made any
assignment  for the benefit of  creditors or taken  advantage  of any  Creditors
Rights Laws.

Section 4.10.  BUSINESS PURPOSES.  The loan evidenced by the Note secured by the
Security  Instrument and the Other Security Documents (the "Loan") is solely for
the business purpose of Borrower, and is not for personal, family, household, or
agricultural purposes.

Section 4.11. TAXES.  Borrower,  any Guarantor and any Indemnitor have filed all
federal, state county,  municipal,  and city income, personal property and other
tax  returns  required  to have  been  filed by them and have paid all taxes and
related  liabilities  which have become due pursuant to such returns or pursuant
to any assessments  received by them.  Neither  Borrower,  any Guarantor nor any
Indemnitor  knows of any basis for any  additional  assessment in respect of any
such taxes and related liabilities for prior years.

Section 4.12. MAILING ADDRESS.  Borrower's mailing address,  as set forth in the
opening paragraph hereof or as changed in accordance with the provisions hereof,
is true and correct.

Section  4.13.  NO  CHANGE IN FACTS OR  CIRCUMSTANCES.  All  information  in the
application  for the Loan  submitted to Lender and in all financial  statements,
rent rolls,  reports,  certificates and other documents  submitted in connection
with the  application or in  satisfaction  of the terms  thereof,  are accurate,
complete and correct in all  respects.  There has been no adverse  change in any
condition,  fact,  circumstance  or event that  would make any such  information
inaccurate, incomplete or otherwise misleading.

Section 4.14.  DISCLOSURE.  Borrower has disclosed to Lender all material  facts
and  has not  failed  to  disclose  any  material  fact  that  could  cause  any
representation or warranty made herein to be materially misleading.

Section 4.15. THIRD PARTY  REPRESENTATIONS.  Each of the representations and the
warranties  made  by  each  Guarantor  and  Indemnitor  in  any  Other  Security
Document(s) is true and correct in all material respects.

Section 4.16.  ILLEGAL ACTIVITY.  No portion of the Property has been or will be
purchased,  improved equipped or furnished with proceeds of any illegal activity
and to the best of  Borrower's  knowledge,  there are no illegal  activities  or
activities relating to controlled substances at the Property.

Section  4.17.  PERMITTED   EXCEPTIONS.   None  of  the  Permitted   Exceptions,
individually or in the aggregate,  materially interfere with the benefits of the
security intended to be provided by the Security  Instrument,  the Note, and the
Other  Security  Documents,  materially  and  adversely  affect the value of the
Property,  impair the use or the operation of the Property or impair  Borrower's
ability to pay its obligations in a timely manner.

                                       19
<PAGE>

Section  4.18.  PRINCIPAL  PLACE  OF  BUSINESS.  Borrower's  principal  place of
business is as set forth in the opening paragraph to this Security Instrument.

Section 4.19. ERISA.

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

         (b) As of the date  hereof  and  throughout  the term of this  Security
Instrument (i) Borrower is not and will not be a "governmental  plan" within the
meaning of Section 3(32) of ERISA and (ii)  transactions by or with Borrower are
not and will not be subject to state statutes  applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.

Section 4.20. PROPERTY USE. The Property shall continue to be used in accordance
with its present use, and for no other use without the prior written  consent of
Lender.

                      ARTICLE 5 - OBLIGATIONS AND RELIANCE

Section 5.1.  RELATIONSHIP  OF BORROWER  AND LENDER.  The  relationship  between
Borrower  and Lender is solely  that of debtor and  creditor,  and Lender has no
fiduciary or other special relationship with Borrower,  and no term or condition
of any of the Note,  this Security  Instrument and the Other Security  Documents
shall be construed so as to deem the relationship between Borrower and Lender to
be other than that of debtor and creditor.

Section 5.2. NO RELIANCE.  The members,  general  partners,  principals  and (if
Borrower  is a trust)  beneficial  owners of  Borrower  are  experienced  in the
ownership and operation of properties similar to the Property,  and Borrower and
Lender are relying solely upon such  expertise in connection  with the ownership
and  operation of the Property.  Borrower is not relying on Lender's  expertise,
business acumen or advice in connection with the Property.

Section  5.3. NO LENDER  OBLIGATIONS.  Notwithstanding  anything to the contrary
contained  herein,  Lender  is  not  undertaking  the  performance  of  (a)  any
obligations  under the  Leases;  or (b) any  obligations  with  respect  to such
agreements,   contracts,   certificates,   instruments,   franchises,   permits,
trademarks,  licenses and other  documents.  By accepting or approving  anything
required  to be  observed,  performed  or  fulfilled  or to be given  to  Lender
pursuant to this Security Instrument,  the Note or the Other Security Documents,
including  without  limitation,   any  officer's  certificate,   balance  sheet,
statement of profit and loss or other financial statement, survey, appraisal, or
insurance policy, Lender shall not be deemed to have warranted, consented to, or
affirmed  the  sufficiency,  the  legality or  effectiveness  of same,  and such
acceptance or approval  thereof shall not constitute any warranty or affirmation
with respect thereto by Lender.

Section 5.4.  RELIANCE.  Borrower  recognizes and acknowledges that in accepting
the Note, this Security Instrument and the Other Security  Documents,  Lender is
expressly and primarily  relying on the truth and accuracy of the warranties and
representations  set forth herein  without any  obligation  to  investigate  the
Property and  notwithstanding  any investigation of the Property by Lender; that
such reliance  existed on the part of Lender prior to the date hereof;  that the
warranties and  representations are a material inducement to Lender in accepting
the Note, this Security  Instrument and the Other Security  Documents;  and that
Lender would not be willing to make the Loan and accept this Security Instrument
in the absence of the warranties and representations as set forth herein.

                                       20
<PAGE>

                         ARTICLE 6. - FURTHER ASSURANCES

Section 6.1. RECORDING OF SECURITY INSTRUMENT,  ETC. Borrower forthwith upon the
execution and delivery of this Security Instrument and thereafter,  from time to
time,  will  cause  this  Security  Instrument  and  any of the  Other  Security
Documents  creating a lien or security  interest or  evidencing  the lien hereof
upon the  Property  and,  each  instrument  of  further  assurance  to be filed,
registered  or  recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security  interest  hereof upon,  and the interest of Lender
in, the Property. Borrower will pay all taxes, filing, registration or recording
fees, and all expenses  incident to the preparation,  execution,  acknowledgment
and/or  recording of the Note,  this  Security  Instrument,  the Other  Security
Documents,  any note or mortgage  supplemental  hereto, any security  instrument
with respect to the Property and any  instrument of further  assurance,  and any
modification or amendment of the foregoing  documents,  and all federal,  state,
county and municipal taxes, duties, imposts, assessments and charges arising out
of or in connection with the execution and delivery of this Security Instrument,
any mortgage  supplemental  hereto, any security  instrument with respect to the
Property  or any  instrument  of  further  assurance,  and any  modification  or
amendment of the foregoing documents, except where prohibited by law so to do.

Section 6.2.  FURTHER ACTS,  ETC.  Borrower  will, at the cost of Borrower,  and
without expense to Lender,  do,  execute,  acknowledge and deliver all and every
such  further  acts,  deeds,  conveyances,  mortgages,  assignments,  notices of
assignments,  transfers  and  assurances  as  Lender  shall,  from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming  unto Lender the Property and rights hereby  mortgaged,  granted,
bargained,  sold,  conveyed,   confirmed,   pledged,  assigned,   warranted  and
transferred  or intended now or hereafter so to be, or which  Borrower may be or
may  hereafter  become bound to convey or assign to Lender,  or for carrying out
the  intention or  facilitating  the  performance  of the terms of this Security
Instrument or for filing,  registering or recording this Security Instrument, or
for complying with all  applicable  state or federal law.  Borrower,  on demand,
will execute and deliver and hereby authorizes Lender, following 10 days' notice
to  Borrower,  to execute in the name of Borrower or without  the  signature  of
Borrower  to the  extent  Lender  may  lawfully  do so,  one or  more  financing
statements,  chattel mortgages or other instruments, to evidence or perfect more
effectively the security interest of Lender in the Property.  Borrower grants to
Lender an irrevocable power of attorney coupled with an interest for the purpose
of exercising and perfecting any and all rights and remedies available to Lender
hereunder.

Section 6.3. CHANGES IN TAX DEBT CREDIT AND DOCUMENTARY STAMP LAWS.

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

                                       21
<PAGE>

         (b)  Borrower  will not claim or demand or be entitled to any credit or
credits  on  account  of the  Debt for any  part of the  Taxes or Other  Charges
assessed against the Property, or any part thereof.

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

 Section 6.4. ESTOPPEL CERTIFICATES.

         (a) After  request by  Lender,  Borrower,  within ten (10) days,  shall
furnish Lender or any proposed assignee with a statement,  duly acknowledged and
certified, setting forth (i) the original principal amount of the Note, (ii) the
unpaid  principal  amount of the Note,  (iii) the rate of  interest of the Note,
(iv)  the  terms  of  payment  and  maturity  date of the  Note,  (v)  the  date
installments of interest and/or  principal were last paid, (vi) that,  except as
provided  in such  statement,  there are no  defaults  or events  which with the
passage of time or the giving of notice or both,  would  constitute  an event of
default under the Note or the Security Instrument,  (vii) that the Note and this
Security  Instrument are valid, legal and binding  obligations and have not been
modified or if modified, giving particulars of such modification, (viii) whether
any offsets or defenses exist against the obligations secured hereby and, if any
are alleged to exist, a detailed description  thereof,  (ix) that all Leases are
in full  force and  effect  and  (provided  the  Property  is not a  residential
multifamily property) have not been modified (or if modified,  setting forth all
modifications),  (x) the date to which  the  Rents  thereunder  have  been  paid
pursuant to the Leases,  (xi) whether or not, to the best knowledge of Borrower,
any of the lessees under the Leases are in default under the Leases, and, if any
of the lessees are in default,  setting  forth the  specific  nature of all such
defaults,  (xii) the amount of security  deposits  held by  Borrower  under each
Lease and that such amounts are consistent with the amounts  required under each
Lease,  and (xiii) as to any other  matters  reasonably  requested by Lender and
reasonably related to the Leases,  the obligations  secured hereby, the Property
or this Security Instrument.

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

                                       22
<PAGE>

         (c) Upon any transfer or proposed  transfer of the Property at Lender's
request,  Borrower,  any  Guarantors  and any  Indemnitor(s)  shall  provide  an
estoppel certificate in such form, substance and detail as Lender may require.

Section 6.5. FLOOD  INSURANCE.  After Lender's  request,  Borrower shall deliver
evidence  satisfactory to Lender that no portion of the Improvements is situated
in a  federally  designated  "special  flood  hazard  area" or,  if it is,  that
Borrower has obtained insurance meeting the requirements hereof.

Section 6.6. REPLACEMENT  DOCUMENTS.  Upon receipt of an affidavit of an officer
of Lender as to the loss,  theft,  destruction  or mutilation of the Note or any
Other Security  Document which is not of public record,  and, in the case of any
such mutilation,  upon surrender and cancellation of such Note or Other Security
Document,  Borrower  will issue,  in lieu thereof,  a replacement  Note or Other
Security Document,  dated the date of such lost, stolen,  destroyed or mutilated
Note or  Other  Security  Document  in the same  principal  amount  thereof  and
otherwise of like tenor.

                      ARTICLE 7. - DUE ON SALE/ENCUMBRANCE

Section 7.1. TRANSFER DEFINITIONS.  For purposes of this Article, an "Affiliated
Manager"  shall mean any  managing  agent in which  Borrower,  any  Guarantor or
Indemnitor  has,  directly  or  indirectly,  any legal,  beneficial  or economic
interest;  a  "Restricted  Party"  shall  mean  Borrower,  any  Guarantor,   any
Indemnitor,  or any Affiliated  Manager or any shareholder,  partner,  member or
non-member  manager,  or any direct or  indirect  legal or  beneficial  owner of
Borrower,  any  Guarantor,  any  Indemnitor,   any  Affiliated  Manager  or  any
non-member  manager;  and a "Sale" shall mean a voluntary or  involuntary  sale,
conveyance, transfer or pledge of a legal or beneficial interest.

Section 7.2. NO SALE/ENCUMBRANCE

         (a)  Borrower  shall  not  sell,  convey,  mortgage,   grant,  bargain,
encumber,  pledge,  assign, grant options with respect to, or otherwise transfer
or  dispose  of  (directly  or  indirectly,  voluntarily  or  involuntarily,  by
operation  of law or  otherwise,  and  whether  or not for  consideration  or of
record) the  Property or any part  thereof or any legal or  beneficial  interest
therein  (collectively a "Transfer"),  other than pursuant to Leases of space in
the Improvements to tenants in accordance with the provisions hereof without the
prior written consent of Lender.

         (b) A Transfer shall include, but not be limited to, (i) an installment
sales agreement wherein Borrower agrees to sell the Property or any part thereof
for a price to be paid in  installments;  (ii) an agreement by Borrower  leasing
all or a substantial  part of the Property for other than actual  occupancy by a
space tenant thereunder or a sale,  assignment or other transfer of or the grant
of a security interest in,  Borrower's  right,  title and interest in and to any
Leases or any Rents;  (iii) if a Restricted Party is a corporation,  any merger,
consolidation or Sale or Pledge of such  corporation's  stock or the creation or
issuance  of new  stock  in one or a  series  of  transactions,  by  which  such
corporation's  stock  shall  be  vested  in a party or  parties  who are not now
shareholders;  (iv) if a Restricted Party is a limited or general partnership or
joint venture, any merger or consolidation or the change,  removal,  resignation
or  addition  of a general  partner  or the Sale or  Pledge  of the  partnership
interest  of any general  partner or any  profits or  proceeds  relating to such
partnership  interest, or the Sale or Pledge of limited partnership interests or
the creation or issuance of new limited partnership interests in one or a series
of transactions, by which such limited partnership interests shall be vested in

                                       23
<PAGE>

a party or parties who are not now limited  partners;  (v) if a Restricted Party
is a limited  liability  company,  any merger or  consolidation  or the  change,
removal,  resignation or addition of a managing member or nonmember  manager (or
if no  managing  member,  any  member)  or the Sale or Pledge of the  membership
interest  of a managing  member (or if no  managing  member,  any member) or any
profits or proceeds relating to such membership interest,  or the Sale or Pledge
of  non-managing  membership  interests  or  the  creation  or  issuance  of new
non-managing  membership interests in one or a series of transactions,  by which
such non-managing membership interests shall be vested in a party or parties who
are not now  non-managing  members;  (vi) if a  Restricted  Party  is a trust or
nominee trust,  any merger,  consolidation or the Sale or Pledge of the legal or
beneficial  interest in a  Restricted  Party or the  creation or issuance of new
legal or beneficial interests in one or a series of transactions,  by which such
beneficial or legal  interests shall be vested in a party or parties who are not
now legal or beneficial  owners;  or (vii) the removal or the resignation of the
managing agent (including, without limitation, an Affiliated Manager) other than
in accordance herewith.

Section  7.3.  PERMITTED  TRANSFERS.  Notwithstanding  anything to the  contrary
contained herein, the following  transfers shall not be deemed to be a Transfer:
(a) a transfer by devise or descent or by  operation  of law upon the death of a
member, partner or shareholder of a Restricted Party; and (b) the Sale or Pledge
of stock or  limited  partnership  or  non-managing  membership  interests  in a
Restricted Party by which, in one or a series of transactions, in the aggregate,
not more  than  forty-nine  percent  (49%)  of the  stock,  limited  partnership
interests  or  non-managing  membership  interests  (as  the  case  may be) in a
Restricted  Party,  shall be  vested in  parties  not now  having  an  ownership
interest;  provided,  however,  no such  transfer  shall result in the change of
voting  control  in the  Restricted  Party,  and as a  condition  to  each  such
transfer,  Lender shall receive not less than ten (10) days prior written notice
of such proposed transfer.

                              ARTICLE 8. - DEFAULT

Section  8.1.  EVENTS  OF  DEFAULT.  The  occurrence  of any  one or more of the
following events shall constitute an "Event of Default":

         (a) if any  portion of the Debt is not paid on or prior to the date the
same is due or if the entire Debt is not paid on or before the Maturity Date;

         (b) if Borrower fails to repay any sum paid or advanced by Lender under
the terms of this Security Instrument or any Other Loan Document;

         (c) if  Borrower  fails to repay  any sum paid,  advanced  or loaned by
Lender to Borrower under the terms of any other Security Instrument,  promissory
note or other loan document in connection with any other loan;

                                       24
<PAGE>

         (d) if any of the Taxes or Other  Charges  is not paid when the same is
due and payable except to the extent sums sufficient to pay such Taxes and Other
Charges have been  deposited  with Lender in  accordance  with the terms of this
Security Instrument;

         (e) if the  Policies  are not kept in full force and effect,  or if the
Policies are not delivered to Lender as provided herein;

         (f) if Borrower  violates or does not comply with any of the provisions
of this Security Instrument or any Other Loan Document;

         (g) if any  representation  or warranty of Borrower,  any Indemnitor or
any  person  guaranteeing  payment  of  the  Debt  or  any  portion  thereof  or
performance  by  Borrower  of any of the terms of this  Security  Instrument  (a
"Guarantor"),  or any member, general partner,  principal or beneficial owner of
any of the  foregoing,  made herein or in any guaranty,  or in any  certificate,
report,  financial statement or other instrument or document furnished to Lender
shall have been false or misleading in any material respect when made;

         (h) if (i)  Borrower  or any  managing  member or  general  partner  of
Borrower,  or an Guarantor or Indemnitor shall commence any case,  proceeding or
other action (A) under any existing or future law of any jurisdiction,  domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship,
arrangement,  adjustment, winding-up, liquidation,  dissolution,  composition or
other relief with  respect to its debts or debtors  ("Creditors  Rights  Laws"),
seeking to have an order for relief  entered  with  respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, or (B) seeking
appointment  of a receiver,  trustee, custodian,  conservator  or other  similar
official  for  it or for  all or any  substantial  part  of its  assets,  or the
Borrower or any managing member or general partner of Borrower, or any Guarantor
or Indemnitor shall make a general  assignment for the benefit of its creditors;
or (ii) there shall be  commenced  against  Borrower or any  managing  member or
general partner of Borrower or any Guarantor or Indemnitor any case,  proceeding
or other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such  adjudication or appointment or (B)
remains  undismissed,  undischarged or unbonded for a period of sixty (60) days;
or (iii) there shall be commenced against the Borrower or any managing member or
general partner of Borrower, or any Guarantor or Indemnitor any case, proceeding
or  other  action  seeking  issuance  of a  warrant  of  attachment,  execution,
distraint or similar process  against all or any substantial  part of its assets
which results in the entry of any order for any such relief which shall not have
been vacated,  discharged,  or stayed or bonded pending appeal within sixty (60)
days from the entry  thereof;  or (iv) the  Borrower or any  managing  member or
general partner of Borrower or any Guarantor or Indemnitor shall take any action
in furtherance  of, or indicating its consent to,  approval of, or  acquiescence
in, any of the acts set forth in clause (i),  (ii),  or (iii) above;  or (v) the
Borrower or any managing member or general partner of Borrower, or any Guarantor
or  Indemnitor  shall  generally  not,  or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due;

         (i) if Borrower shall be in default beyond  applicable notice and grace
periods under any other  mortgage,  deed of trust,  deed to secure debt or other
security  agreement  covering any part of the Property whether it be superior or
junior in lien to this Security Instrument;

                                       25
<PAGE>

         (j) if the Property becomes subject to any mechanic's, materialman's or
other lien other than a lien for any Taxes not then due and payable and the lien
shall remain  undischarged  of record (by payment,  bonding or otherwise)  for a
period of thirty (30) days;

         (k) if any federal tax lien is filed  against  Borrower,  any member or
general partner of Borrower,  any Guarantor,  any Indemnitor or the Property and
same is not discharged of record within thirty (30) days after same is filed;

         (l) if any default  occurs under any guaranty or indemnity  executed in
connection  herewith,  and  such  default  continues  after  the  expiration  of
applicable grace periods, if any; or

         (m) if Borrower files of record,  without the prior written  consent of
Lender  which  Lender  may  grant or  withhold  for any  reason  in its sole and
absolute  discretion,  any notice limiting the maximum principal amount that may
be secured hereunder; or

         (n) if Borrower sells,  transfers (whether voluntary or by operation of
law), pledges, hypothecates or further encumbers all or any part of the Property
or any interest  therein or any  interest in the  Borrower  (except as otherwise
expressly  provided  herein),  or  additionally  assigns  all or any part of the
rents,  income or profits  arising  therefrom,  in either case without the prior
written consent of Lender, which may be withheld for any reason in Lender's sole
and absolute discretion; or

         (o) if Borrower or any Guarantor or  Indemnitor  is  dissolved,  merges
into  another  entity,  or otherwise  terminates  its  existence  (other than as
specifically  allowed  pursuant  to  the  terms  hereof)  or  if  the  person(s)
controlling  such  entity  shall take any action  authorizing  or leading to the
same; or

         (p) if for more than ten (10) days after notice from  Lender,  Borrower
shall  continue to be in default under any other term,  covenant or condition of
the Note, this Security  Instrument or the Other Security  Documents in the case
of any default which can be cured by the payment of a sum of money or for thirty
(30) days after  notice from Lender in the case of any other  default,  provided
that if such  default  cannot  reasonably  be cured  within such thirty (30) day
period and Borrower shall have commenced to cure such default within such thirty
(30) day period and thereafter diligently and expeditiously proceeds to cure the
same,  such  thirty (30) day period  shall be  extended  for so long as it shall
require Borrower in the exercise of due diligence to cure such default, it being
agreed  that no such  extension  shall be for a period in  excess of sixty  (60)
days.

                        ARTICLE 9. - RIGHTS AND REMEDIES

Section 9.1 REMEDIES. Upon the occurrence of any Event of Default, to the extent
permitted by  applicable  law,  Borrower  agrees that Lender may take any action
available  at law,  in  equity,  and as  otherwise  provided  in  this  Security
Instrument,  without  notice or demand,  as it deems  advisable  to protect  and
enforce its rights against Borrower in and to the Property,  including,  but not
limited to the following actions,  each of which may be pursued  concurrently or
otherwise,  at such time and in such order as Lender may determine,  in its sole
discretion,  without  impairing  or  otherwise  affecting  the other  rights and
remedies of Lender:

                                       26
<PAGE>

         (a) declare the entire unpaid Debt to be immediately due and payable;

         (b)  institute  proceedings,  judicial or  otherwise,  for the complete
foreclosure of this Security  Instrument  under any applicable  state or federal
law in which case the Property or any  interest  therein may be sold for cash or
upon credit in one or more  parcels or in several  interests  or portions and in
any order or manner;

         (c) with or without entry, to the extent  permitted and pursuant to the
procedures  provided by applicable state or federal law,  institute  proceedings
for the partial  foreclosure of this Security  Instrument for the portion of the
Debt then due and payable,  subject to the continuing lien and security interest
of this Security Instrument for the balance of the Debt not then due, unimpaired
and without loss of priority;

         (d) sell for cash or upon credit the  Property or any part  thereof and
all estate,  claim,  demand,  right,  title and interest of Borrower therein and
rights of redemption thereof,  pursuant to power of sale or otherwise, at one or
more sales, in one or more parcels,  at such time and place, upon such terms and
after such notice thereof as may be required or permitted by law;

         (e) institute an action,  suit or proceeding in equity for the specific
performance of any covenant,  condition or agreement  contained  herein,  in the
Note or in the Other Security Documents;

         (f) recover  judgment on the Note  either  before,  during or after any
proceedings  for  the  enforcement  of this  Security  Instrument  or the  Other
Security Documents;

         (g) apply for the  appointment  of a receiver,  trustee,  liquidator or
conservator of the Property,  without notice and without regard for the adequacy
of the  security  for the Debt and without  regard for the solvency of Borrower,
any Guarantor,  Indemnitor or of any person, firm or other entity liable for the
payment of the Debt;

         (h) subject to any applicable state or federal law, the license granted
to Borrower  to collect  and receive  rents  hereunder  shall  automatically  be
revoked and Lender may enter into or upon the Property,  either personally or by
its agents,  nominees or attorneys  and  dispossess  Borrower and its agents and
servants  therefrom,  without  liability for trespass,  damages or otherwise and
exclude  Borrower  and  its  agents  or  servants  wholly  therefrom,  and  take
possession of all rent rolls,  leases  (including the form lease) and amendments
and  exhibits,  subleases  (including  the form  sublease)  and  amendments  and
exhibits  and rental and license  agreements  with the tenants,  subtenants  and
licensees in possession of the Property or any part or parts thereof;  tenants',
subtenants' and licensees' money deposits or other property (including,  without
limitation,  any letter of credit)  given to secure  tenants',  subtenants'  and
licensees' obligations under leases, subleases or licenses, together with a list
of the foregoing;  all lists pertaining to current rent and license fee arrears;
any  and  all  architects'  plans  and  specifications,  licenses  and  permits,
documents,  books, records,  accounts,  surveys and property which relate to the
management, leasing, operation, occupancy, ownership, insurance, maintenance, or
service of or  construction  upon the Property and Borrower  agrees to surrender
possession  thereof and of the  Property to Lender upon  demand,  and  thereupon
Lender may (i) use, operate, manage, control, insure, maintain,  repair, restore

                                       27
<PAGE>

         and otherwise  deal with all and every part of the Property and conduct
the business  thereat;  (ii) complete any  construction  on the Property in such
manner and form as Lender deems advisable;  (iii) make  alterations,  additions,
renewals, replacements and improvements to or on the Property; (iv) exercise all
rights and powers of Borrower with respect to the Property,  whether in the name
of Borrower  or  otherwise,  including  without  limitation,  the right to make,
cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all Rents of the Property and every part thereof; (v) either
require  Borrower  (A) to pay  monthly in advance  to  Lender,  or any  receiver
appointed to collect the Rents, the fair and reasonable rental value for the use
and  occupation of such part of the Property as may be occupied by Borrower,  or
(B) to vacate and  surrender  possession  of the  Property  to Lender or to such
receiver and, in default thereof, Borrower may be evicted by summary proceedings
or  otherwise;  and (vi) apply the receipts  from the Property to the payment of
the  Debt,  in such  order,  priority  and  proportions  as  Lender  shall  deem
appropriate  in its sole  discretion  after  deducting  therefrom  all  expenses
(including reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges,  Insurance
Premiums and other expenses in connection with the Property, as well as just and
reasonable  compensation  for the services of Lender,  its  counsel,  agents and
employees;

         (i) exercise any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, including,  without limiting the
generality of the  foregoing:  (i) the right to take  possession of the Personal
Property or any part thereof, and to take such other measures as Lender may deem
necessary for the care,  protection and  preservation of the Personal  Property,
and (ii) request  Borrower at its expense to assemble the Personal  Property and
make it available  to Lender at a convenient  place  acceptable  to Lender.  Any
notice of sale,  disposition or other intended  action by Lender with respect to
the Personal  Property sent to Borrower in accordance with the provisions hereof
at least  five (5) days  prior to such  action,  shall  constitute  commercially
reasonable notice to Borrower;

         (j) apply any sums then deposited in the Escrow Fund and any other sums
held in escrow or  otherwise  by  Lender  in  accordance  with the terms of this
Security  Instrument  or any  Other  Security  Document  to the  payment  of the
following  items in any  order in its  sole  discretion:  (i)  Taxes  and  Other
Charges; (ii) Insurance Premiums; (iii) interest on the unpaid principal balance
of the Note; (iv)  amortization of the unpaid principal balance of the Note; and
(v) all other sums payable  pursuant to the Note,  this Security  Instrument and
the Other Security Documents  including,  without  limitation,  advances made by
Lender pursuant to the terms of this Security Instrument;

         (k)  surrender the Policies  maintained  pursuant  hereto,  collect the
unearned  Insurance Premiums and apply such sums as a credit on the Debt in such
priority and  proportion as Lender in its discretion  shall deem proper,  and in
connection   therewith,   Borrower   hereby   appoints   Lender   as  agent  and
attorney-in-fact   (which  is  coupled   with  an  interest   and  is  therefore
irrevocable) for Borrower to collect such unearned Insurance Premiums;

         (l)  apply  the  undisbursed  balance  of any net  proceeds  deficiency
deposit,  together  with  interest  thereon,  to the payment of the Debt in such
order,  priority and  proportions  as Lender shall deem to be appropriate in its
discretion; or

                                       28
<PAGE>

         (m) pursue  such  other  remedies  as Lender may have under  applicable
state or federal law.

In the event of a sale, by  foreclosure,  to the extent  permitted by applicable
law,  power of sale,  or  otherwise,  of less  than  all of the  Property,  this
Security  Instrument  shall  continue  as a lien and  security  interest  on the
remaining  portion of the  Property  unimpaired  and without  loss of  priority.
Notwithstanding the provisions of this Section to the contrary,  if any Event of
Default shall occur,  and the Lender elects to declare the entire unpaid Debt to
be automatically due and payable, such remedy may be pursued without any further
notice, demand or other action by Lender.

Section 9.2. APPLICATION OF PROCEEDS. The purchase money, proceeds and avails of
any  disposition  of the  Property,  or any  part  thereof,  or any  other  sums
collected by Lender pursuant to the Note, this Security  Instrument or the Other
Security Documents,  may be applied by Lender to the payment of the Debt in such
priority and proportions as Lender in its discretion shall deem proper and which
are in  accordance  with  applicable  law or as shall be  required by a court of
competent jurisdiction.

Section 9.3. RIGHT TO CURE DEFAULTS. Upon the occurrence of any Event of Default
or if Borrower  fails to make any  payment or to do any act as herein  provided,
Lender may, but without any  obligation to do so and without notice to or demand
on Borrower and without releasing Borrower from any obligation  hereunder,  make
or do the same in such manner and to such extent as Lender may deem necessary to
protect the security hereof. Lender is authorized to enter upon the Property for
such  purposes,  or appear  in,  defend,  or bring any action or  proceeding  to
protect its interest in the Property or to foreclose this Security Instrument or
collect  the  Debt.  The  cost and  expense  of any  cure  hereunder  (including
reasonable attorneys' fees to the extent permitted by law), with interest at the
Default Rate (defined in the Note),  shall  constitute a portion of the Debt and
shall be due and payable to Lender upon demand.  All costs and expenses incurred
by Lender in  remedying  any Event of  Default  or failed  payment  or act or in
appearing in,  defending,  or bringing any such action or proceeding  shall bear
interest at the Default  Rate  defined in the Note,  for the period after notice
from  Lender  that such cost or expense  was  incurred to the date of payment to
Lender.  All such costs and expenses  incurred by Lender  together with interest
thereon  calculated  at the Default Rate shall be deemed to constitute a portion
of the Debt and be secured by this Security  Instrument  and the Other  Security
Documents  and  shall be  immediately  due and  payable  upon  demand  by Lender
therefor.

Section  9.4.  ACTIONS  AND  PROCEEDINGS.  At any time,  Lender has the right to
appear in and defend, compromise or settle any action or proceeding brought with
respect to the Property,  and after the occurrence and during the continuance of
an Event of  Default,  to bring  any  action or  proceeding,  in the name and on
behalf of Borrower,  which Lender, in its discretion,  decides should be brought
to protect its interest in the Property.

Section 9.5.  RECOVERY OF SUMS REQUIRED TO BE PAID.  Lender shall have the right
from time to time to take action to recover any sum or sums which  constitute  a
part of the Debt as the same  become due,  without  regard to whether or not the
balance of the Debt shall be due,  and without  prejudice to the right of Lender
thereafter to bring an action of foreclosure, or any other action, for a default
or defaults by Borrower existing at the time such earlier action was commenced.

                                       29
<PAGE>

Section 9.6. EXAMINATION OF BOOKS AND RECORDS.  Lender, its agents,  accountants
and attorneys shall have the right upon prior written notice to Borrower (unless
an Event of Default  exists,  in which  case no notice  shall be  required),  to
examine  and audit,  during  reasonable  business  hours,  the  records,  books,
management  and other papers of Borrower and its  affiliates or of any Guarantor
or Indemnitor which pertain to their financial condition or the income, expenses
and  operation  of the  Property,  at the  Property  or at any office  regularly
maintained by Borrower,  its affiliates or any Guarantor or Indemnitor where the
books and records are  located.  Lender and its agents shall have the right upon
notice to make copies and extracts from the  foregoing  records and other papers
at no cost to Lender.

Section 9.7. OTHER RIGHTS. ETC.

         (a) The failure of Lender to insist upon strict performance of any term
hereof  shall  not be  deemed  to be a  waiver  of any  term  of  this  Security
Instrument.  Borrower shall not be relieved of Borrower's  obligations hereunder
by reason of (i) the failure of Lender to comply  with any request of  Borrower,
any Guarantor or any  Indemnitor  to take any action to foreclose  this Security
Instrument or otherwise  enforce any of the provisions  hereof or of the Note or
the Other Security Documents, (ii) the release, regardless of consideration,  of
the whole or any part of the  Property,  or of any person liable for the Debt or
any portion  thereof,  or (iii) any agreement or stipulation by Lender extending
the time of payment,  changing the rate of interest,  or otherwise  modifying or
supplementing  the  terms of the Note,  this  Security  Instrument  or the Other
Security Documents.

         (b) It is agreed that the risk of loss or damage to the Property, is on
Borrower,  and Lender shall have no liability whatsoever for decline in value of
the Property,  for failure to maintain the Policies, or for failure to determine
whether  insurance  in force is  adequate  as to the  amount  of risks  insured.
Possession by Lender shall not be deemed an election of judicial relief,  if any
such  possession  is  requested  or  obtained,  with  respect to any Property or
collateral not in Lender's possession.

         (c) Lender may resort for the payment of the Debt to any other security
held by or guaranties given to Lender in such order and manner as Lender, in its
discretion,  may elect.  Lender  may take  action to  recover  the Debt,  or any
portion  thereof,  or to enforce any covenant  hereof  without  prejudice to the
right of Lender thereafter to foreclose this Security Instrument.  The rights of
Lender under this Security Instrument shall be separate, distinct and cumulative
and none shall be given effect to the exclusion of the others.  No act of Lender
shall be construed as an election to proceed under any one  provision  herein to
the exclusion of any other provision. Lender shall not be limited exclusively to
the rights and remedies  herein  stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.

Section 9.8.  RIGHT TO RELEASE ANY PORTION OF THE  PROPERTY.  Lender may release
any  portion  of the  Property  for such  consideration  as Lender  may  require
without, as to the remainder of the Property,  in any way impairing or affecting
the lien or priority of this Security  Instrument,  or improving the position of
any subordinate  lienholder with respect thereto,  except to the extent that the

                                       30
<PAGE>

obligations   hereunder   shall  have  been  reduced  by  the  actual   monetary
consideration,  if any,  received by Lender for such release,  and may accept by
assignment,  pledge or otherwise  any other  property in place thereof as Lender
may require without being accountable for so doing to any other lienholder. This
Security  Instrument  shall  continue  as a lien and  security  interest  in the
remaining portion of the Property.

Section  9.9.  VIOLATION  OF LAWS.  If the  Property is not in  compliance  with
Applicable  Laws,  Lender may impose  additional  requirements  upon Borrower in
connection  herewith  including,   without  limitation,   monetary  reserves  or
financial equivalents.

Section  9.10.  RIGHT OF ENTRY.  Lender and its  agents  shall have the right to
enter and inspect the Property at all reasonable times.

Section 9.11.  SUBROGATION.  If any or all of the proceeds of the Note have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the  Property,  then,  to the  extent  of the  funds  so used,  Lender  shall be
subrogated to all of the rights,  claims,  liens, titles, and interests existing
against  the  Property  heretofore  held by, or in favor of,  the holder of such
indebtedness and such former rights,  claims,  liens, titles, and interests,  if
any,  are not waived but rather are  continued in full force and effect in favor
of Lender and are merged with the lien and security  interest  created herein as
cumulative security for the repayment of the Debt, the performance and discharge
of  Borrower's  obligations  hereunder,  under the Note and the  Other  Security
Documents and the performance and discharge of the Other Obligations.

                       ARTICLE 10. - ENVIRONMENTAL HAZARDS

Section  10.1.  ENVIRONMENTAL  DEFINITIONS.  For the  purpose  of this  Section,
"Environmental Law" means any present and future federal,  state and local laws,
statutes,   ordinances,  rules,  regulations,   standards,  policies  and  other
government directives or requirements,  as well as common law, including but not
limited to the Comprehensive Environmental Response,  Compensation and Liability
Act and the Resource  Conservation  and Recovery  Act, that apply to Borrower or
the Property and relate to Hazardous Materials.  "Environmental Liens" means all
Liens and other encumbrances  imposed pursuant to any Environmental Law, whether
due  to any  act  or  omission  of  Borrower  or any  other  person  or  entity.
"Environmental   Report"   means  the  written   reports   resulting   from  the
environmental site assessments of the Property  delivered to Lender.  "Hazardous
Materials" shall mean petroleum and petroleum products and compounds  containing
them, including gasoline, diesel fuel and oil; explosives,  flammable materials;
radioactive   materials;   polychlorinated   biphenyls  ("PCBs")  and  compounds
containing  them;  lead and lead-based  paint;  asbestos or  asbestos-containing
materials  in  any  form  that  is  or  could  become  friable;  underground  or
above-ground  storage  tanks,  whether empty or containing  any  substance;  any
substance  the presence of which on the Property is  prohibited  by any federal,
state or local authority;  any substance that requires special handling; and any
other  material  or  substance  now or in the  future  defined  as a  "hazardous
substance,"  "hazardous  material," "hazardous waste," "toxic substance," "toxic
pollutant,"   "contaminant,"   or   "pollutant"   within  the   meaning  of  any
Environmental  Law.  "Release" of any  Hazardous  Materials  includes but is not
limited  to  any  release,  deposit,  discharge,  emission,  leaking,  spilling,
seeping, migrating,  injecting,  pumping, pouring, emptying,  escaping, dumping,
disposing or other movement of Hazardous Materials.

                                       31
<PAGE>

Section 10.2. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.  Borrower represents
and warrants that: (a) there are no Hazardous  Materials or underground  storage
tanks in on or under the Property,  except those that are both (i) in compliance
with  Environmental  Laws and with  permits  issued  pursuant  thereto  (if such
permits are  required),  if any, and (ii) either (A) in amounts not in excess of
that necessary to operate the Property or (B) fully disclosed to and approved by
Lender in writing  pursuant to an Environmental  Report;  (b) there are no past,
present  or  threatened  (defined  below)  Release  of  Hazardous  Materials  in
violation of any  Environmental  Law and which would  require  remediation  by a
governmental authority in, on, under or from the Property except as described in
the  Environmental  Report;  (c) there is no threat of any Release of  Hazardous
Materials  migrating  to the Property  except as described in the  Environmental
Report; (d) there is no past or present  non-compliance with Environmental Laws,
or with permits issued pursuant thereto,  in connection with the Property except
as described in the Environmental Report; (e) Borrower does not know of, and has
not received,  any written or oral notice or other communication from any person
or entity  (including  but not  limited to a  governmental  entity)  relating to
Hazardous  Materials  in, on, under or from the  Property;  and (f) Borrower has
truthfully and fully  provided to Lender,  in writing,  any and all  information
relating to environmental conditions in, on, under or from the Property known to
Borrower or contained in Borrower's files and records, including but not limited
to any reports relating to Hazardous  Materials in, on, under or migrating to or
from the Property and/or to the environmental condition of the Property.

Section 10.3.  ENVIRONMENTAL  COVENANTS.  Borrower  covenants and agrees that so
long as Borrower owns,  manages,  is in possession of, or otherwise controls the
operation of the  Property:  (a) all uses and  operations on or of the Property,
whether by Borrower or any other person or entity,  shall be in compliance  with
all Environmental  Laws and permits issued pursuant thereto;  (b) there shall be
no Releases of Hazardous Materials in, on, under or from the Property; (c) there
shall be no Hazardous Materials in, on, or under the Property, except those that
are both (i) in compliance with all  Environmental  Laws and with permits issued
pursuant thereto, if and to the extent required,  and (ii) (A) in amounts not in
excess of that  necessary to operate the Property or (B) fully  disclosed to and
approved by Lender in writing;  (d) Borrower  shall keep the  Property  free and
clear of all  Environmental  Liens;  (e)  Borrower  shall,  at its sole cost and
expense,  fully and expeditiously  cooperate in all activities  pursuant to this
Section,  including  but not limited to providing all relevant  information  and
making  knowledgeable  persons available for interviews;  (f) Borrower shall, at
its sole cost and expense,  perform any  environmental  site assessment or other
investigation  of  environmental  conditions  in  connection  with the Property,
pursuant to any reasonable written request of Lender,  upon Lender's  reasonable
belief that the Property is not in full compliance with all Environmental  Laws,
and share with  Lender the  reports and other  results  thereof,  and Lender and
other  Indemnified  Parties  (hereinafter  defined) shall be entitled to rely on
such reports and other results thereof; (g) Borrower shall, at its sole cost and
expense, comply with all reasonable written requests of Lender to (i) reasonably
effectuate  remediation  of any  Hazardous  Materials  in, on, under or from the
Property;  and (ii) comply with any  Environmental  Law; (h) Borrower  shall not
allow any tenant or other user of the Property to violate any Environmental Law;
and (i) Borrower shall immediately  notify Lender in writing after it has become
aware of (A) any  presence  or  Release  or  threatened  Releases  of  Hazardous
Materials  in, on,  under,  from or  migrating  towards  the  Property;  (B) any
non-compliance  with any Environmental  Laws related in any way to the Property;

                                       32
<PAGE>

(C) any actual or  potential  Environmental  Lien;  (D) any required or proposed
remediation of  environmental  conditions  relating to the Property;  or (E) any
written or oral notice or other  communication  of which Borrower  becomes aware
from any source whatsoever  (including but not limited to a governmental entity)
relating in any way to Hazardous  Materials.  Any failure of Borrower to perform
its obligations  pursuant to this Section 10.3 shall  constitute bad faith waste
with respect to the Property.

Section 10.4. LENDER'S RIGHTS.  Lender and any other person or entity designated
by Lender,  including but not limited to any  representative  of a  governmental
entity,  and any  environmental  consultant,  and any receiver  appointed by any
court of competent  jurisdiction,  shall have the right, but not the obligation,
to enter upon the Property at all reasonable times to assess any and all aspects
of the  environmental  condition of the Property and its use,  including but not
limited  to  conducting  any  environmental  assessment  or audit at  Borrower's
expense (the scope of which shall be determined in Lender's sole discretion) and
taking samples of soil,  groundwater or other water, air, or building materials,
and conducting other invasive testing. Borrower shall cooperate with and provide
access to Lender and any such person or entity designated by Lender.

Section  10.5.  OPERATIONS  AND  MAINTENANCE  PROGRAMS.  If  recommended  by the
Environmental  Report  or any  other  environmental  assessment  or audit of the
Property, Borrower shall establish and comply with an operations and maintenance
program  with  respect  to  the  Property,  in  form  and  substance  reasonably
acceptable  to  Lender,  prepared  by  an  environmental  consultant  reasonably
acceptable  to Lender,  which  program  shall  address any  asbestos  containing
material  or lead based paint that may now or in the future be detected at or on
the Property.  Without limiting the generality of the preceding sentence, Lender
may require (a) periodic notices or reports to Lender in form,  substance and at
such  intervals as Lender may specify,  (b) an amendment to such  operations and
maintenance  program to address changing  circumstances,  laws or other matters,
(c) at Borrower's  sole  expense,  supplemental  examination  of the Property by
consultants  specified  by Lender,  (d) access to the  Property  by Lender,  its
agents or  servicer,  to review and assess the  environmental  condition  of the
Property and Borrower's  compliance with any operations and maintenance program,
and (e) variation of the operations and  maintenance  program in response to the
reports provided by any such consultants.

                          ARTICLE 11. - INDEMNIFICATION

Section 11.1.  GENERAL  INDEMNIFICATION.  Borrower  shall,  at its sole cost and
expense, protect, defend,  indemnify,  release and hold harmless the Indemnified
Parties  (defined  below) from and against  any and all Losses  (defined  below)
imposed  upon or  incurred by or asserted  against any  Indemnified  Parties and
directly or indirectly  arising out of or in any way relating to any one or more
of the following  (a) any accident,  injury to or death of persons or loss of or
damage to property occurring in, on or about the Property or any part thereof or
on the adjoining sidewalks,  curbs, adjacent property or adjacent parking areas,
streets or ways; (b)any use, nonuse or condition in, on or about the Property or
any part thereof or on the  adjoining  sidewalks,  curbs,  adjacent  property or
adjacent  parking  areas,  streets  or ways;  (c)  performance  of any  labor or
services or the  furnishing of any materials or other property in respect of the
Property  or  any  part  thereof;  (d)  any  failure  of the  Property  to be in
compliance  with  any  Applicable  Laws;  (e)  any and all  claims  and  demands
whatsoever  which may be  asserted  against  Lender  by  reason  of any  alleged
obligations  or  undertakings  on its part to  perform or  discharge  any of the
terms, covenants, or agreements contained in any Lease; (f) Borrower's breach of
any term, covenant,  condition,  representation or warranty contained herein; or
(g) the payment of any  commission,  charge or brokerage fee to anyone which may
be payable in connection  with the funding of the Loan evidenced by the Note and
secured by this Security Instrument.  Any amounts payable to Lender by reason of
the  application  of this Section shall become  immediately  due and payable and
shall  bear  interest  at the  Default  Rate  from the date  loss or  damage  is
sustained by Lender until paid. The term "Losses" shall mean any and all claims,
suits, liabilities (including, without limitation, strict liabilities), actions,
proceedings,  obligations,  debts,  damages,  losses,  costs,  expenses,  fines,
penalties,  charges,  fees,  judgments,  awards,  amounts paid in  settlement of
whatever kind or nature  (including but not limited to attorneys' fees and other
costs of defense). The term "Indemnified Parties" shall mean (a) Lender, (b) any
prior owner or holder of the Note,  (c) any  servicer  or prior  servicer of the
Loan,  (d)  any  Investor   (defined   below)  or  any  prior  Investor  in  any
Participations   (defined  below),   (e)  any  trustees,   custodians  or  other
fiduciaries who hold or who have held a full or partial interest in the Loan for

                                       33
<PAGE>

the  benefit of any  Investor or other third  party,  (f) any  receiver or other
fiduciary  appointed in a foreclosure or other Creditors Rights Laws proceeding,
(g) any officers, directors, shareholders, partners, members, employees, agents,
servants,   representatives,    contractors,   subcontractors,   affiliates   or
subsidiaries  of  any  and  all of the  foregoing,  and  (h)  the  heirs,  legal
representatives,  successors  and  assigns  of any  and  all  of  the  foregoing
(including,  without  limitation,  any  successors by merger,  consolidation  or
acquisition of all or a substantial  portion of the Indemnified  Parties' assets
and business), in all cases whether during the term of the Loan or as part of or
following a foreclosure of the Loan.

Section 11.2.  MORTGAGE,  DOCUMENTARY  STAMPS AND/OR  INTANGIBLE  TAX.  Borrower
shall, at its sole cost and expense,  protect,  defend,  indemnify,  release and
hold  harmless  the  Indemnified  Parties  from and  against  any and all Losses
imposed  upon or  incurred by or asserted  against any  Indemnified  Parties and
directly or  indirectly  arising out of or in any way relating to any tax or fee
on the making and/or recording of this Security  Instrument,  the Note or any of
the Other Security Documents.

Section 11.3. DUTY TO DEFEND:  ATTORNEYS' FEES AND OTHER FEES AND EXPENSES. Upon
written request by any Indemnified Party, Borrower shall defend such Indemnified
Party (if requested by any  Indemnified  Party,  in the name of the  Indemnified
Party) by attorneys and other professionals approved by the Indemnified Parties.
Notwithstanding  the  foregoing,  any  Indemnified  Parties  may,  in their sole
discretion,  engage their own  attorneys  and other  professionals  to defend or
assist them,  and, at the option of Indemnified  Parties,  their attorneys shall
control the resolution of any claim or proceeding.  Upon demand,  Borrower shall
pay or,  in the sole  discretion  of the  Indemnified  Parties,  reimburse,  the
Indemnified  Parties for the payment of  reasonable  fees and  disbursements  of
attorneys, engineers, environmental consultants,  laboratories, surveyors, title
searches and other professionals in connection therewith,  which any Indemnified
Parties may engage as a result of any Losses.

Section 11.4.  ENVIRONMENTAL INDEMNITY. As between Borrower and Lender, all risk
of loss  associated with  non-compliance  with  Environmental  Laws, or with the
presence of any Hazardous Material at, upon, within,  contiguous to or otherwise
affecting the Property,  shall lie solely with Borrower.  Accordingly,  Borrower
shall bear all risks and costs  associated  with any loss (including any loss in
value  attributable  to Hazardous  Materials),  damage or  liability  therefrom,
including  all costs of  removal of  Hazardous  Materials  or other  remediation
required by Lender or by law.  Borrower shall indemnify,  defend and hold Lender
harmless  from and against all loss,  liabilities,  damages,  claims,  costs and
expenses  (including  reasonable costs of defense) arising out of or associated,
in any way, with the non-compliance with Environmental Laws, or the existence of
Hazardous Materials in, on, or about the Property, or a breach of any

                                       34
<PAGE>

representation,  warranty or covenant  contained  in Article 10 hereof,  whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil  statute  or  common  law,  including  those  arising  from the  joint,
concurrent,  or comparative negligence of Lender; however, Borrower shall not be
liable under such  indemnification to the extent such loss,  liability,  damage,
claim,  cost or expense results solely from Lender's gross negligence or willful
misconduct.  Borrower's  obligations hereunder shall arise upon the discovery of
the  presence  of  any  Hazardous  Material,  whether  or not  any  governmental
authority has taken or threatened any action in connection  with the presence of
any Hazardous  Material,  and whether or not the existence of any such Hazardous
Material or  potential  liability  on account  thereof is  disclosed in any site
assessment and shall continue  notwithstanding  the repayment of the Note or any
transfer  or  sale  of  any  right,  title  and  interest  in the  Property  (by
foreclosure,  deed in lieu of foreclosure or otherwise).  Of even date herewith,
Borrower and other  persons or entities  (collectively,  Borrower and such other
parties,  the "Indemnitors") may as circumstances  require execute and deliver a
certain  environmental  indemnity agreement in favor of the Lender incorporating
the environmental  indemnities set forth herein as well as additional provisions
and  requirements  with respect to  environmental  matters  (the  "Environmental
Indemnity").  In the event an Environmental  Indemnity is executed,  it shall be
included in the definition of "Other Security Documents".

                              ARTICLE 12. - WAIVERS

Section 12.1. WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert
a counterclaim, other than a mandatory or compulsory counterclaim, in any action
or  proceeding  brought  against  it by  Lender  arising  out of or in  any  way
connected  with this Security  Instrument,  the Note,  any of the Other Security
Documents, or the Obligations.

Section 12.2.  MARSHALLING  AND OTHER MATTERS.  Borrower  hereby waives,  to the
extent  permitted  by law,  the benefit of all  appraisement,  valuation,  stay,
extension,  reinstatement  and redemption laws now or hereafter in force and all
rights of  marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein.  Further, Borrower hereby expressly waives
any and all  rights  of  redemption  from  sale  under  any  order or  decree of
foreclosure of this Security Instrument on behalf of Borrower,  and on behalf of
each and  every  person  acquiring  any  interest  in or  title to the  Property
subsequent to the date of this Security  Instrument and on behalf of all persons
to the extent permitted by applicable state or federal law.

Section 12.3. WAIVER OF NOTICE. Borrower shall not be entitled to any notices of
any nature  whatsoever  from Lender except (a) with respect to matters for which
this Security  Instrument  specifically and expressly provides for the giving of
notice by Lender to Borrower and (b) with respect to matters for which Lender is
required by applicable state or federal law to give notice,  and Borrower hereby
expressly waives the right to receive any notice from Lender with respect to any
matter for which this Security  Instrument does not  specifically  and expressly
provide for the giving of notice by Lender to Borrower.

                                       35
<PAGE>

Section 12.4. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby expressly waives
and releases to the fullest extent permitted by law, the pleading of any statute
of  limitations  as a defense to payment of the Debt or performance of its Other
Obligations.

Section  12.5.  SOLE  DISCRETION OF LENDER.  Wherever  pursuant to this Security
Instrument (a) Lender  exercises any right given to it to approve or disapprove,
(b) any arrangement or term is to be  satisfactory  to Lender,  or (c) any other
decision or  determination  is to be made by Lender,  the decision to approve or
disapprove  all decisions that  arrangements  or terms are  satisfactory  or not
satisfactory,  and all other decisions and determinations made by Lender,  shall
be in the sole  discretion of Lender,  except as may be otherwise  expressly and
specifically provided herein.

Section 12.6. WAIVER OF FORECLOSURE DEFENSE.  Borrower hereby waives any defense
Borrower  might assert or have by reason of Lender's  failure to make any tenant
or lessee of the Property a party  defendant in any  foreclosure  proceeding  or
action instituted by Lender.

                              ARTICLE 13. - NOTICES

Section 13.1.  NOTICES.  All notices or other written  communications  hereunder
shall be deemed to have been properly given (a) upon  delivery,  if delivered in
person with receipt  acknowledged by the recipient thereof, (b) one (1) Business
Day (defined below) after having been deposited for overnight  delivery with any
reputable overnight courier service, or (c) three (3) Business Days after having
been deposited in any post office or mail depository regularly maintained by the
U.S. Postal Service and sent by registered or certified mail,  postage  prepaid,
return receipt  requested,  addressed to Borrower or Lender, as the case may be,
at the  addresses  set forth on the first page of this  Security  Instrument  or
addressed as such party may from time to time designate by written notice to the
other parties.

Either  party by  notice  to the other may  designate  additional  or  different
addresses  for  subsequent  notices  or  communications.  For  purposes  of this
Subsection,  "Business Day" shall mean a day on which  commercial  banks are not
authorized or required by law to close in New York, New York.

                           ARTICLE 14. - CHOICE OF LAW

Section 14.1.  CHOICE OF LAW. This Security  Instrument and any determination of
deficiency  judgments  shall be  governed,  construed,  applied and  enforced in
accordance  with the laws of the  state in which the  Property  is  located  and
applicable federal law.

Section  14.2.  PROVISIONS  SUBJECT TO LAW.  All  rights,  powers  and  remedies
provided in this Security  Instrument  may be exercised  only to the extent that
the exercise  thereof does not violate any  applicable  state or federal law and
are intended to be limited to the extent  necessary so that they will not render
this Security Instrument invalid,  unenforceable or not entitled to be recorded,
registered or filed under any applicable state or federal law.

                                       36
<PAGE>

                         ARTICLE 15. - SECONDARY MARKET

Section  15.1.  TRANSFER OF LOAN.  Lender may,  at any time,  sell,  transfer or
assign the Note, this Security Instrument and the Other Security Documents,  and
any or all  servicing  rights  with  respect  thereto,  or grant  participations
therein (the  "Participations")  or issue mortgage  passthrough  certificates or
other securities  evidencing a beneficial  interest in a rated or unrated public
offering or private  placement  (the  "Securities").  Lender may forward to each
purchaser,  transferee,  assignee,  servicer,  participant,  or investor in such
Participations or Securities (collectively, the "Investor") or any Rating Agency
rating  such  Securities,   each  prospective  Investor,  and  any  organization
maintaining databases on the underwriting and performance of commercial mortgage
loans,  all  documents  and  information  which Lender now has or may  hereafter
acquire relating to the Debt and to Borrower,  any Guarantor,  any Indemnitor(s)
and  the  Property,   whether   furnished  by  Borrower,   any  Guarantor,   any
Indemnitor(s)  or  otherwise,  as  Lender  determines  necessary  or  desirable.
Borrower  irrevocably  waives any and all  rights it may have  under  applicable
state or federal law to prohibit such  disclosure,  including but not limited to
any right of privacy.

Section 15.2.  COOPERATION.  Borrower, any Guarantor and any Indemnitor agree to
cooperate  with Lender in  connection  with any transfer  made  pursuant to this
Section, including,  without limitation, the delivery of an estoppel certificate
required  pursuant  to the  terms  hereof  and such  other  documents  as may be
reasonably  requested by Lender.  Borrower shall also furnish and Borrower,  any
Guarantor and any Indemnitor  consent to Lender  furnishing to such Investors or
such  prospective  Investors  or such  Rating  Agency  any  and all  information
concerning the Property,  the Leases, the financial  condition of Borrower,  any
Guarantor and any Indemnitor as may be requested by Lender,  any Investor or any
prospective  Investor or any Rating Agency in connection with any sale, transfer
or Participations or Securities.

                               ARTICLE 16. - COSTS

Section 16.1.  PERFORMANCE  AT BORROWER'S  EXPENSE.  Borrower  acknowledges  and
confirms  that Lender  shall impose  certain  administrative  processing  and/or
commitment  fees in connection  with (a) the extension,  renewal,  modification,
amendment  and  termination  of the Loan,  (b) the  release or  substitution  of
collateral therefor, (c) obtaining certain consents,  waivers and approvals with
respect to the Property, or (d) the review of any Lease or proposed Lease or the
preparation  or  review of any  subordination,  non-disturbance  agreement  (the
occurrence  of any of the above shall be called an  "Event").  Borrower  further
acknowledges  and confirms that it shall be  responsible  for the payment of all
costs of  reappraisal of the Property or any part thereof,  whether  required by
law,  regulation,  Lender or any governmental or  quasi-governmental  authority.
Borrower hereby  acknowledges  and agrees to pay,  immediately,  with or without
demand,  all such fees (as the same may be increased  or decreased  from time to
time),  and any additional fees of a similar type or nature which may be imposed
by Lender  from time to time,  upon the  occurrence  of any Event or  otherwise.
Wherever it is provided  for herein that  Borrower  pay any costs and  expenses,
such costs and expenses  shall  include,  but not be limited to, all  reasonable
counsel fees of Lender.

Section  16.2.  COUNSEL  FEES  FOR  ENFORCEMENT.  (a)  Borrower  shall  pay  all
reasonable   counsel  fees  incurred  by  Lender  in  connection  with  (i)  the
preparation  of the  Note,  this  Security  Instrument  and the  Other  Security
Documents;  and (ii) the items set forth in this Article, and (b) Borrower shall
pay to Lender on demand any and all expenses,  including  legal fees incurred or
paid by Lender in protecting  its interest in the Property or in collecting  any
amount  payable under the Note,  this Security  Instrument or the Other Security
Documents,  or in enforcing its rights  hereunder  with respect to the Property,
whether  or not any legal  proceeding  is  commenced  hereunder  or  thereunder,
together  with  interest  thereon  at the  Default  Rate  from the date  paid or
incurred by Lender until such expenses are paid by Borrower.

                                       37
<PAGE>

                            ARTICLE 17. - DEFINITIONS

Section  17.1.  GENERAL  DEFINITIONS.  Unless the  context  clearly  indicates a
contrary intent or unless otherwise  specifically provided herein, words used in
this Security Instrument may be used  interchangeably in singular or plural form
and the word  "Borrower"  shall mean "each Borrower and any subsequent  owner or
owners of the Property or any part thereof or any  interest  therein,"  the word
"Lender"  shall mean  "Lender and any  subsequent  holder of the Note," the word
"Note" shall mean "the Note and any other  evidence of  indebtedness  secured by
this  Security  Instrument,"  the word  "person"  shall  include an  individual,
corporation,  limited  liability  company,  partnership,  trust,  unincorporated
association,  government, governmental authority, and any other entity, the word
"Property"  shall include any portion of the Property and any interest  therein,
and the phrases  "counsel fees" shall include any and all attorneys',  paralegal
and law clerk fees and  disbursements,  including,  but not  limited to fees and
disbursements  at the pretrial,  trial and appellate  levels incurred or paid by
Lender in protecting its interest in the Property,  the Leases and the Rents and
enforcing  its rights  hereunder,  whether with respect to retained  firms,  the
reimbursement for the expenses of in-house staff or otherwise.

Section 17.2.  HEADINGS  ETC. The headings and captions of various  Articles and
Sections of this Security  Instrument are for  convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.

                     ARTICLE 18. - MISCELLANEOUS PROVISIONS

Section  18.1.  NO ORAL CHANGE.  This Security  Instrument,  and any  provisions
hereof, may not be modified,  amended, waived, extended,  changed, discharged or
terminated  orally or by any act or  failure to act on the part of  Borrower  or
Lender,  but only by an  agreement in writing  signed by the party  against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.

Section  18.2.  LIABILITY.  If Borrower  consists  of more than one person,  the
obligations  and  liabilities of each such person  hereunder  shall be joint and
several. This Security Instrument shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns forever.

Section 18.3. INAPPLICABLE PROVISIONS. If any term, covenant or condition of the
Note or this Security Instrument is held to be invalid, illegal or unenforceable
in any respect, the Note and this Security Instrument shall be construed without
such provision.

Section 18.4. DUPLICATE ORIGINALS; COUNTERPARTS. This Security Instrument may be
executed in any number of duplicate  originals and each duplicate original shall
be deemed to be an original. This Security Instrument may be executed in several
counterparts,  each of which counterparts shall be deemed an original instrument
and all of which together shall  constitute a single  Security  Instrument.  The
failure  of any  party  hereto  to  execute  this  Security  Instrument,  or any
counterpart  hereof,   shall  not  relieve  the  other  signatories  from  their
obligations hereunder.

                                       38
<PAGE>

Section 18.5. NUMBER AND GENDER.  Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular  form of nouns and pronouns  shall  include the plural and vice
versa.

Section  18.6.  LEGAL  DESCRIPTION.  Borrower  represents  to lender that it has
reviewed and  delivered to Lender a copy of the legal  description  set forth in
Exhibit  "A";  that such legal  description  is the  accurate  and proper  legal
description of the Land; and Borrower further  acknowledges  that neither Lender
nor Lender's counsel prepared or reviewed such legal description. Borrower shall
indemnify,  defend and hold Lender harmless from and against any and all losses,
liabilities,   claims,  damages,  expenses,  obligations,   penalties,  actions,
judgments,  suits,  costs or  disbursements  of any kind or  nature  whatsoever,
including  the  reasonable  fees and actual  expenses  of Lender's  counsel,  in
connection with any claim that title to the Property is impaired due to or based
upon an inaccurate or improper legal description set forth herein.

Section 18.7.  INCONSISTENCIES.  In the event of any inconsistencies between the
terms and  conditions of this Article and the other  provisions of this Security
Instrument,  the terms and  conditions  of this  Article  shall  control  and be
binding.

Section 18.8.  WAIVER OF TRIAL BY JURY.  BORROWER BY ACCEPTANCE OF THIS SECURITY
INSTRUMENT,  HEREBY WAIVES TO THE FULLEST EXTENT  PERMITTED BY LAW, THE RIGHT TO
TRIAL BY JURY IN ANY ACTION,  PROCEEDING OR  COUNTERCLAIM,  WHETHER IN CONTRACT,
TORT OR OTHERWISE,  RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE APPLICATION
FOR THE LOAN, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS
OR ANY ACTS OR OMISSIONS OF LENDER OR BORROWER.

               [NO FURTHER TEXT - SIGNATURES APPEAR ON NEXT PAGE]

                                       39

<PAGE>

         IN WITNESS  WHEREOF,  this  Security  Instrument  has been  executed by
borrower the day and year first above written.

Signed, sealed and delivered in the presence of:

                                      BORROWER:

                                      Polymer Research Corporation of America,
                                      a New York corporation
______________________________

Print Name: __________________        By: __________________________________
                                          Name: ____________________________
                                          Title: ___________________________

______________________________

Print Name: __________________

                                                    [CORPORATE SEAL]

    This Instrument Prepared by and   Brian E. Bomstein, Esq.
          Upon Recording Return to:   Bayview Financial Trading Group, L.P.
                                      2665 South Bayshore Drive, Suite 301
                                      Miami, Florida 33133
                                      Attention: Legal Department

                                       40Exhibit

10.1

Variagenics, Inc.

60 Hampshire St.

Cambridge, MA 02139

 

 

Confidential

 

April 24, 2002

 

Taylor Jackson Crouch

83 Belcher Drive

Sudbury, MA 01776

 

Dear Taylor:

 

                This letter agreement shall amend the Amended and

Restated Retention Agreement executed on or about February 13, 2002 between

Variagenics, Inc. (the “Company”) and you. 

To the extent that this letter agreement augments or differs from the

terms of your Employment Agreement dated March 18, 1999 (the “Employment

Agreement”), any of your Stock Option Agreements dated September 22, 1999,

February 11, 2000 or January 3, 2001 (collectively, the “Option Agreements”) or

the aforementioned Amended and Restated Retention Agreement, those agreements

are hereby amended to such extent.  You

agree that the Release executed by you today, however, shall remain in full

force and effect, as stated therein.

 

In addition to the

existing terms and conditions of your Employment Agreement, Option Agreements

and the Amended and Restated Retention Agreement, as soon as practicable

following the eighth day after the Company’s receipt of signed versions of the

Release, the letter reflecting your resignation from the Company’s employment

and from the Company’s Board of Directors and this letter agreement, you shall

be entitled to the following:

 

1.             payment in an amount equal to one (1) week’s pay at your

most recent rate of pay, less customary deductions for taxes and the like;

 

2.             payment in an amount equal to $27,083, less customary

deductions for taxes and the like with respect to your efforts in furtherance

of Section (a) of the “Cash Bonus” portion of the Amended and Restated

Retention Agreement;

 

3.             vesting of 21,938 stock options that would have vested

pursuant to Section (b)(i) of the “Stock Options” portion of the Amended and

Restated Retention Agreement had you remained employed by the Company through

April 30, 2002, in accordance with the conditions stated in the Amended and

Restated Retention Agreement.

 

                You agree that during the nine (9) month period ending

on January 23, 2003, you will make yourself available to the Company either by

telephone or, if the Company believes necessary, in person upon reasonable

notice, to assist the Company in connection with any matter

 

 

1

relating to services

performed by you on behalf of the Company during your employment. You further

agree that at any time following your resignation, you will cooperate fully with the Company in the defense or prosecution

of any claims or actions now in existence or which may be brought or threatened

in the future against or on behalf of the Company, its directors, shareholders,

officers, or employees.  The Company

shall reimburse you for reasonable documented travel expenses incurred should

your presence be required in person. 

Your cooperation in connection with such claims or actions shall

include, without limitation, being available to meet with the Company to

prepare for any proceeding (including depositions), to provide affidavits, to assist

with any audit, inspection, proceeding or other inquiry, and to act as a

witness in connection with any litigation or other legal proceeding affecting

the Company.  You further agree that

should you be contacted (directly or indirectly) by any individual or any

person representing an individual or entity that is or may be legally or

competitively adverse to the Company in connection with any claims or legal

proceedings, you will promptly immediately notify the Chief Executive Officer

of the Company (or his or her designee) of that fact in writing.  Such notification shall include a reasonable

description of the content of the communication with the legally or

competitively adverse individual or entity.

 

To the extent that any

disputes regarding this letter agreement may arise, they shall be resolved in

accordance with the terms of Section 10 of the Employment Agreement.

 

 

	

   

  	

   

  	

   

  	

   

  	

   

  	

  VARIAGENICS,

  INC.

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

  By:

  	

  /s/  Martin A. Vogelbaum

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Martin A.

  Vogelbaum

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  Director

  
	

  Accepted and

  Agreed:

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  By:

  	

  /s/ Taylor J.

  Crouch

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  Taylor J. Crouch

  	

   

  	

   

  	

   

  	

   

  	

   

  

 

 

2

Release

 

                You

hereby agree and acknowledge that by signing this Release, you are waiving your

right to assert any form of legal claim against Variagenics, Inc.

(“Variagenics” or the “Company”)(1) whatsoever for any alleged action, inaction

or circumstance existing or arising from the beginning of time through the date

on which you sign this Release.  Your

waiver and release herein is intended to bar any form of legal claim, charge,

complaint or any other form of action (jointly referred to as “Claims”) against

Variagenics seeking any form of relief including, without limitation, equitable

relief (whether declaratory, injunctive or otherwise), the recovery of any

damages or any other form of monetary recovery whatsoever (including, without

limitation, back pay, front pay, compensatory damages, emotional distress

damages, punitive damages, attorneys fees and any other costs) against Variagenics

for any alleged action, inaction or circumstance existing or arising through

the date on which you sign this Release.

                Without

limiting the foregoing general waiver and release, you specifically waive and

release Variagenics from any Claims arising from or related to your employment

relationship with the Company or the termination thereof, including without

limitation:

(i)                                    Claims under any local, state, federal or

foreign discrimination, fair employment practices or other employment related

statute, regulation or executive order (as they may have been amended through

the date on which you sign this Release) prohibiting discrimination or

harassment based upon any protected status including, without limitation, race,

religion, citizenship, national origin, age, gender, genetic carrier status,

marital status, disability, veteran status or sexual orientation.  Without limitation, specifically included in

this paragraph are any Claims arising under the federal Age Discrimination in

Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Acts

of 1866 and 1871, Title VII of the Civil Rights Act of 1964, the Civil Rights

Act of 1991, the Equal Pay Act, the Immigration Reform and Control Act, the

Americans With Disabilities Act and any similar local, state, federal or

foreign statute or law.

(ii)                                  Claims under any other local, state,

federal or foreign employment related statute, regulation or executive order

(as they may have been amended through the date on

 

(1)  For the

purposes of this Section the parties agree that the phrase, “Variagenics,

Inc.,” shall include Variagenics, Inc., its divisions, affiliates, parents and

subsidiaries, and its and their respective officers, directors, employees,

agents and assigns.

 

 

3

                                                which you sign this Release) relating to

wages, hours or any other terms and conditions of employment.  Without limitation, specifically included in

this paragraph are any Claims arising under the Fair Labor Standards Act, the

Family and Medical Leave Act of 1993, the National Labor Relations Act, the

Employee Retirement Income Security Act of 1974, the Consolidated Omnibus

Budget Reconciliation Act of 1985 (“COBRA”) and any similar local, state,

federal or foreign statute or law.

(iii)                               Claims under any local, state, federal or

foreign common law theory including, without limitation, wrongful discharge,

breach of express or implied contract, promissory estoppel, unjust enrichment,

breach of a covenant of good faith and fair dealing, violation of public

policy, defamation, interference with contractual relations, intentional or

negligent infliction of emotional distress, invasion of privacy,

misrepresentation, deceit, fraud or negligence.

(iv)                              Claims under any local, state or federal

securities law, including, without limitation, the Securities Act of 1933, as

amended, the Securities Exchange Act of 1934, as amended, and any

Massachusetts, Delaware or other state or local securities statutes and

regulations.

(v)                                 Any other Claim arising under local,

state or federal law.

                You acknowledge and agree that

but for providing this waiver and release, you would not be receiving the

consideration provided to you by the Company through the Retention Agreement

between you and the Company.

Because you are more than forty (40) years of age, you

have specific rights under the Older Workers Benefits Protection Act (“OWBPA”),

which prohibits discrimination on the basis of age, and that the releases set

forth herein are intended to release any right that you may have to file a

claim against the Company alleging discrimination on the basis of age.

 

It is the Company’s

desire and intent to make certain that you fully understand the provisions and

effects of this letter.  To that end,

you have been encouraged and given the opportunity to consult with legal

counsel for the purpose of reviewing the terms of this Release.  Consistent with the provisions of OWBPA,

your signature below confirms that the Company has provided you with at least

twenty-one (21) days in which to consider and accept the terms of this

Release.  In addition, you may rescind

your assent to this Agreement if, within seven (7) days after you sign this

Agreement, you deliver a written

 

 

4

 

notice of rescission to

the Company’s Board of Directors.  To be

effective, such rescission must be in writing and must be hand-delivered or

post-marked within the seven (7) day period and sent by certified mail to

Variagenics in care of Martin Vogelbaum.

 

 

Confirmed and Agreed:

 

	

   

  	

   

  	

  Variagenics, Inc.

  
	

   

  	

   

  	

   

  
	

  /s/ Taylor J. Crouch

  	

   

  	

  By:

  	

  /s/ Martin A. Vogelbaum

  
	

  Taylor J. Crouch

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Dated: 4/24, 2002

  	

   

  	

  Dated: 4/24, 2002

  

 

 

5

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