Document:

paceth_8k-ex1005.htm

EXHIBIT 10.5

 

 

 

[FORM OF]

DISTILLERS GRAINS MARKETING AGREEMENT

([___________] PROJECT)

 

by and between

 

PACIFIC ETHANOL [__________], LLC

 

and

 

PACIFIC AG. PRODUCTS, LLC

 

 

 

 

 

Dated as of June 29, 2010

 

 

  

  

  

 

TABLE OF CONTENTS

 

	ARTICLE I DEFINITIONS; INTERPRETATION	1
	 	 	 
	1.1	Definitions 	1
	1.2	Interpretation 	5
	 	 	 
	ARTICLE II MARKETING ACTIVITIES	5
	 	 	 
	
2.1

	Bilateral Transactions	5
	
2.2

	Storage	6
	
2.3

	Obligations of Project Company	6
	
2.4

	Back-to-Back Transactions	7
	
2.5

	Netting 	7
	
2.6

	Title; Delivery Point; Nominations; Measurement	7
	 	 	 
	
ARTICLE III PAYMENTS

	8
	 	 	 
	3.1	Fees and Payments	8
	3.2	Overdue Payments; Billing Dispute 	9
	3.3	Audit 	9
	 	 	 
	
ARTICLE IV TERM; TERMINATION

	10
	 	 	 
	
4.1

	Term 	10
	
4.2

	Termination by PAP 	10
	
4.3

	Termination by Project Company	10
	
4.4

	Change of Control 	11
	
4.5

	Effect of Termination 	11
	 	 	 
	
ARTICLE V INSURANCE

	11
	 	 	 
	5.1	PAP Insurance 	11
	5.2	PAP Insurance Premiums and Deductibles 	12
	 	 	 
	ARTICLE VI LIMITATIONS ON LIABILITY	12
	 	 	 
	6.1	
No Consequential or Punitive Damages 

	12
	 	 	 
	
ARTICLE VII INDEMNIFICATION

	13
	 	 	 
	7.1	Project Company’s Indemnity 	13
	7.2	PAP’s Indemnity	13
	 	 	 
	
ARTICLE VIII REPRESENTATIONS AND WARRANTIES

	13
	 	 	 
	
ARTICLE IX FORCE MAJEURE

	13
	 	 	 
	9.1	
Definition 

	13

 

 

  

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	9.2	Effect 	14
	9.3	Limitations 	14
	 	 	 
	
ARTICLE X DISPUTE RESOLUTION

	14
	 	 	 
	
10.1

	Attempts to Settle	14
	
10.2

	Resolution by Expert 	15
	
10.3

	Arbitration 	15
	
10.4

	Consequential and Punitive Damages 	15
	
10.5

	Finality and Enforcement of Decision	15
	
10.6

	Costs	15
	
10.7

	Continuing Performance Obligations 	15
	 	 	 
	
ARTICLE XI CONFIDENTIALITY

	16
	 	 
	
ARTICLE XII ASSIGNMENT AND TRANSFER

	16
	 	 
	
ARTICLE XIII MISCELLANEOUS

	16
	 	 	 
	
13.1

	
Entire Agreement 

	16
	13.2	Counterparts 	16
	13.3	Survival 	16
	13.4	Severability 	17
	13.5	Governing Law 	17
	13.6	Binding Effect 	17
	13.7	Notices 	17
	13.8	Amendment 	18
	13.9	No Implied Waiver 	18
	 	 	 
	 	 	 
	EXHIBIT 	 	 
	Exhibit A:  	Form of Guaranty	 
	Exhibit B: 	Operating Protocol	 

 

 

 

                    

                    

  

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This DISTILLERS GRAINS MARKETING AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into by and between PACIFIC ETHANOL [__________], LLC, a Delaware limited liability company (“Project Company”), and PACIFIC AG. PRODUCTS, LLC, a California limited liability company (“PAP”), as of June 29, 2010. Project Company and PAP are each individually referred to herein as a “Party”, and collectively are referred to herein as the “Parties”.

 

RECITALS

 

A.           PAP provides marketing services for Distillers Grains (as defined below) from the denatured fuel ethanol production facilities owned by subsidiaries of Pacific Ethanol, Inc., a Delaware corporation (“PEI”).

 

B.           Project Company owns an approximately [__] million gallons-per-year denatured fuel ethanol production facility in [________], [________] (the “Facility”) and Project Company has requested that PAP provide Distillers Grains marketing services for the Facility.

 

C.           PAP desires to provide such marketing services in accordance with and subject to the terms and conditions of this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth, and intending to be legally bound, the Parties hereto covenant and agree as follows:

 

ARTICLE I

DEFINITIONS; INTERPRETATION

 

1.1   Definitions.  The following terms shall have the meanings set forth below when used in this Agreement:

 

“Act of Insolvency” means, with respect to any Person, any of the following:  (a) commencement by such Person of a voluntary proceeding under any jurisdiction’s bankruptcy, insolvency or reorganization law; (b) the filing of an involuntary proceeding against such Person under any jurisdiction’s bankruptcy, insolvency or reorganization law which is not vacated within 60 days after such filing; (c) the admission by such Person of the material allegations of any petition filed against it in any proceeding under any jurisdiction’s bankruptcy, insolvency or reorganization law; (d) the adjudication of such Person as bankrupt or insolvent or the winding up or dissolution of such Person; (e) the making by such Person of a general assignment for the benefit of its creditors (assignments for a solvent financing excluded); (f) such Person fails or admits in writing its inability to pay its debts generally as they become due; (g) the appointment of a receiver or an administrator for all or a substantial portion of such Person’s assets, which receiver or administrator, if appointed without the consent of such Person, is not discharged within 60 days after its appointment; or (h) the occurrence of any event analogous to any of the foregoing with respect to such Person occurring in any jurisdiction.

 

  

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“Affiliate” of a specified Person means any corporation, partnership, sole proprietorship or other Person which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the Person specified. The term “control” means the ownership, either direct or indirect, of twenty-five percent (25%) or more of the voting securities (or comparable equity interests) or other ownership interests of a Person, or the possession, either direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or any other means whatsoever.

 

“Agreement” has the meaning given to such term in the preamble hereto.

 

“Asset Management Agreement” means the Asset Management Agreement, dated as of June 29, 2010 among Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC, Project Company, Pacific Ethanol Stockton, LLC, and Pacific Ethanol [__________], LLC, as Owners, Pacific Holding as Owner Agent and Pacific Ethanol, Inc., as Manager, as the same may be amended, supplemented or otherwise modified from time to time.

 

“Bilateral Transaction” means, with respect to each sale of Distillers Grains produced at the Facility by Project Company, a transaction entered into by PAP with one or more Third Parties consisting of one or more forward sales of Distillers Grains.

 

“Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks in Sacramento, California or New York, New York are required or authorized to be closed.

 

“Change of Control” has the meaning ascribed thereto in the Credit Agreement.

 

“Credit Agreement” means the Credit Agreement, dated as of June 25, 2010, by and among Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC, Project Company, Pacific Ethanol Stockton, LLC, and Pacific Ethanol [__________], LLC, as Borrowers, Pacific Ethanol Holding Co. LLC, as Borrowers’ Agent, WestLB AG, New York Branch, as the administrative agent and the collateral agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time.

 

“DDG” means dried distillers grains produced by Project Company at the Facility.

 

“Dispute” means a dispute, controversy or claim.

 

“Distillers Grains” means DDG, WDG and any other form of distillers grain products produced by Project Company at the Facility from time to time.

 

“Expert” means an expert having sufficient technical expertise to address the matter subject to a Dispute.

 

“Facility” has the meaning given to such term in the recitals hereto.

 

“Financing Documents” means any and all loan agreements, credit agreements (including the Credit Agreement), reimbursement agreements, notes, indentures, bonds, security agreements, pledge agreements, mortgages, guarantee documents, intercreditor agreements, subscription agreements, equity contribution agreements and other agreements and instruments relating to the financing (or refinancing) of the ownership, operation and maintenance of the Facility.

 

  

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“Financing Parties” means the banks, lenders, noteholders and/or other financial institutions (or an agent or trustee thereof) party to the Financing Documents.

 

“Force Majeure Event” has the meaning set forth in Section 9.1.

 

“Good Industry Practice” means any of the practices, methods and acts engaged in or approved by a significant portion of the distillers grains production or marketing (as the case may be) industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. “Good Industry Practice” is not limited to a single, optimum practice, method or act to the exclusion of others, but rather is intended to include acceptable practices, methods or acts generally accepted in the regIOn.

 

“Governmental Authority” means any United States federal, state, municipal, local, territorial, or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body.

 

“Incentive Fee” means, for each Bilateral Transaction, the greater of (i) the product of 5.0% multiplied by the aggregate amount of the Purchase Price for such Bilateral Transaction, or (ii) the product of $2.00 multiplied by each ton of Distillers Grains sold in such Bilateral Transaction.

 

“Incentive Fee (Estimated)” means, for each Bilateral Transaction, the greater of (i) the product of 5.0% multiplied by the aggregate amount of the Purchase Price (Estimated) for such Bilateral Transaction, or (ii) the product of $2.00 multiplied by each ton of Distillers Grains sold in such Bilateral Transaction.

 

“Law” means any law, statute, act, legislation, bill, enactment, policy, treaty, international agreement, ordinance, judgment, injunction, award, decree, rule, regulation, interpretation, determination, requirement, writ or order of any Governmental Authority.

 

“Liabilities” has the meaning given to such term in Section 7.1.

 

“Monthly Date” means the last Business Day of each calendar month.

 

“NewCo” means New PE Holdco LLC, a Delaware limited liability company and the indirect owner on the date hereof of all the equity interests in Project Company.

 

 “PAP” has the meaning given to such term in the preamble hereto.

 

“PAP Indemnified Person” has the meaning given to such term in Section 7.2.

 

  

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“Party” or “Parties” has the meaning given to such term in the preamble hereto.

 

“Payment Adjustment Date” has the meaning given to such term in Section 3.1(b).

 

“PEI” has the meaning given to such term in the recitals hereto.

 

“Person” means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies and other organizations, whether or not legal entities, Governmental Authorities and any other entity.

 

“Prime Rate” means the rate per annum listed as the “Prime Rate” in the “Money Rates” section of The Wall Street Journal from time to time.

 

“Project Company” has the meaning given to such term in the preamble hereto.

 

“Project Company Indemnified Person” has the meaning given to such term in Section 7.1.

 

“Purchase Price” means, with respect to each Bilateral Transaction, the aggregate gross payments received by PAP (or, if the applicable Third Party defaults in its payment obligations to PAP in respect of such Bilateral Transaction, the aggregate amount of gross payments which PAP was entitled to receive) for such Bilateral Transaction from the applicable Third Party.

 

“Purchase Price (Estimated)” means, with respect to each Bilateral Transaction, the aggregate amount of gross payments anticipated to be received by PAP for such Bilateral Transaction from the applicable Third Party (as reasonably determined by PAP).

 

“Tonnage Fees” means all documented fees or taxes payable to any Governmental Authority in connection with the tonnage of Distillers Grains or Syrup produced or marketed within a given jurisdiction.

 

“Tonnage Fees (Estimated)” means all estimated fees or taxes payable to any Governmental Authority in connection with the tonnage of Distillers Grains or Syrup produced or marketed within a given jurisdiction.

 

“Third Party” means any Person (other than PEI or a subsidiary thereof) that enters into a Bilateral Transaction with PAP.

 

“Transportation Costs” means, for each Bilateral Transaction, all actual, out-of-pocket and documented costs and other expenses incurred by or on behalf of PAP in connection with the transportation of Distillers Grains to the applicable Third Party, including truck, rail, barge and/or terminal costs.

 

“Transportation Costs (Estimated)” means, for each Bilateral Transaction, the aggregate amount of Transportation Costs anticipated to be incurred by PAP in connection with such Bilateral Transaction (as reasonably determined by PAP).

 

  

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“Syrup” means corn condensed distiller’s solubles produced by Project Company at the Facility.

 

“WDG” means wet distillers grains produced by Project Company at the Facility.

 

1.2   Interpretation.  The following interpretations and rules of construction shall apply to this Agreement: (a) titles and headings are for convenience only and will not be deemed part of this Agreement for purposes of interpretation; (b) unless otherwise stated, references in this Agreement to “Sections” or “Articles” refer, respectively, to Sections or Articles of this Agreement; (c) “including” means “including, but not limited to”, and “include” or “includes” means “include, without limitation” or “includes, without limitation”; (d) “hereunder”, “herein”, “hereto” and “hereof’, when used in this Agreement, refer to this Agreement as a whole and not to a particular Section or clause of this Agreement; (e) in the case of defined terms, the singular includes the plural and vice versa; (f) unless otherwise indicated, each reference to a particular Law is a reference to such Law as it may be amended, modified, extended, restated or supplemented from time to time, as well as to any successor Law thereto; (g) unless otherwise indicated, references to agreements shall be deemed to include all subsequent amendments, supplements and other modifications thereto; and (h) unless otherwise indicated, each reference to any Person shall include such Person’s successors and permitted assigns.

 

ARTICLE II

MARKETING ACTIVITIES

 

2.1   Bilateral Transactions.

 

(a)   Subject to the terms hereof, Project Company hereby grants PAP the exclusive right to market, purchase and sell all of Project Company’s Distillers Grains (which, as of the date hereof, is approximately [__],000 tons-per-year), provided, that during the continuance of any default by PAP that would allow Project Company to terminate this Agreement pursuant to Section 4.3 or during the 30-day cure period provided in Section 4.3(c) (notwithstanding such cure period), if PAP is not performing its obligations with respect to marketing the Project Company’s Distillers Grains or during the continuance of any Force Majeure Event (including the effects thereof) that renders PAP unable to perform its obligations under this Agreement, then Project Company shall have the right to engage any other Person to market, purchase and sell the Project Company’s Distillers Grains and PAP shall not be entitled to any compensation (including Incentive Fees) with respect to any replacement services provided by such Person. PAP shall use its reasonable commercial efforts to solicit, negotiate and enter into, and PAP shall perform, Bilateral Transactions with Third Parties. PAP shall have absolute discretion in the solicitation, negotiation, administration (including the collection of payments), enforcement and execution of Bilateral Transactions and all sales of Distillers Grains produced by the Facility shall be effectuated by Bilateral Transactions. PAP shall not enter into any transaction in respect of the Project Company’s Distillers Grains that is not a Bilateral Transaction without the consent of the Project Company, which consent may be withheld by Project Company in its discretion.  Project Company hereby grants PAP the power and authority necessary to perform its obligations and exercise its rights hereunder.

 

 

  

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(b)   As further described in Sections 2.3, 2.4 and 2.6 below and except as otherwise provided herein, Project Company shall provide Distillers Grains to PAP free and clear of all liens and encumbrances.

 

(c)   PAP shall perform its obligations hereunder and under Bilateral Transactions in accordance with this Agreement, applicable Laws and Good Industry Practice and shall use commercially reasonable efforts to maximize the proceeds generated from the sale of Distillers Grains.

 

2.2   Storage.  PAP acknowledges that Project Company has only limited storage capacity and PAP agrees that it shall take any Distillers Grains requested by PAP within two days (or such longer period of time as may reasonably be agreed by Project Company) of the time that Project Company has made such Distillers Grains available to PAP.

 

2.3   Obligations of Project Company.

 

(a)   Project Company shall provide PAP with all information reasonably requested by PAP, and Project Company shall assist PAP as reasonably requested in the solicitation, negotiation and performance of Bilateral Transactions.

 

(b)   Notwithstanding anything to the contrary herein, Project Company shall not be responsible for the delivery of any Distillers Grains to PAP during any periods of scheduled Facility maintenance (unless and to the extent the applicable Distillers Grains is available to be delivered to PAP from Project Company’s storage facilities); provided, that, at any time that PEI or one of its Affiliates is not the asset manager pursuant to the Asset Management Agreement (or any successor agreement), PAP shall have received at least ten Business Days prior notice of such scheduled maintenance (it being acknowledged and agreed that if PAP does not receive at least ten Business Days prior notice, then such maintenance activity shall be deemed to be a mechanical breakdown and covered by clause (c) below for purposes hereof.

 

(c)   If on any day Project Company is unable to perform its obligations to deliver Distillers Grains under this Agreement due to a mechanical breakdown (including a forced outage of the Facility) that is not a Force Majeure Event and such mechanical breakdown has continued for more than three consecutive days, PAP shall, at Project Company’s option and at Project Company’s expense, and provided that, at any time that PEI or one of its Affiliates is not the asset manager pursuant to the Asset Management Agreement (or any successor agreement), Project Company provides PAP with prompt notice of its intent to exercise such option, use commercially reasonable efforts to identify and procure replacement distillers grains to be delivered to the Third Party under the applicable Bilateral Transaction. In such event, if and only if the Parties reach agreement as to an alternative delivery point, PAP shall acquire and deliver replacement distillers grains in a quantity sufficient to meet the contract quantity of such Bilateral Transaction at such alternate point (and Project Company shall be responsible for all transportation costs associated therewith). In all other instances, Project Company shall be responsible for any damages incurred by PAP in connection with PAP’s failure to perform under the applicable Bilateral Transaction as a result of such mechanical breakdown (it being acknowledged and agreed that PAP shall use commercially reasonable efforts to mitigate the effects of any such mechanical breakdown and Project Company’s resulting inability to deliver Distillers Grains.

 

  

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(d)   At the request of the Project Company, PAP will cause PEI to execute and deliver and maintain in full force and effect a guaranty in the form of Exhibit A hereto.

 

2.4   Back-to-Back Transactions.  Each Bilateral Transaction undertaken by PAP shall immediately and automatically, without necessity of further documentation or any action whatsoever by any of the Parties, create and cause to be undertaken according to the terms of this Agreement an equivalent transaction in terms of the obligation to deliver Distillers Grains, the quantity of Distillers Grains sold and the timing for the delivery of such Distillers Grains by Project Company with PAP (as if PAP were the Third Party).

 

2.5   Netting.  Netting of amounts due in respect of Bilateral Transactions between PAP and a Third Party may arise in circumstances in which PAP owes amounts to such Third Party in respect of Bilateral Transactions and, at the same time, such Third Party owes amounts to PAP in respect of Bilateral Transactions. In such circumstances, the party owing the greater amount may pay such amount to the other party as reduced by the amount owed to it and both parties will be deemed to have satisfied their obligations thereby. When such netting occurs, for purposes of this Agreement, for all Bilateral Transactions that have been subject to such netting arrangements, PAP shall be deemed to have paid amounts owed by it and to have received amounts owed to it.

 

2.6   Title; Delivery Point; Nominations; Measurement.

 

(a)   Project Company shall deliver Distillers Grains to PAP in respect of Bilateral Transactions (or corresponding back-to-back transactions under Section 2.4) via bucket-loader into a receiving truck that will remove such Distillers Grains from the Facility. Title to, risk of loss with respect to and the obligation to transport such Distillers Grains shall pass from Project Company to PAP at the point that such Distillers Grains drop into the applicable receiving truck. The Parties acknowledge that the quality and quantity of Distillers Grains may degrade or shrink after such Distillers Grains is delivered by Project Company to PAP at such delivery point, and the Parties acknowledge that the risk of such degradation or shrinkage and all other risk of loss shall be borne by PAP.

 

(b)   PAP and Project Company shall use the previously agreed upon operating protocol with respect to the mechanics, timing and process for (i) PAP to communicate to Project Company its Distillers Grains requirements on a monthly, weekly and daily basis, (ii) determining the quantity of Distillers Grains to be stored by Project Company in its storage facilities, and (iii) implementing the Distillers Grains sales contemplated by this Agreement. By mutual agreement, such operating protocol shall be updated from time to time thereafter. A copy of such protocol is attached hereto as Exhibit B.

 

 

 

  

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ARTICLE III

PAYMENTS

 

3.1   Fees and Payments.

 

(a)   Within ten days after the date Project Company delivers Distillers Grains to PAP in accordance with Section 2.6(a), PAP shall pay to Project Company an amount equal to (i) the Purchase Price (Estimated) with respect to the Bilateral Transaction to which such delivery of Distillers Grains relates minus (ii) the aggregate amount of Transportation Costs (Estimated) with respect to such Bilateral Transaction minus (iii) the aggregate amount of the Incentive Fee (Estimated) with respect to such Bilateral Transaction minus Tonnage Fees (Estimated) with respect to such Bilateral Transaction (it being acknowledged that PAP shall retain for its own account the amount of such Transportation Costs (Estimated), Incentive Fee (Estimated) and Tonnage Fees (Estimated), and that such amount represents an estimate of the net amounts to be paid to Project Company in connection with such Bilateral Transaction). In connection with each such payment, PAP shall deliver to Project Company a statement detailing its calculations of the applicable Purchase Price (Estimated), the applicable Transportation Costs (Estimated), the applicable Incentive Fee (Estimated) and the applicable Tonnage Fees (Estimated).

 

(b)   Within the first five Business Days of each calendar month (each such date, a “Payment Adjustment Date”), the Parties shall reconcile and “true-up” the actual Purchase Price, Transportation Costs, Incentive Fees and Tonnage Fees for all Bilateral Transactions entered into since the previous Payment Adjustment Date, with the intent of the Parties being that PAP shall make up the difference of any “under estimations” and Project Company shall refund any “over estimations”. For example, if there are “under estimations” then PAP shall pay to Project Company an amount equal to:

 

(i)   (A) the Purchase Price with respect to such Bilateral Transaction minus (B) the Purchase Price (Estimated) with respect to such Bilateral Transaction (to the extent actually paid by PAP to Project Company pursuant to Section 3.1(a)), minus

 

(ii)   (A) the Transportation Costs with respect to each such Bilateral Transaction minus (B) the Transportation Costs (Estimated) with respect to such Bilateral Transaction, minus

 

(iii)   (A) the Incentive Fee with respect to each such Bilateral Transaction minus (B) the Incentive Fee (Estimated) with respect to such Bilateral Transaction, minus

 

(iv)   (A) the Tonnage Fees with respect to each such Bilateral Transaction minus (B) the Tonnage Fees (Estimated) with respect to such Bilateral Transaction.

 

Each such monthly reconciliation or “true-up” payment shall be paid by PAP or Project Company (as applicable) no later than five Business Days after the applicable Payment Adjustment Date. Each Party acknowledges that Project Company (and not PAP) bears the risk of non-payment by a Third Party in connection with a Bilateral Transaction.

 

  

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(c)   Notwithstanding anything to the contrary in clause (a) or (b) above, if Project Company defaults in its obligation to provide Distillers Grains to PAP in accordance with the terms of this Agreement (including, without limitation, as contemplated by Section 2.3(c)), then PAP shall be entitled to set-off and deduct from current and/or future payments owed to PAP by Project Company (including the estimated payments pursuant to clause (a) above and the reconciliation and “true-up” payments pursuant to clause (b) above) an amount equal to, as applicable, (i) the amount of damage payments owed by PAP to the applicable Third Party for failure to provide such Distillers Grains and (ii) the cost of any replacement Distillers Grains procured by PAP to satisfy the requirements of any Bilateral Transaction, each as a result of Project Company’s failure to perform hereunder net of any revenue received in respect of such Bilateral Transaction.

 

3.2   Overdue Payments; Billing Dispute.  If Project Company or PAP, in good faith, disputes the amount of any payment received by it or to be paid by it or set-off pursuant to Section 3.1 above, the disputing Party shall immediately notify the other Party of the basis for the dispute. The Parties will then meet and use their best efforts to resolve any such dispute. If any amount is ultimately determined to be due to or permitted to be set-off by Project Company or PAP (as the case may be), to the extent not previously paid or set-off, (a) PAP (or the Project Company as the case may be) shall pay such amount to Project Company within five Business Days of such determination or (b) PAP (or the Project Company as the case may be) may then set-off such amount (as the case may be). If any Party shall fail to make any payment when due hereunder, such overdue payment shall accrue interest at the Prime Rate plus 2% from the date originally due until the date paid.

 

3.3   Audit.  Notwithstanding the payment of any amount pursuant to this Article III, Project Company shall remain entitled (upon reasonable prior notice, at reasonable times and at PAP’s corporate offices) and the administrative agent under the Credit Agreement (and its consultants, as directed by the administrative agent) shall be entitled (upon reasonable prior notice, not more than once per calendar quarter and at PAP’s corporate offices) to conduct a subsequent audit and review of (a) all Bilateral Transactions and related records to verify the amount of gross payments, Incentive Fees, Transportation Costs and damage payments and (b) the determination and calculation of the Purchase Price, in each case for a period of two years from and after the applicable Payment Adjustment Date. If, pursuant to such audit and review, it is determined that any amount previously paid by PAP to Project Company did not constitute all of the amounts which should have been paid to Project Company, Project Company shall advise PAP indicating such amount and reason the amount should have been paid to Project Company and, subject to the next two sentences, PAP shall pay such amount to Project Company within five Business Days of such request along with interest accrued at the Prime Rate plus 5% from the date originally due until the date paid. If the Parties do not agree with respect to any item so noted, the Parties will then meet and use their best efforts to resolve the dispute. If Parties are not able to resolve issues raised by such an audit and review, any disputed items will be resolved in accordance with the provisions of Article IX.

 

 

 

  

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ARTICLE IV

TERM; TERMINATION

 

4.1   Term.  This Agreement shall be effective on the date hereof and, unless earlier terminated in accordance with its terms, shall continue in effect until and including the twelve-month anniversary of the date of this Agreement, provided, that Project Company may extend this Agreement for additional twelve-month periods, in each case by written notice to PAP delivered not less than 90 days prior to the end of the original or renewal term.

 

4.2   Termination by PAP.  PAP may terminate this Agreement by written notice to Project Company, upon the occurrence of any of the following events, provided, that no such notice shall be required for a termination pursuant to clause (b) of this Section 4.2:

 

(a)           the failure by Project Company to make any payment, deposit or transfer required hereunder within 30 Business Days after the date such payment, deposit or transfer is required to be made;

 

(b)           the occurrence of an Act of Insolvency with respect to Project Company; or

 

(c)           the failure of Project Company to perform any of its material obligations under this Agreement and such failure continues for 30 days after receipt of written notice from PAP of such failure; provided, that such 30-day period shall be extended for up to an aggregate of 90 days so long as Project Company is diligently attempting to cure such failure.

 

4.3   Termination by Project Company.  Project Company may terminate this Agreement by written notice to PAP, upon the occurrence of any of the following events, provided, that no such notice shall be required for a termination pursuant to clause (b) of this Section 4.3:

 

(a)           the failure by PAP to make any payment, deposit or transfer required hereunder within fifteen Business Days after the date such payment, deposit or transfer is required to be made;

 

(b)           the occurrence of an Act of Insolvency with respect to PAP; or

 

(c)           the failure of PAP to perform any of its material obligations under this Agreement and such failure continues for 30 days after receipt of written notice from Project Company of such failure; provided, that such 30-day period shall be extended for up to an aggregate of 90 days so long as PAP is diligently attempting to cure such failure.

 

 

  

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4.4   Change of Control.  This Agreement shall terminate 45 days after the occurrence of (i) any Change of Control with respect to Project Company or any transfer, assignment, sale or other disposition of more than a majority of the membership interests in PAP to any Person that is not an Affiliate of PEI or (ii) any transfer, assignment, sale or other disposition of all or substantially all of the assets comprising the Facility, unless in each case the Parties mutually agree to the contrary.

 

4.5   Effect of Termination.  No termination under this Article IV shall release any of the Parties from any obligations arising hereunder prior to such termination, including payment and obligations under any Bilateral Transaction (or such Bilateral Transaction’s corresponding back-to-back transaction arising under Section 2.4), that are not fully performed as of the date of such termination. The exercise of the right of a Party to terminate this Agreement, as provided herein, does not preclude such Party from exercising other remedies that are provided herein or are available at law or in equity; provided, however, that no Party shall have a right to terminate, revoke or treat this Agreement as repudiated other than in accordance with the other provisions of this Agreement; and provided, further, that the Parties’ respective rights upon termination shall be subject to the liability limitations of Article V.  Except as otherwise set forth in this Agreement, remedies are cumulative, and the exercise of, or the failure to exercise, one or more remedies by a Party shall not, to the extent provided by Law, limit or preclude the exercise of, or constitute a waiver of, other remedies by such Party.

 

ARTICLE V

INSURANCE

 

5.1   PAP Insurance.  Without limiting any of the other obligations or liabilities of PAP under this Agreement, PAP shall at all times carry and maintain or cause to be carried and maintained, the minimum insurance coverage set forth in this Section:

 

(a)   PAP shall maintain or cause to be maintained (i) Workers’ Compensation insurance in compliance with the workers’ compensation laws of the State of Oregon as extended by the Broad Form All States Endorsements, the United States Longshoreman’s and Harbor Workers’ Coverage Endorsements on an if-any-exposure basis and the Voluntary Compensation Coverage Endorsement, and (ii) Employer’s Liability (including Occupational Disease) coverage with limits of not less than $1,000,000, which shall cover all of PAP’s employees engaged in providing services hereunder.

 

(b)   PAP shall maintain or cause to be maintained automobile liability insurance for owned (if any), non-owned and hired vehicles with combined single limits for bodily injury/property damage not less than $1,000,000 per occurrence and containing appropriate no-fault insurance provisions wherever applicable.

 

(c)   PAP will maintain or cause to be maintained commercial general liability insurance with a limit for bodily injury/property damage of not less than $1,000,000 per occurrence and $2,000,000 in the annual aggregate. Such coverage shall include premises/operations, explosion, collapse and underground property damage, broad form contractual, independent contractors, products/completed operations (including operator errors and omissions), broad form property damage, personal injury and incidental professional liability (if not covered under product/completed operations and if commercially available).

 

  

11

  

 

(d)   PAP shall maintain or cause to be maintained umbrella liability insurance providing coverage limits in excess of those set forth in Section (a), (b) and (c) above. The limits of this umbrella coverage shall not be less than $10,000,000 per occurrence and in the annual aggregate.

 

(e)   PAP shall maintain or cause to be maintained pollution legal liability for sudden and accidental pollution for physical damage and bodily injury to third parties in an amount of $3,000,000 per occurrence and in the annual aggregate.

 

The terms and conditions of all insurance policies (including the amount, scope of coverage, deductibles, and self-insured retentions) shall be acceptable in all respects as of the effective date of this Agreement. All insurance carried pursuant to this Section shall conform to the relevant provisions of this Agreement and be with insurance companies which are rated “A-, X” or better by Best’s Insurance Guide and Key Ratings, or other insurance companies of recognized responsibility satisfactory to Project Company. Project Company shall be furnished with satisfactory evidence that the foregoing insurance is in effect and Project Company shall be notified 30 calendar days prior to the cancellation or material change of any such coverage. Coverage for the insurance under Section (c) and (d) above shall be written on a claims made basis provided that if the policy is not renewed, PAP shall obtain for the benefit of Project Company an extended reporting period coverage or “tail” of at least three years past the final day of coverage of such policy. PAP shall provide Project Company with evidence that such extended reporting period coverage or “tail” has been obtained. PAP agrees to ensure that the insurance policies outlined in this Section require the insurer to waive subrogation against Project Company, the Financing Parties and their respective Affiliates together with their respective officers, directors, Affiliates and employees and all such Persons shall be an additional insured as their interests may appear with respect to all policies procured by PAP.

 

5.2   PAP Insurance Premiums and Deductibles.  All premiums for insurance coverage procured by PAP pursuant to Section 5.1 shall be reimbursed by Project Company upon demand. PAP shall be liable for the payment of all deductibles on insurance policies obtained pursuant to Section 5.1, which amounts shall not be reimbursed by Project Company, provided that, to the extent that a claim under a policy described in Section 5.1 is attributable to Project Company’s (including its employees’ or agents’) gross negligence or willful misconduct, Project Company shall be liable for the entire amount of such deductible. In no event shall any premiums, deductibles or any losses in excess of insurance coverage be reimbursed by Project Company hereunder.

 

ARTICLE VI

LIMITATIONS ON LIABILITY

 

6.1   No Consequential or Punitive Damages.  In no event shall either Party be liable to any other Party by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any incidental, indirect, special or consequential or punitive damages of any other kind or nature whatsoever that may be suffered by such other Party, including any losses for which such other Party has insurance to the extent proceeds of insurance have been recovered for such losses.

 

 

  

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ARTICLE VII

INDEMNIFICATION

 

7.1   Project Company’s Indemnity.  Project Company shall defend, indemnify and hold harmless PAP and its Affiliates (and each officer, director, employee, shareholder, partner, member or agent of PAP and its Affiliates) (each, a “Project Company Indemnified Person”) from and against any and all third party claims, actions, damages, expenses (including reasonable and documented attorneys’ fees and expenses), losses, settlements or liabilities (collectively, “Liabilities”) incurred or asserted against any Project Company Indemnified Person (a) as a result of any failure on the part of Project Company to perform Project Company’s obligations under this Agreement (including with respect to any back-to-back transaction under Section 2.4), or (b) arising out of or in any way connected with the grossly negligent acts or omissions of Project Company or its Affiliates (other than PAP).

 

7.2   PAP’s Indemnity.  PAP shall defend, indemnify and hold harmless Project Company and its Affiliates (and each officer, director, employee, shareholder, partner, member or agent of Project Company and their Affiliates) (each, a “PAP Indemnified Person”) from and against any and all third party Liabilities incurred or asserted against any PAP Indemnified Person (a) as a result of any failure on the part of PAP to perform its obligations under this Agreement (including with respect to any Bilateral Transaction), or (b) arising out of or in any way connected with the grossly negligent acts or omissions of PAP or its Affiliates (other than Project Company).

 

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

 

Each Party represents that (i) it is duly organized under its jurisdiction of formation and in good standing in each jurisdiction where its failure to so qualify could have a material adverse affect on its ability to perform its obligations hereunder, (ii) it has all necessary power and authority to enter into this Agreement, (iii) it has duly authorized, executed and delivered this Agreement and (iv) this Agreement constitutes a legal, valid and binding obligation of such Party enforceable in accordance with its terms, subject to bankruptcy, reorganization, moratorium or other similar laws affecting the enforcement of the rights of creditors generally and subject to general principles of equity.

 

ARTICLE IX

FORCE MAJEURE

 

9.1   Definition.  As used herein, “Force Majeure Event” means any cause(s) which render(s) a Party wholly or partly unable to perform its obligations under this Agreement (other than obligations to make payments when due), and which are neither reasonably within the control of such Party nor the result of the fault or negligence of such Party, and which occur despite all reasonable attempts to avoid, mitigate or remedy, and shall include acts of God, war, riots, civil insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes, lightning, storms, chemical contamination, epidemics or plagues, acts or campaigns of terrorism or sabotage, blockades, embargoes, accidents or interruptions to transportation, trade restrictions, acts of any Governmental Authority after the date of this Agreement, strikes and other labor difficulties (other than with respect to its own employees), and other events or circumstances beyond the reasonable control of such Party. Mechanical breakdown (including a forced outage of the Facility) that continues for more than five consecutive days shall be deemed not to be “Force Majeure Event” unless such mechanical breakdown resulted from or was caused by a separate “Force Majeure Event.”

 

  

13

  

 

9.2   Effect.  A Party claiming relief as a result of a Force Majeure Event shall give the other Parties written notice within five Business Days of becoming aware of the occurrence of the Force Majeure Event, or as soon thereafter as practicable, describing the particulars of the Force Majeure Event, and will use reasonable efforts to remedy its inability to perform as soon as possible. If the Force Majeure Event (including the effects thereof) continues for fifteen consecutive days, the affected Party shall report to the other Parties the status of its efforts to resume performance and the estimated date thereof. If the Force Majeure Event (including the effects thereof) continues for 180 consecutive days, either Party may terminate this Agreement for convenience. If the affected Party was not able to resume performance prior to or at the time of the report to the other Party of the onset of the Force Majeure Event, then it will report in writing to the other Party when it is again able to perform. If a Party fails to give timely notice, the excuse for its non-performance shall not begin until notice is given.

 

9.3   Limitations.  Any obligation(s) of a Party (other than an obligation to make payments when due) may be temporarily suspended during any period such Party is unable to perform such obligation(s) by reason of the occurrence of a Force Majeure Event, but only to the extent of such inability to perform, provided, that:

 

(a)   the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event; and

 

(b)   the Party claiming the occurrence of the Force Majeure Event bears the burden of proof.

 

ARTICLE X

DISPUTE RESOLUTION

 

10.1   Attempts to Settle.  In the event that a Dispute between the Parties arises under, out of or in relation to, this Agreement, the Parties shall attempt in good faith to settle such Dispute by mutual discussions within fifteen Business Days after the date that an aggrieved Party gives written notice of the Dispute to the other Parties. In the event that a Dispute is not resolved by discussion in accordance with the preceding sentence within the time period set forth therein, the Parties shall refer the Dispute to their respective senior officers for further consideration and attempted resolution within fifteen Business Days after the Dispute has been referred to such individuals (or such longer period as the Parties may agree).

 

 

  

14

  

 

10.2   Resolution by Expert.  If the Parties shall have failed to resolve the Dispute within fifteen Business Days after the date that the Parties referred the Dispute to their senior officers, then, provided the Parties shall so agree, the Dispute may be submitted for resolution by an Expert, such Expert to be appointed by the mutual agreement of the Parties. Proceedings before an Expert shall be held in Sacramento, California (or any other location agreed to by the Parties). The Expert shall apply to such proceedings the substantive law of the State of New York in effect at the time of such proceedings. The decision of the Expert shall be final and binding upon the Parties. In the event that (a) the Parties cannot agree on the appointment of an Expert within ten Business Days after the date that the Parties agreed to submit the Dispute for resolution by the Expert or (b) the Expert fails to resolve such Dispute within 60 days after the Parties have submitted such Dispute to the Expert, then any Party may file a demand for arbitration in writing in accordance with Section 10.3.

 

10.3   Arbitration.  Any Dispute that has not been resolved following the procedures set forth in Section 10.1 or 10.2 shall be settled by binding arbitration in Sacramento, California (or any other location agreed to by the Parties) before a panel of three arbitrators. Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date of execution of this Agreement. Such arbitration shall be governed by the laws of the State of New York. If arbitration proceedings have been initiated pursuant to this Section 10.3 and raise issues of fact or law which, in whole or in part, are substantially the same as issues of fact or law already pending in arbitration proceedings involving the applicable Parties, such issues shall be consolidated with the issues in the ongoing proceedings. THE PARTIES HEREBY AGREE THAT THE PROCEDURES SET FORTH IN THIS ARTICLE IX SHALL BE THE EXCLUSIVE DISPUTE RESOLUTION PROCEDURES APPLICABLE TO ANY DISPUTE, CONTROVERSY OR CLAIM UNDER THIS AGREEMENT AND, EXCEPT AS SET FORTH IN SECTION 10.5, THE PARTIES HEREBY WAIVE ALL RIGHTS TO A COURT TRIAL OR TRIAL BY JURY WITH RESPECT TO ANY DISPUTE, CONTROVERSY OR CLAIM UNDER THIS AGREEMENT.

 

10.4   Consequential and Punitive Damages.  Awards of Experts and arbitral panels shall be subject to the provisions of Article VI.

 

10.5   Finality and Enforcement of Decision.  Any decision or award of an Expert or a majority of an arbitral panel, as applicable, shall be final and binding upon the Parties. Each of the Parties agrees that the arbitral award may be enforced against it or its assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof.

 

10.6   Costs.  The costs of submitting a Dispute to an Expert shall be shared equally among the Parties involved in the Dispute, unless the arbitral panel or the Expert determines otherwise. The costs of arbitration shall be paid in accordance with the decision of the arbitral panel pursuant to the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date of execution of this Agreement.

 

10.7   Continuing Performance Obligations.  While a Dispute is pending, each Party shall continue to perform its obligations under this Agreement, unless such Party is otherwise entitled to suspend its performance hereunder or terminate this Agreement in accordance with the terms hereof.

 

 

  

15

  

 

ARTICLE XI

CONFIDENTIALITY

 

Each Party and its Affiliates shall treat as confidential the data and information in their possession regarding the Facility, the other Parties or any Affiliate of any other Party, unless: (a) the applicable other Party agrees in writing to the release of such data or information; (b) such data or information becomes publicly available other than through the wrongful actions of the disclosing Party or the disclosing Party’s Affiliate; ( c) such data or information was in the possession of the receiving Party or the receiving Party’s Affiliate prior to receipt thereof from the disclosing Party with no corresponding confidentiality obligation; or (d) such data or information is required by Law to be disclosed. Notwithstanding the generality of the foregoing, any Party may disclose data and information to (i) the officers, directors, managers, partners, members, employees and Affiliates of such Party, (ii) any successors in interest and permitted assigns of such Party, (iii) any actual or potential Financing Parties or actual or potential lenders to PEI or any subsidiary thereof, and (iv) any potential equity investors in PEI or acquirer of all or any of the equity interests in Newco or any subsidiary thereof; provided, that any Person who receives confidential data and information pursuant to an exception contained in clauses (ii) -(iv) of this Article agrees to similar confidentiality provisions.

 

ARTICLE XII

ASSIGNMENT AND TRANSFER

 

No Party shall assign this Agreement or any of its rights or obligations hereunder without first obtaining the prior written consent of ( a) in the case of Project Company, PAP, or (b) in the case of PAP, Project Company, provided, that any Party shall be entitled to assign its rights hereunder (as collateral security or otherwise) for financing purposes (including a collateral assignment to any Financing Parties) without the consent of any other Party.

 

ARTICLE XIII

MISCELLANEOUS

 

13.1   Entire Agreement.  This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, negotiations and understandings among the Parties with respect to such subject matter. Nothing in this Agreement shall be construed as creating a partnership or joint venture between the Parties.

 

13.2   Counterparts.  This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same agreement.

 

13.3   Survival.  Cancellation, expiration or earlier termination of this Agreement shall not relieve the Parties of obligations that by their nature should survive such cancellation, expiration or termination, including remedies, limitations on liability, promises of indemnity and payment, and confidentiality. Without limiting the generality of the foregoing, the following provisions of this Agreement shall survive:  Articles III, VI, VII, X and XI and Section 13.3, 13.4, 13.5, 13.6, 13.8 and 13.9.

 

  

16

  

 

13.4   Severability.  In the event anyone or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic and practical effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

13.5   Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the principles of conflicts of laws thereof.

 

13.6   Binding Effect.  This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement is not made for the benefit of any Person or entity not a party hereto, and nothing in this Agreement shall be construed as giving any Person or entity, other than the Parties and their respective successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof.

 

13.7   Notices.  All notices or other communications which are required or permitted hereunder shall be in writing and shall be deemed sufficiently given (a) upon delivery, if delivered personally, (b) the day the notice is received, if it is delivered by overnight courier or certified or registered mail, postage prepaid, or (c) upon the effective receipt of electronic transmission, facsimile, telex or telegram (with effective receipt being deemed to occur upon the sender’s receipt of confirmation of successful transmission of such notice or communication), to the addresses set forth below or such other address as the addressee may have specified in a notice duly given to sender as provided herein:

 

If to PAP:

 

Pacific Ag. Products, LLC

31375 Great Western Dr.

Windsor, CO 80550

with a copy to:

Pacific Ag. Products, LLC

c/o Pacific Ethanol, Inc.

400 Capitol Mall

Suite 2060

Sacramento, California  95814

Attention:        Neil Koehler

Telephone:      (530) 750-3017

Facsimile:         (530) 309-4172

 

  

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If to Project Company:

 

Pacific Ethanol [__________], LLC

c/o JT Miller Group LLC

777 Campus Commons Road # 200

Sacramento, California  95825

Attn:                 John Miller

Telephone:      (916) 565-7422

Facsimile:         (916) 565-7423

with a copy, so long as PEI is the “Manager” under the Asset Management Agreement, to:

Pacific Ethanol, Inc.

400 Capitol Mall, Suite 2060

Sacramento, CA 95814

Attention: General Counsel

Facsimile:         (916) 446-3936

13.8   Amendment.  No Party hereto shall be bound by any termination, amendment, supplement, waiver or modification of any term hereof unless such Party shall have consented thereto in writing.

 

13.9   No Implied Waiver.  No delay or failure on the part of any Party in exercising any rights hereunder, and no partial or single exercise thereof, shall constitute a waiver of such rights or of any other rights hereunder.

 

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

 

 

 

 

 

 

  

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IN WITNESS WHEREOF, this Distillers Grains Marketing Agreement has been duly executed by the Parties hereto as of the date first written above.

 

 

	 	PACIFIC ETHANOL [__________], LLC
	 	 
	 	 
	 	By:  _______________________________   
	 	Name:
	 	Title:
	 	 
	 	 
	 	PACIFIC AG. PRODUCTS, LLC
	 	 
	 	 
	 	By:  /s/ Neil Koehler         
	 	Name: Neil Koehler
	 	Title: CEO

 

 

  

 

 

 

 

[Signature Page to Distillers Grains Marketing Agreement – Boardman]

 

 

19EXHIBIT 10.26

 

	
  THIS
  INSTRUMENT PREPARED BY:

   

  Michael
  Van Voorhis, Esquire

  Troutman
  Sanders LLP

  P.O. Box
  1122

  Richmond,
  Virginia 23218-1122

   

  WHEN
  RECORDED RETURN TO:

   

   

  	
   

  	
  (Reserved)

  

 

MULTIFAMILY
MORTGAGE,

ASSIGNMENT
OF RENTS

AND
SECURITY AGREEMENT

 

(FLORIDA —
REVISION DATE 05-11-2004)

 

 

FHLMC Loan No. 534389465

Palms of Monterrey

 

MULTIFAMILY MORTGAGE,

ASSIGNMENT OF RENTS

AND SECURITY AGREEMENT

(FLORIDA — REVISION DATE 05-11-2004)

 

THIS
MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (the “Instrument”) is made to be effective as of
this 11th day of June, 2010, between 15250 SONOMA DRIVE FEE OWNER, LLC, a
limited liability company organized and existing under the laws of Delaware,
whose address is 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, as
mortgagor (“Borrower”), and HOLLIDAY FENOGLIO FOWLER, L.P., a limited
partnership organized and existing under the laws of Texas, whose address is 9
Greenway Plaza, Suite 700, Houston, Texas 77046, as mortgagee (“Lender”). 
Borrower’s organizational identification number, if applicable, is
4732892.

 

Borrower is indebted to Lender in the principal amount of
$19,700,000.00, as evidenced by Borrower’s Multifamily Note payable to Lender
dated as of the date of this Instrument, and maturing on July 1, 2017 (the
“Maturity Date”).

 

TO SECURE TO LENDER the repayment of the Indebtedness, and all
renewals, extensions and modifications of the Indebtedness, and the performance
of the covenants and agreements of Borrower contained in the Loan Documents,
Borrower mortgages, warrants, grants, conveys and assigns to Lender the
Mortgaged Property, including the Land located in the County of Lee, State of
Florida and described in Exhibit A attached to this Instrument.

 

Borrower represents and warrants that Borrower is lawfully seized of
the Mortgaged Property, has the right, power and authority to grant, convey and
assign the Mortgaged Property, and that the Mortgaged Property is unencumbered,
except as shown on the schedule of exceptions to coverage in the title policy
issued to and accepted by Lender contemporaneously with the execution and
recordation of this Instrument and insuring Lender’s interest in the Mortgaged
Property (the “Schedule of Title Exceptions”).  Borrower covenants that Borrower will warrant
and defend generally the title to the Mortgaged Property against all claims and
demands, subject to any easements and restrictions listed in the Schedule of
Title Exceptions.

 

UNIFORM COVENANTS

REVISION DATE 02-15-2008

 

Covenants.  In consideration of the mutual promises set
forth in this Instrument, Borrower and Lender covenant and agree as follows:

 

1.                                      DEFINITIONS.  The
following terms, when used in this Instrument (including when used in the above
recitals), shall have the following meanings:

 

(a)                                  “Attorneys’ Fees and Costs” means
(i) fees and out-of-pocket costs of Lender’s and Loan Servicer’s
attorneys, as applicable, including costs of Lender’s and Loan Servicer’s
in-house counsel, support staff costs, costs of preparing for litigation,
computerized research, telephone and facsimile transmission expenses, mileage,
deposition costs, postage, duplicating, process service, videotaping and
similar costs and expenses; (ii) costs and fees of expert witnesses, including
appraisers; and (iii) investigatory fees.

 

1

 

(b)                                 “Borrower” means all persons or entities
identified as “Borrower” in the first paragraph of this Instrument, together
with their successors and assigns.

 

(c)                                  “Business Day” means any day other than a Saturday,
a Sunday or any other day on which Lender or the national banking associations
are not open for business.

 

(d)                                 “Collateral Agreement” means any separate
agreement between Borrower and Lender for the purpose of establishing
replacement reserves for the Mortgaged Property, establishing a fund to assure
the completion of repairs or improvements specified in that agreement, or
assuring reduction of the outstanding principal balance of the Indebtedness if
the occupancy of or income from the Mortgaged Property does not increase to a
level specified in that agreement, or any other agreement or agreements between
Borrower and Lender which provide for the establishment of any other fund,
reserve or account.

 

(e)                                  “Controlling Entity” means an entity which
owns, directly or indirectly through one or more intermediaries, (i) a
general partnership interest or a Controlling Interest of the limited
partnership interests in Borrower (if Borrower is a partnership or joint
venture), (ii) a manager’s interest in Borrower or a Controlling Interest
of the ownership or membership interests in Borrower (if Borrower is a limited
liability company), (iii) a Controlling Interest of any class of voting
stock of Borrower (if Borrower is a corporation), (iv) a trustee’s
interest or a Controlling Interest of the beneficial interests in Borrower (if
Borrower is a trust), or (v) a managing partner’s interest or a
Controlling Interest of the partnership interests in Borrower (if Borrower is a
limited liability partnership).

 

(f)                                    “Controlling Interest” means
(i) 51 percent or more of the ownership interests in an entity, or
(ii) a percentage ownership interest in an entity of less than 51 percent,
if the owner(s) of that interest actually direct(s) the business and
affairs of the entity without the requirement of consent of any other
party.  The Controlling Interest shall be
deemed to be 51 percent unless otherwise stated in Exhibit B.

 

(g)                                 “Environmental Permit” means any permit,
license, or other authorization issued under any Hazardous Materials Law with
respect to any activities or businesses conducted on or in relation to the
Mortgaged Property.

 

(h)                                 “Event of Default” means the occurrence of
any event listed in Section 22.

 

(i)                                     “Fixtures” means all property owned by
Borrower which is so attached to the Land or the Improvements as to constitute
a fixture under applicable law, including: machinery, equipment, engines,
boilers, incinerators, installed building materials; systems and equipment for
the purpose of supplying or distributing heating, cooling, electricity, gas,
water, air, or light; antennas, cable, wiring and conduits used in connection
with radio, television, security, fire prevention, or fire detection or
otherwise used to carry electronic signals; telephone systems and equipment;
elevators and related machinery and equipment; fire detection, prevention and
extinguishing systems and apparatus; security and access control systems and
apparatus; plumbing systems; water heaters, ranges, stoves, microwave ovens,
refrigerators, dishwashers, garbage disposers, washers, dryers and other
appliances; light fixtures, awnings, storm windows and storm doors; pictures,
screens, blinds, shades, curtains and curtain rods; mirrors; cabinets,
paneling, rugs and floor and wall coverings; fences, trees and plants; swimming
pools; and exercise equipment.

 

(j)                                     “Governmental Authority” means any board,
commission, department or body of any municipal, county, state or federal
governmental unit, or any subdivision of any of them, 

 

2

 

that has or acquires jurisdiction over the Mortgaged
Property or the use, operation or improvement of the Mortgaged Property or over
the Borrower.

 

(k)                                  “Hazard Insurance” is defined in
Section 19.

 

(l)                                     “Hazardous Materials” means 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
Mortgaged 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 that (i)  is defined as a “hazardous substance,”
“hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,”
“contaminant,” or “pollutant” by or within the meaning of any Hazardous
Materials Law, or (ii) is regulated in any way by or within the meaning of
any Hazardous Materials Law.

 

(m)                               “Hazardous Materials Laws” means all
federal, state, and local laws, ordinances and regulations and standards,
rules, policies and other governmental requirements, administrative rulings and
court judgments and decrees in effect now or in the future and including all
amendments, that relate to Hazardous Materials or the protection of human
health or the environment and apply to Borrower or to the Mortgaged Property.
Hazardous Materials Laws include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act,
15 U.S.C. Section 2601, et seq.,
the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49
U.S.C. Section 5101 et seq.,
and their state analogs.

 

(n)                                 “Impositions” and “Imposition Deposits” are defined in
Section 7(a).

 

(o)                                 “Improvements” means the buildings,
structures, improvements, and alterations now constructed or at any time in the
future constructed or placed upon the Land, including any future replacements
and additions.

 

(p)                                 “Indebtedness” means the principal of,
interest at the fixed or variable rate set forth in the Note on, and all other
amounts due at any time under, the Note, this Instrument or any other Loan
Document, including prepayment premiums, late charges, default interest, and
advances as provided in Section 12 to protect the security of this
Instrument.

 

(q)                                 “Initial Owners” means, with respect to
Borrower or any other entity, the persons or entities that (i) on the date of
the Note, or (ii) on the date of a Transfer to which Lender has consented,
own in the aggregate 100 percent of the ownership interests in Borrower or
that entity.

 

(r)                                    “Land” means the land described in Exhibit A.

 

(s)                                  “Leases” means all present and future
leases, subleases, licenses, concessions or grants or other possessory
interests now or hereafter in force, whether oral or written, covering or
affecting the Mortgaged Property, or any portion of the Mortgaged Property
(including proprietary leases or occupancy agreements if Borrower is a
cooperative housing corporation), and all modifications, extensions or
renewals.

 

3

 

(t)                                    “Lender” means the entity identified as
“Lender” in the first paragraph of this Instrument, or any subsequent holder of
the Note.

 

(u)                                 “Loan Documents” means the Note, this
Instrument, all guaranties, all indemnity agreements, all Collateral
Agreements, O&M Programs, the MMP and any other documents now or in the
future executed by Borrower, any guarantor or any other person in connection
with the loan evidenced by the Note, as such documents may be amended from time
to time.

 

(v)                                 “Loan Servicer” means the entity that from
time to time is designated by Lender to collect payments and deposits and
receive Notices under the Note, this Instrument and any other Loan Document,
and otherwise to service the loan evidenced by the Note for the benefit of
Lender.  Unless Borrower receives Notice
to the contrary, the Loan Servicer is the entity identified as “Lender” in the
first paragraph of this Instrument.

 

(w)                               “MMP” means a moisture management plan to
control water intrusion and prevent the development of Mold or moisture at the
Mortgaged Property throughout the term of this Instrument.  At a minimum, the MMP must contain a
provision for (i) staff training, (ii) information to be provided to
tenants, (iii) documentation of the plan, (iv) the appropriate protocol
for incident response and remediation and (v) routine, scheduled
inspections of common space and unit interiors.

 

(x)                                   “Mold” means mold, fungus, microbial
contamination or pathogenic organisms.

 

(y)                                 “Mortgaged Property” means all of Borrower’s
present and future right, title and interest in and to all of the following:

 

(i)            the Land;

 

(ii)           the Improvements;

 

(iii)          the Fixtures;

 

(iv)          the Personalty;

 

(v)           all current and future
rights, including air rights, development rights, zoning rights and other
similar rights or interests, easements, tenements, rights-of-way, strips and
gores of land, streets, alleys, roads, sewer rights, waters, watercourses, and
appurtenances related to or benefiting the Land or the Improvements, or both,
and all rights-of-way, streets, alleys and roads which may have been or may in
the future be vacated;

 

(vi)          all proceeds paid or to be
paid by any insurer of the Land, the Improvements, the Fixtures, the Personalty
or any other part of the Mortgaged Property, whether or not Borrower obtained
the insurance pursuant to Lender’s requirement;

 

(vii)         all awards, payments and
other compensation made or to be made by any municipal, state or federal
authority with respect to the Land, the Improvements, the Fixtures, the
Personalty or any other part of the Mortgaged Property, including any awards or
settlements resulting from condemnation proceedings or the total or partial
taking of the Land, the Improvements, the Fixtures, the Personalty or any other
part of the 

 

4

 

Mortgaged Property under the
power of eminent domain or otherwise and including any conveyance in lieu
thereof;

 

(viii)        all contracts,
options and other agreements for the sale of the Land, the Improvements, the
Fixtures, the Personalty or any other part of the Mortgaged Property entered
into by Borrower now or in the future, including cash or securities deposited
to secure performance by parties of their obligations;

 

(ix)           all proceeds
from the conversion, voluntary or involuntary, of any of the above into cash or
liquidated claims, and the right to collect such proceeds;

 

(x)            all Rents and
Leases;

 

(xi)           all earnings,
royalties, accounts receivable, issues and profits from the Land, the
Improvements or any other part of the Mortgaged Property, and all undisbursed
proceeds of the loan secured by this Instrument;

 

(xii)          all Imposition
Deposits;

 

(xiii)         all refunds or
rebates of Impositions by any municipal, state or federal authority or
insurance company (other than refunds applicable to periods before the real property
tax year in which this Instrument is dated);

 

(xiv)        all tenant
security deposits which have not been forfeited by any tenant under any Lease
and any bond or other security in lieu of such deposits; and

 

(xv)         all names under
or by which any of the above Mortgaged Property may be operated or known, and
all trademarks, trade names, and goodwill relating to any of the Mortgaged
Property.

 

(z)                                   “Note” means the Multifamily Note described
on page 1 of this Instrument, including all schedules, riders, allonges
and addenda, as such Multifamily Note may be amended from time to time.

 

(aa)                            “O&M Program” is defined in
Section 18(d).

 

(bb)                          “Personalty” means all:

 

(i)            accounts (including deposit
accounts) of Borrower related to the Mortgaged Property;

 

(ii)           equipment and inventory
owned by Borrower, which are used now or in the future in connection with the
ownership, management or operation of the Land or Improvements or are located
on the Land or Improvements, including furniture, furnishings, machinery,
building materials, goods, supplies, tools, books, records (whether in written
or electronic form), and computer equipment (hardware and software);

 

5

 

(iii)          other tangible personal
property owned by Borrower which is used now or in the future in connection
with the ownership, management or operation of the Land or Improvements or is
located on the Land or in the Improvements, including ranges, stoves, microwave
ovens, refrigerators, dishwashers, garbage disposers, washers, dryers and other
appliances (other than Fixtures);

 

(iv)          any operating agreements
relating to the Land or the Improvements;

 

(v)           any surveys, plans and
specifications and contracts for architectural, engineering and construction
services relating to the Land or the Improvements;

 

(vi)          all other intangible
property, general intangibles and rights relating to the operation of, or used
in connection with, the Land or the Improvements, including all governmental
permits relating to any activities on the Land and including subsidy or similar
payments received from any sources, including a governmental authority; and

 

(vii)         any rights of Borrower in or
under letters of credit.

 

(cc)                            “Property Jurisdiction” is defined in
Section 30(a).

 

(dd)                          “Rents” means all rents (whether from
residential or non-residential space), revenues and other income of the Land or
the Improvements, parking fees, laundry and vending machine income and fees and
charges for food, health care and other services provided at the Mortgaged
Property, whether now due, past due, or to become due, and deposits forfeited
by tenants, and, if Borrower is a cooperative housing corporation or
association, maintenance fees, charges or assessments payable by shareholders
or residents under proprietary leases or occupancy agreements, whether now due,
past due, or to become due.

 

(ee)                            “Taxes” means all taxes, assessments, vault
rentals and other charges, if any, whether general, special or otherwise,
including all assessments for schools, public betterments and general or local
improvements, which are levied, assessed or imposed by any public authority or
quasi-public authority, and which, if not paid, will become a lien on the Land
or the Improvements.

 

(ff)                                “Transfer” is defined in Section 21.

 

2.                                      UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.

 

(a)                                  This Instrument
is also a security agreement under the Uniform Commercial Code for any of the
Mortgaged Property which, under applicable law, may be subjected to a security
interest under the Uniform Commercial Code, whether such Mortgaged Property is
owned now or acquired in the future, and all products and cash and non-cash
proceeds thereof (collectively, “UCC
Collateral”), and Borrower hereby grants to Lender a security
interest in the UCC Collateral.  Borrower
hereby authorizes Lender to prepare and file financing statements, continuation
statements and financing statement amendments in such form as Lender may
require to perfect or continue the perfection of this security interest and
Borrower agrees, if Lender so requests, to execute and deliver to Lender such
financing statements, continuation statements and amendments.  Borrower shall pay all filing costs and all
costs and expenses of any record searches for financing statements and/or
amendments that Lender may require.

 

6

 

Without the prior written consent of Lender,
Borrower shall not create or permit to exist any other lien or security
interest in any of the UCC Collateral.

 

(b)                                 Unless Borrower
gives Notice to Lender within 30 days after the occurrence of any of the
following, and executes and delivers to Lender modifications or supplements of
this Instrument (and any financing statement which may be filed in connection
with this Instrument) as Lender may require, Borrower shall not (i) change its
name, identity, structure or jurisdiction of organization; (ii) change the
location of its place of business (or chief executive office if more than one
place of business); or (iii) add to or change any location at which any of
the Mortgaged Property is stored, held or located.

 

(c)                                  If an Event of
Default has occurred and is continuing, Lender shall have the remedies of a
secured party under the Uniform Commercial Code, in addition to all remedies
provided by this Instrument or existing under applicable law.  In exercising any remedies, Lender may
exercise its remedies against the UCC Collateral separately or together, and in
any order, without in any way affecting the availability of Lender’s other
remedies.

 

(d)                                 This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property that is or may become a Fixture, if permitted by applicable law.

 

3.                                      ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION.

 

(a)                                  As part of the
consideration for the Indebtedness, Borrower absolutely and unconditionally
assigns and transfers to Lender all Rents. 
It is the intention of Borrower to establish a present, absolute and
irrevocable transfer and assignment to Lender of all Rents and to authorize and
empower Lender to collect and receive all Rents without the necessity of
further action on the part of Borrower. 
Promptly upon request by Lender, Borrower agrees to execute and deliver
such further assignments as Lender may from time to time require.  Borrower and Lender intend this assignment of
Rents to be immediately effective and to constitute an absolute present
assignment and not an assignment for additional security only.  For purposes of giving effect to this
absolute assignment of Rents, and for no other purpose, Rents shall not be
deemed to be a part of the Mortgaged Property. 
However, if this present, absolute and unconditional assignment of Rents
is not enforceable by its terms under the laws of the Property Jurisdiction,
then the Rents shall be included as a part of the Mortgaged Property and it is
the intention of the Borrower that in this circumstance this Instrument create
and perfect a lien on Rents in favor of Lender, which lien shall be effective
as of the date of this Instrument.

 

(b)                                 After the
occurrence of an Event of Default, Borrower authorizes Lender to collect, sue
for and compromise Rents and directs each tenant of the Mortgaged Property to
pay all Rents to, or as directed by, Lender. 
However, until the occurrence of an Event of Default, Lender hereby
grants to Borrower a revocable license to collect and receive all Rents, to
hold all Rents in trust for the benefit of Lender and to apply all Rents to pay
the installments of interest and principal then due and payable under the Note
and the other amounts then due and payable under the other Loan Documents,
including Imposition Deposits, and to pay the current costs and expenses of
managing, operating and maintaining the Mortgaged Property, including
utilities, Taxes and insurance premiums (to the extent not included in
Imposition Deposits), tenant improvements and other capital expenditures.  So long as no Event of Default has occurred
and is continuing, the Rents remaining after application pursuant to the
preceding sentence may be retained by Borrower free and clear of, and released
from, Lender’s rights with respect to Rents under this Instrument. From and
after the occurrence of an Event of Default, and without the necessity of
Lender entering upon and taking and maintaining control of the Mortgaged
Property

 

7

 

directly, or by a receiver, Borrower’s license to
collect Rents shall automatically terminate and Lender shall without Notice be
entitled to all Rents as they become due and payable, including Rents then due
and unpaid.  Borrower shall pay to Lender
upon demand all Rents to which Lender is entitled.  At any time on or after the date of Lender’s
demand for Rents, (i) Lender may give, and Borrower hereby irrevocably
authorizes Lender to give, notice to all tenants of the Mortgaged Property
instructing them to pay all Rents to Lender, (ii) no tenant shall be
obligated to inquire further as to the occurrence or continuance of an Event of
Default, and (iii) no tenant shall be obligated to pay to Borrower any
amounts which are actually paid to Lender in response to such a notice.  Any such notice by Lender shall be delivered
to each tenant personally, by mail or by delivering such demand to each rental
unit.  Borrower shall not interfere with
and shall cooperate with Lender’s collection of such Rents.

 

(c)                                  Borrower
represents and warrants to Lender that Borrower has not executed any prior
assignment of Rents (other than an assignment of Rents securing any prior
indebtedness that is being assigned to Lender, or paid off and discharged with
the proceeds of the loan evidenced by the Note), that Borrower has not
performed, and Borrower covenants and agrees that it will not perform, any acts
and has not executed, and shall not execute, any instrument which would prevent
Lender from exercising its rights under this Section 3, and that at the
time of execution of this Instrument there has been no anticipation or
prepayment of any Rents for more than two months prior to the due dates of such
Rents.  Borrower shall not collect or
accept payment of any Rents more than two months prior to the due dates of such
Rents.

 

(d)                                 If an Event of
Default has occurred and is continuing, Lender may, regardless of the adequacy
of Lender’s security or the solvency of Borrower and even in the absence of
waste, enter upon and take and maintain full control of the Mortgaged Property
in order to perform all acts that Lender in its discretion determines to be
necessary or desirable for the operation and maintenance of the Mortgaged
Property, including the execution, cancellation or modification of Leases, the
collection of all Rents, the making of repairs to the Mortgaged Property and
the execution or termination of contracts providing for the management, operation
or maintenance of the Mortgaged Property, for the purposes of enforcing the
assignment of Rents pursuant to Section 3(a), protecting the Mortgaged
Property or the security of this Instrument, or for such other purposes as
Lender in its discretion may deem necessary or desirable.  Alternatively, if an Event of Default has
occurred and is continuing, regardless of the adequacy of Lender’s security,
without regard to Borrower’s solvency and without the necessity of giving prior
notice (oral or written) to Borrower, Lender may apply to any court having
jurisdiction for the appointment of a receiver for the Mortgaged Property to
take any or all of the actions set forth in the preceding sentence.  If Lender elects to seek the appointment of a
receiver for the Mortgaged Property at any time after an Event of Default has
occurred and is continuing, Borrower, by its execution of this Instrument,
expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte
if permitted by applicable law.  If
Borrower is a housing cooperative corporation or association, Borrower hereby
agrees that if a receiver is appointed, the order appointing the receiver may
contain a provision requiring the receiver to pay the installments of interest and
principal then due and payable under the Note and the other amounts then due
and payable under the other Loan Documents, including Imposition Deposits, it
being acknowledged and agreed that the Indebtedness is an obligation of the
Borrower and must be paid out of maintenance charges payable by the Borrower’s
tenant shareholders under their proprietary leases or occupancy
agreements.  Lender or the receiver, as
the case may be, shall be entitled to receive a reasonable fee for managing the
Mortgaged Property.  Immediately upon
appointment of a receiver or immediately upon the Lender’s entering upon and
taking possession and control of the Mortgaged Property, Borrower shall
surrender possession of the Mortgaged Property to Lender or the receiver, as
the case may be, and shall deliver to Lender or the receiver, as the case may
be, all documents, records (including records on electronic or magnetic

 

8

 

media), accounts, surveys, plans, and specifications
relating to the Mortgaged Property and all security deposits and prepaid
Rents.  In the event Lender takes
possession and control of the Mortgaged Property, Lender may exclude Borrower
and its representatives from the Mortgaged Property.  Borrower acknowledges and agrees that the
exercise by Lender of any of the rights conferred under this Section 3
shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and Improvements.

 

(e)                                  If Lender
enters the Mortgaged Property, Lender shall be liable to account only to
Borrower and only for those Rents actually received.  Except to the extent of Lender’s gross
negligence or willful misconduct, Lender shall not be liable to Borrower,
anyone claiming under or through Borrower or anyone having an interest in the
Mortgaged Property, by reason of any act or omission of Lender under
Section 3(d), and Borrower hereby releases and discharges Lender from any
such liability to the fullest extent permitted by law.

 

(f)                                    If the Rents
are not sufficient to meet the costs of taking control of and managing the
Mortgaged Property and collecting the Rents, any funds expended by Lender for
such purposes shall become an additional part of the Indebtedness as provided
in Section 12.

 

(g)                                 Any entering
upon and taking of control of the Mortgaged Property by Lender or the receiver,
as the case may be, and any application of Rents as provided in this Instrument
shall not cure or waive any Event of Default or invalidate any other right or
remedy of Lender under applicable law or provided for in this Instrument.

 

4.                                      ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.

 

(a)                                  As part of the
consideration for the Indebtedness, Borrower absolutely and unconditionally
assigns and transfers to Lender all of Borrower’s right, title and interest in,
to and under the Leases, including Borrower’s right, power and authority to
modify the terms of any such Lease, or extend or terminate any such Lease.  It is the intention of Borrower to establish a
present, absolute and irrevocable transfer and assignment to Lender of all of
Borrower’s right, title and interest in, to and under the Leases.  Borrower and Lender intend this assignment of
the Leases to be immediately effective and to constitute an absolute present
assignment and not an assignment for additional security only.  For purposes of giving effect to this
absolute assignment of the Leases, and for no other purpose, the Leases shall
not be deemed to be a part of the Mortgaged Property.  However, if this present, absolute and
unconditional assignment of the Leases is not enforceable by its terms under
the laws of the Property Jurisdiction, then the Leases shall be included as a
part of the Mortgaged Property and it is the intention of the Borrower that in
this circumstance this Instrument create and perfect a lien on the Leases in
favor of Lender, which lien shall be effective as of the date of this
Instrument.

 

(b)                                 Until Lender
gives Notice to Borrower of Lender’s exercise of its rights under this
Section 4, Borrower shall have all rights, power and authority granted to
Borrower under any Lease (except as otherwise limited by this Section or
any other provision of this Instrument), including the right, power and
authority to modify the terms of any Lease or extend or terminate any
Lease.  Upon the occurrence of an Event
of Default, the permission given to Borrower pursuant to the preceding sentence
to exercise all rights, power and authority under Leases shall automatically
terminate.  Borrower shall comply with
and observe Borrower’s obligations under all Leases, including Borrower’s
obligations pertaining to the maintenance and disposition of tenant security
deposits.

 

9

 

(c)           Borrower acknowledges and agrees that the exercise by
Lender, either directly or by a receiver, of any of the rights conferred under
this Section 4 shall not be construed to make Lender a
mortgagee-in-possession of the Mortgaged Property so long as Lender has not
itself entered into actual possession of the Land and the Improvements.  The acceptance by Lender of the assignment of
the Leases pursuant to Section 4(a) shall not at any time or in any
event obligate Lender to take any action under this Instrument or to expend any
money or to incur any expenses.  Except
to the extent of Lender’s gross negligence or willful misconduct, Lender shall
not be liable in any way for any injury or damage to person or property
sustained by any person or persons, firm or corporation in or about the
Mortgaged Property.  Prior to Lender’s
actual entry into and taking possession of the Mortgaged Property, Lender shall
not (i) be obligated to perform any of the terms, covenants and conditions
contained in any Lease (or otherwise have any obligation with respect to any
Lease); (ii) be obligated to appear in or defend any action or proceeding
relating to the Lease or the Mortgaged Property; or (iii) be responsible
for the operation, control, care, management or repair of the Mortgaged
Property or any portion of the Mortgaged Property.  The execution of this Instrument by Borrower
shall constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Mortgaged Property is and shall be
that of Borrower, prior to such actual entry and taking of possession.

 

(d)           Upon delivery of Notice by Lender to Borrower of Lender’s
exercise of Lender’s rights under this Section 4 at any time after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, by
a receiver, or by any other manner or proceeding permitted by the laws of the
Property Jurisdiction, Lender immediately shall have all rights, powers and
authority granted to Borrower under any Lease, including the right, power and
authority to modify the terms of any such Lease, or extend or terminate any
such Lease.

 

(e)           Borrower shall, promptly upon Lender’s request, deliver to
Lender an executed copy of each residential Lease then in effect.  All Leases for residential dwelling units
shall be on forms approved by Lender, shall be for initial terms of at least
six months and not more than two years, and shall not include options to
purchase.

 

(f)            Borrower shall not lease any portion of the Mortgaged
Property for non-residential use except with the prior written consent of
Lender and Lender’s prior written approval of the Lease agreement.  Borrower shall not modify the terms of, or
extend or terminate, any Lease for non-residential use (including any Lease in
existence on the date of this Instrument) without the prior written
consent of Lender.  However, Lender’s
consent shall not be required for the modification or extension of a
non-residential Lease if such modification or extension is on terms at least as
favorable to Borrower as those customary at that time in the applicable market
and the income from the extended or modified Lease will not be less than the
income received from the Lease as of the date of this Instrument.  Borrower shall, without request by Lender,
deliver an executed copy of each non-residential Lease to Lender promptly after
such Lease is signed.  All
non-residential Leases, including renewals or extensions of existing Leases,
shall specifically provide that (i) such Leases are subordinate to the
lien of this Instrument; (ii) the tenant shall attorn to Lender and any
purchaser at a foreclosure sale, such attornment to be self-executing and
effective upon acquisition of title to the Mortgaged Property by any purchaser
at a foreclosure sale or by Lender in any manner; (iii) the tenant agrees
to execute such further evidences of attornment as Lender or any purchaser at a
foreclosure sale may from time to time request; (iv) the Lease shall not
be terminated by foreclosure or any other transfer of the Mortgaged Property;
(v) after a foreclosure sale of the Mortgaged Property, Lender or any
other purchaser at such foreclosure sale may, at Lender’s or such purchaser’s
option, accept or terminate such Lease; and (vi) the tenant shall, upon receipt
after the

 

10

 

occurrence of an Event of Default of a written
request from Lender, pay all Rents payable under the Lease to Lender.

 

(g)                                 Borrower shall
not receive or accept Rent under any Lease (whether residential or
non-residential) for more than two months in advance.

 

(h)                                 If Borrower is
a cooperative housing corporation or association, notwithstanding anything to
the contrary contained in this subsection or in Section 21, so long as
Borrower remains a cooperative housing corporation or association and is not in
breach of any covenant of this Instrument, Lender hereby consents to:

 

(i)            the execution
of leases of apartments for a term in excess of two years from Borrower to a
tenant shareholder of Borrower, so long as such leases, including proprietary
leases, are and will remain subordinate to the lien of this Instrument; and

 

(ii)           the surrender
or termination of such leases of apartments where the surrendered or terminated
lease is immediately replaced or where the Borrower makes its best efforts to
secure such immediate replacement by a newly executed lease of the same
apartment to a tenant shareholder of the Borrower.  However, no consent is hereby given by Lender
to any execution, surrender, termination or assignment of a lease under terms
that would waive or reduce the obligation of the resulting tenant shareholder
under such lease to pay cooperative assessments in full when due or the
obligation of the former tenant shareholder to pay any unpaid portion of such
assessments.

 

5.                                      PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT
PREMIUM.  Borrower
shall pay the Indebtedness when due in accordance with the terms of the Note
and the other Loan Documents and shall perform, observe and comply with all
other provisions of the Note and the other Loan Documents.  Borrower shall pay a prepayment premium in
connection with certain prepayments of the Indebtedness, including a payment
made after Lender’s exercise of any right of acceleration of the Indebtedness,
as provided in the Note.

 

6.                                      EXCULPATION.  Borrower’s
personal liability for payment of the Indebtedness and for performance of the
other obligations to be performed by it under this Instrument is limited in the
manner, and to the extent, provided in the Note.

 

7.                                      DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

 

(a)                                  Unless this
requirement is waived in writing by Lender, which waiver may be contained in
this Section 7(a), Borrower shall deposit with Lender on the day monthly
installments of principal or interest, or both, are due under the Note (or on
another day designated in writing by Lender), until the Indebtedness is paid in
full, an additional amount sufficient to accumulate with Lender the entire sum
required to pay, when due, the items marked “Collect” below.  Lender will not require the Borrower to make
Imposition Deposits with respect to the items marked “Deferred” below.

 

	
  [Deferred]

  	
   

  	
  Hazard
  Insurance premiums or other insurance premiums required by Lender under
  Section 19,

  
	
  [Collect]

  	
   

  	
  Taxes,

  

 

11

 

	
  [Deferred]

  	
   

  	
  water
  and sewer charges (that could become a lien on the Mortgaged Property),

  
	
  [N/A]

  	
   

  	
  ground
  rents,

  
	
  [Deferred]

  	
   

  	
  assessments
  or other charges (that could become a lien on the Mortgaged Property)

  

 

The amounts deposited under the preceding sentence are collectively
referred to in this Instrument as the “Imposition
Deposits.”  The obligations of
Borrower for which the Imposition Deposits are required are collectively
referred to in this Instrument as “Impositions.”  The amount of the Imposition Deposits shall
be sufficient to enable Lender to pay each Imposition before the last date upon
which such payment may be made without any penalty or interest charge being
added.  Lender shall maintain records
indicating how much of the monthly Imposition Deposits and how much of the
aggregate Imposition Deposits held by Lender are held for the purpose of paying
Taxes, insurance premiums and each other Imposition.

 

(b)           Imposition Deposits shall be held in an institution (which
may be Lender, if Lender is such an institution) whose deposits or
accounts are insured or guaranteed by a federal agency.  Lender shall not be obligated to open
additional accounts or deposit Imposition Deposits in additional institutions
when the amount of the Imposition Deposits exceeds the maximum amount of the
federal deposit insurance or guaranty. 
Lender shall apply the Imposition Deposits to pay Impositions so long as
no Event of Default has occurred and is continuing.  Unless applicable law requires, Lender shall
not be required to pay Borrower any interest, earnings or profits on the
Imposition Deposits.  As additional
security for all of Borrower’s obligations under this Instrument and the other
Loan Documents, Borrower hereby pledges and grants to Lender a security
interest in the Imposition Deposits and all proceeds of, and all interest and
dividends on, the Imposition Deposits. 
Any amounts deposited with Lender under this Section 7 shall not be
trust funds, nor shall they operate to reduce the Indebtedness, unless applied
by Lender for that purpose under Section 7(e).

 

(c)           If Lender receives a bill or invoice for an Imposition,
Lender shall pay the Imposition from the Imposition Deposits held by
Lender.  Lender shall have no obligation
to pay any Imposition to the extent it exceeds Imposition Deposits then held by
Lender.  Lender may pay an Imposition
according to any bill, statement or estimate from the appropriate public office
or insurance company without inquiring into the accuracy of the bill, statement
or estimate or into the validity of the Imposition.

 

(d)           If at any time the amount of the Imposition Deposits held
by Lender for payment of a specific Imposition exceeds the amount reasonably
deemed necessary by Lender, the excess shall be credited against future
installments of Imposition Deposits.  If
at any time the amount of the Imposition Deposits held by Lender for payment of
a specific Imposition is less than the amount reasonably estimated by Lender to
be necessary, Borrower shall pay to Lender the amount of the deficiency within
15 days after Notice from Lender.

 

(e)           If an Event of Default has occurred and is continuing,
Lender may apply any Imposition Deposits, in any amounts and in any order as
Lender determines, in Lender’s discretion, to pay any Impositions or as a
credit against the Indebtedness. Upon payment in full of the Indebtedness,
Lender shall refund to Borrower any Imposition Deposits held by Lender.

 

(f)            If Lender does not collect an Imposition Deposit with
respect to an Imposition either marked “Deferred” in Section 7(a) or
pursuant to a separate written waiver by Lender, then on or before the date
each such Imposition is due, or on the date this Instrument requires each such
Imposition to be paid, Borrower must provide Lender with proof of payment of
each such

 

12

 

Imposition for which Lender does not require
collection of Imposition Deposits. 
Lender may revoke its deferral or waiver and require Borrower to deposit
with Lender any or all of the Imposition Deposits listed in Section 7(a),
regardless of whether any such item is marked “Deferred” in such section, upon
Notice to Borrower, (i) if Borrower does not timely pay any of the
Impositions, (ii) if Borrower fails to provide timely proof to Lender of
such payment, or (iii) at any time during the existence of an Event of Default.

 

(g)           In the event of a Transfer prohibited by or requiring
Lender’s approval under Section 21, Lender’s waiver of the collection of
any Imposition Deposit in this Section 7 may be modified or rendered void
by Lender at Lender’s option by Notice to Borrower and the transferee(s) as
a condition of Lender’s approval of such Transfer.

 

8.             COLLATERAL AGREEMENTS.  Borrower shall deposit with
Lender such amounts as may be required by any Collateral Agreement and shall
perform all other obligations of Borrower under each Collateral Agreement.

 

9.             APPLICATION OF PAYMENTS.  If at any time Lender
receives, from Borrower or otherwise, any amount applicable to the Indebtedness
which is less than all amounts due and payable at such time, then Lender may
apply that payment to amounts then due and payable in any manner and in any
order determined by Lender, in Lender’s discretion.  Neither Lender’s acceptance of an amount that
is less than all amounts then due and payable nor Lender’s application of such
payment in the manner authorized shall constitute or be deemed to constitute
either a waiver of the unpaid amounts or an accord and satisfaction.  Notwithstanding the application of any such
amount to the Indebtedness, Borrower’s obligations under this Instrument and
the Note shall remain unchanged.

 

10.          COMPLIANCE WITH LAWS AND
ORGANIZATIONAL DOCUMENTS.

 

(a)           Borrower shall comply with all laws, ordinances,
regulations and requirements of any Governmental Authority and all recorded
lawful covenants and agreements relating to or affecting the Mortgaged
Property, including all laws, ordinances, regulations, requirements and
covenants pertaining to health and safety, construction of improvements on the
Mortgaged Property, fair housing, disability accommodation, zoning and land
use, and Leases.  Borrower also shall
comply with all applicable laws that pertain to the maintenance and disposition
of tenant security deposits.

 

(b)           Borrower shall at all times maintain records sufficient to
demonstrate compliance with the provisions of this Section 10.

 

(c)           Borrower shall take appropriate measures to prevent, and
shall not engage in or knowingly permit, any illegal activities at the
Mortgaged Property that could endanger tenants or visitors, result in damage to
the Mortgaged Property, result in forfeiture of the Mortgaged Property, or otherwise
materially impair the lien created by this Instrument or Lender’s interest in
the Mortgaged Property.  Borrower
represents and warrants to Lender that no portion of the Mortgaged Property has
been or will be purchased with the proceeds of any illegal activity.

 

(d)           Borrower shall at all times comply with all laws,
regulations and requirements of any Governmental Authority relating to
Borrower’s formation, continued existence and good standing in the Property
Jurisdiction.  Borrower shall at all times
comply with its organizational documents, including but not limited to its
partnership agreement (if Borrower is a partnership), its by-laws (if Borrower
is a corporation or housing cooperative corporation or association) or its
operating agreement (if Borrower is an limited liability company, joint venture
or tenancy-in-common ).

 

13

 

If Borrower is a housing cooperative corporation or
association, Borrower shall at all times maintain its status as a “cooperative
housing corporation” as such term is defined in Section 216(b) of the
Internal revenue Code of 1986, as amended, or any successor statute thereto.

 

11.          USE OF PROPERTY.  Unless required by
applicable law, Borrower shall not (a) allow changes in the use for which
all or any part of the Mortgaged Property is being used at the time this
Instrument was executed, except for any change in use approved by Lender, (b) convert
any individual dwelling units or common areas to commercial use,
(c) initiate a change in the zoning classification of the Mortgaged
Property or acquiesce without Notice to and consent of Lender in a change in
the zoning classification of the Mortgaged Property, (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property,
(e) combine all or any part of the Mortgaged Property with all or any part
of a tax parcel which is not part of the Mortgaged Property, or
(f) subdivide or otherwise split any tax parcel constituting all or any
part of the Mortgaged Property without the prior consent of Lender.  Notwithstanding anything contained in this
Section to the contrary, if Borrower is a housing cooperative corporation
or association, Lender acknowledges and consents to Borrower’s use of the
Mortgaged Property as a housing cooperative.

 

12.          PROTECTION OF LENDER’S SECURITY;
INSTRUMENT SECURES FUTURE ADVANCES.

 

(a)           If Borrower fails to perform any of its obligations under
this Instrument or any other Loan Document, or if any action or proceeding is
commenced which purports to affect the Mortgaged Property, Lender’s security or
Lender’s rights under this Instrument, including eminent domain, insolvency,
code enforcement, civil or criminal forfeiture, enforcement of Hazardous
Materials Laws, fraudulent conveyance or reorganizations or proceedings
involving a bankrupt or decedent, then Lender at Lender’s option may make such
appearances, file such documents, disburse such sums and take such actions as
Lender reasonably deems necessary to perform such obligations of Borrower and
to protect Lender’s interest, including (i) payment of Attorneys’ Fees and
Costs, (ii) payment of fees and out-of-pocket expenses of accountants,
inspectors and consultants, (iii) entry upon the Mortgaged Property to
make repairs or secure the Mortgaged Property, (iv) procurement of the
insurance required by Section 19, (v) payment of amounts which
Borrower has failed to pay under Sections 15 and 17, and (vi) advances
made by Lender to pay, satisfy or discharge any obligation of Borrower for the
payment of money that is secured by a pre-existing mortgage, deed of trust or
other lien encumbering the Mortgaged Property (a “Prior Lien”).

 

(b)           Any amounts disbursed by Lender under this
Section 12, or under any other provision of this Instrument that treats such
disbursement as being made under this Section 12, shall be secured by this
Instrument, shall be added to, and become part of, the principal component of
the Indebtedness, shall be immediately due and payable and shall bear interest
from the date of disbursement until paid at the “Default Rate,” as defined in the Note.

 

(c)           Nothing in this Section 12 shall require Lender to
incur any expense or take any action.

 

13.          INSPECTION.

 

(a)           Lender, its agents, representatives, and designees may
make or cause to be made entries upon and inspections of the Mortgaged Property
(including environmental inspections and tests) during normal business
hours, or at any other reasonable time, upon reasonable notice

 

14

 

to Borrower if the inspection is to include occupied
residential units (which notice need not be in writing).  Notice to Borrower shall not be required in
the case of an emergency, as determined in Lender’s discretion, or when an
Event of Default has occurred and is continuing.

 

(b)                                 If Lender
determines that Mold has developed as a result of a water intrusion event or
leak, Lender, at Lender’s discretion, may require that a professional inspector
inspect the Mortgaged Property as frequently as Lender determines is necessary
until any issue with Mold and its cause(s) are resolved to Lender’s
satisfaction.  Such inspection shall be
limited to a visual and olfactory inspection of the area that has experienced
the Mold, water intrusion event or leak. 
Borrower shall be responsible for the cost of such professional
inspection and any remediation deemed to be necessary as a result of the
professional inspection.  After any issue
with Mold, water intrusion or leaks is remedied to Lender’s satisfaction,
Lender shall not require a professional inspection any more frequently than
once every three years unless Lender is otherwise aware of Mold as a result of
a subsequent water intrusion event or leak.

 

(c)                                  If Lender or
Loan Servicer determines not to conduct an annual inspection of the Mortgaged
Property, and in lieu thereof Lender requests a certification, Borrower shall
be prepared to provide and must actually provide to Lender a factually correct
certification each year that the annual inspection is waived to the following effect:

 

Borrower has not received any written complaint, notice, letter or
other written communication from tenants, management agent or governmental
authorities regarding mold, fungus, microbial contamination or pathogenic
organisms (“Mold”) or any activity,
condition, event or omission that causes or facilitates the growth of Mold on
or in any part of the Mortgaged Property or if Borrower has received any such
written complaint, notice, letter or other written communication that Borrower
has investigated and determined that no Mold activity, condition or event
exists or alternatively has fully and properly remediated such activity,
condition, event or omission in compliance with the Moisture Management Plan
for the Mortgaged Property.

 

If Borrower is unwilling or unable to provide such certification,
Lender may require a professional inspection of the Mortgaged Property at
Borrower’s expense.

 

14.                               BOOKS AND
RECORDS; FINANCIAL REPORTING.

 

(a)                                  Borrower shall
keep and maintain at all times at the Mortgaged Property or the management
agent’s office, and upon Lender’s request shall make available at the Mortgaged
Property (or, at Borrower’s option, at the management agent’s office), complete
and accurate books of account and records (including copies of supporting bills
and invoices) adequate to reflect correctly the operation of the Mortgaged
Property, and copies of all written contracts, Leases, and other instruments
which affect the Mortgaged Property.  The
books, records, contracts, Leases and other instruments shall be subject to
examination and inspection by Lender at any reasonable time.

 

(b)                                 Within 120 days
after the end of each fiscal year of Borrower, Borrower shall furnish to Lender
a statement of income and expenses for Borrower’s operation of the Mortgaged
Property for that fiscal year, a statement of changes in financial position of
Borrower relating to the Mortgaged Property for that fiscal year and, when
requested by Lender, a balance sheet showing all assets and liabilities of
Borrower relating to the Mortgaged Property as of the end of

 

15

 

that fiscal year. 
If Borrower’s fiscal year is other than the calendar year, Borrower must
also submit to Lender a year-end statement of income and expenses within 120
days after the end of the calendar year.

 

(c)                                  Within 120 days
after the end of each calendar year, and at any other time, upon Lender’s
request, Borrower shall furnish to Lender each of the following.  However, Lender shall not require any of the
following more frequently than quarterly except when there has been an Event of
Default and such Event of Default is continuing, in which case Lender may, upon
written request to Borrower, require Borrower to furnish any of the following
more frequently:

 

(i)            a rent schedule
for the Mortgaged Property showing the name of each tenant, and for each
tenant, the space occupied, the lease expiration date, the rent payable for the
current month, the date through which rent has been paid, and any related
information requested by Lender;

 

(ii)           an accounting
of all security deposits held pursuant to all Leases, including the name of the
institution (if any) and the names and identification numbers of the
accounts (if any) 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 access information regarding such accounts;
and

 

(iii)          a statement
that identifies all owners of any interest in Borrower and any Controlling
Entity and the interest held by each (unless Borrower or any Controlling Entity
is a publicly-traded entity in which case such statement of ownership shall not
be required), if Borrower or a Controlling Entity is a corporation, all
officers and directors of Borrower and the Controlling Entity, and if Borrower
or a Controlling Entity is a limited liability company, all managers who are
not members.

 

(d)                                 At any time
upon Lender’s request, Borrower shall furnish to Lender each of the
following.  However, Lender shall not
require any of the following more frequently than quarterly except when there
has been an Event of Default and such Event of Default is continuing, in which
case Lender may require Borrower to furnish any of the following more frequently:

 

(i)            a balance
sheet, a statement of income and expenses for Borrower and a statement of
changes in financial position of Borrower for Borrower’s most recent fiscal
year;

 

(ii)           a quarterly or
year-to-date income and expense statement for the Mortgaged Property; and

 

(iii)          a monthly
property management report for the Mortgaged Property, showing the number of
inquiries made and rental applications received from tenants or prospective
tenants and deposits received from tenants and any other information requested
by Lender.

 

(e)                                  Upon Lender’s
request at any time when an Event of Default has occurred and is continuing,
Borrower shall furnish to Lender monthly income and expense statements and rent
schedules for the Mortgaged Property.

 

16

 

(f)            An individual having authority to bind Borrower shall
certify each of the statements, schedules and reports required by
Sections 14(b) through 14(e) to be complete and accurate.  Each of the statements, schedules and reports
required by Sections 14(b) through 14(e) shall be in such form
and contain such detail as Lender may reasonably require.  Lender also may require that any of the
statements, schedules or reports listed in Section 14(b) and 14(c)(i) and
(ii) be audited at Borrower’s expense by independent certified public
accountants acceptable to Lender, at any time when an Event of Default has
occurred and is continuing or at any time that Lender, in its reasonable
judgment, determines that audited financial statements are required for an
accurate assessment of the financial condition of Borrower or of the Mortgaged
Property.

 

(g)           If Borrower fails to provide in a timely manner the
statements, schedules and reports required by Sections 14(b) through (e),
Lender shall give Borrower Notice specifying the statements, schedules and
reports required by Section 14(b) through (e) that Borrower has
failed to provide.  If Borrower has not
provided the required statements, schedules and reports within 10 Business Days
following such Notice, then Lender shall have the right to have Borrower’s
books and records audited, at Borrower’s expense, by independent certified
public accountants selected by Lender in order to obtain such statements,
schedules and reports, and all related costs and expenses of Lender shall
become immediately due and payable and shall become an additional part of the
Indebtedness as provided in Section 12. 
Notice to Borrower shall not be required in the case of an emergency, as
determined in Lender’s discretion, or when an Event of Default has occurred and
is continuing.

 

(h)           If an Event of Default has occurred and is continuing,
Borrower shall deliver to Lender upon written demand all books and records
relating to the Mortgaged Property or its operation.

 

(i)            Borrower authorizes Lender to obtain a credit report on
Borrower at any time.

 

15.          TAXES; OPERATING EXPENSES.

 

(a)           Subject to the provisions of Section 15(c) and
Section 15(d), Borrower shall pay, or cause to be paid, all Taxes when due
and before the addition of any interest, fine, penalty or cost for nonpayment.

 

(b)           Subject to the provisions of Section 15(c), Borrower
shall (i) pay the expenses of operating, managing, maintaining and
repairing the Mortgaged Property (including utilities, repairs and replacements) before
the last date upon which each such payment may be made without any penalty or
interest charge being added, and (ii) pay insurance premiums at least
30 days prior to the expiration date of each policy of insurance, unless
applicable law specifies some lesser period.

 

(c)           If Lender is collecting Imposition Deposits, to the extent
that Lender holds sufficient Imposition Deposits for the purpose of paying a
specific Imposition, then Borrower shall not be obligated to pay such
Imposition, so long as no Event of Default exists and Borrower has timely
delivered to Lender any bills or premium notices that it has received.  If an Event of Default exists, Lender may
exercise any rights Lender may have with respect to Imposition Deposits without
regard to whether Impositions are then due and payable.  Lender shall have no liability to Borrower
for failing to pay any Impositions to the extent that (i) any Event of
Default has occurred and is continuing, (ii) insufficient Imposition
Deposits are held by Lender at the time an Imposition becomes due and payable
or (iii) Borrower has failed to provide Lender with bills and premium
notices as provided above.

 

17

 

(d)           Borrower, at its own expense, may contest by appropriate
legal proceedings, conducted diligently and in good faith, the amount or
validity of any Imposition other than insurance premiums, if (i) Borrower
notifies Lender of the commencement or expected commencement of such
proceedings, (ii) the Mortgaged Property is not in danger of being sold or
forfeited, (iii) if Borrower has not already paid the Imposition, Borrower
deposits with Lender reserves sufficient to pay the contested Imposition, if
requested by Lender, and (iv) Borrower furnishes whatever additional
security is required in the proceedings or is reasonably requested by Lender.

 

(e)           Borrower shall promptly deliver to Lender a copy of all
notices of, and invoices for, Impositions, and if Borrower pays any
Imposition directly, Borrower shall furnish to Lender on or before the date
this Instrument requires such Impositions to be paid, receipts evidencing that
such payments were made.

 

16.          LIENS; ENCUMBRANCES.  Borrower acknowledges that,
to the extent provided in Section 21, the grant, creation or existence of
any mortgage, deed of trust, deed to secure debt, security interest or other
lien or encumbrance (a “Lien”) on
the Mortgaged Property (other than the lien of this Instrument) or on
certain ownership interests in Borrower, whether voluntary, involuntary or by
operation of law, and whether or not such Lien has priority over the lien of
this Instrument, is a “Transfer”
which constitutes an Event of Default and subjects Borrower to personal
liability under the Note.

 

17.          PRESERVATION, MANAGEMENT AND MAINTENANCE
OF MORTGAGED PROPERTY.

 

(a)           Borrower shall not commit waste or permit impairment or
deterioration of the Mortgaged Property.

 

(b)           Borrower shall not abandon the Mortgaged Property.

 

(c)           Borrower shall restore or repair promptly, in a good and
workmanlike manner, any damaged part of the Mortgaged Property to the
equivalent of its original condition, or such other condition as Lender may
approve in writing, whether or not insurance proceeds or condemnation awards
are available to cover any costs of such restoration or repair; however,
Borrower shall not be obligated to perform such restoration or repair if
(i) no Event of Default has occurred and is continuing, and
(ii) Lender has elected to apply any available insurance proceeds and/or condemnation
awards to the payment of Indebtedness pursuant to Section 19(h)(ii),
(iii), (iv) or (v), or pursuant to Section 20.

 

(d)           Borrower shall keep the Mortgaged Property in good repair,
including the replacement of Personalty and Fixtures with items of equal or
better function and quality.

 

(e)           Borrower shall provide for professional management of the
Mortgaged Property by a residential rental property manager satisfactory to
Lender at all times under a contract approved by Lender in writing, which
contract must be terminable upon not more than 30 days notice without the
necessity of establishing cause and without payment of a penalty or termination
fee by Borrower or its successors.

 

(f)            Borrower shall give Notice to Lender of and, unless
otherwise directed in writing by Lender, shall appear in and defend any action
or proceeding purporting to affect the Mortgaged Property, Lender’s security or
Lender’s rights under this Instrument. 
Borrower shall not (and shall not permit any tenant or other person to) remove,
demolish or alter the Mortgaged

 

18

 

Property or any part of the Mortgaged Property,
including any removal, demolition or alteration occurring in connection with a
rehabilitation of all or part of the Mortgaged Property, except (i) in
connection with the replacement of tangible Personalty, (ii) if Borrower
is a cooperative housing corporation or association, to the extent permitted
with respect to individual dwelling units under the form of proprietary lease or
occupancy agreement and (iii) repairs and replacements in connection with
making an individual unit ready for a new occupant.

 

(g)                                 Unless
otherwise waived by Lender in writing, Borrower must have or must establish and
must adhere to the MMP.  If the Borrower
is required to have an MMP, the Borrower must keep all MMP documentation at the
Mortgaged Property or at the management agent’s office and available for the
Lender or the Loan Servicer to review during any annual assessment or other
inspection of the Mortgaged Property that is required by Lender.

 

(h)                                 If Borrower is
a housing cooperative corporation or association, until the Indebtedness is
paid in full Borrower shall not reduce the maintenance fees, charges or
assessments payable by shareholders or residents under proprietary leases or
occupancy agreements below a level which is sufficient to pay all expenses of
the Borrower, including, without limitation, all operating and other expenses
for the Mortgaged Property and all payments due pursuant to the terms of the
Note and any Loan Documents.

 

18.                               ENVIRONMENTAL
HAZARDS.

 

(a)                                  Except for
matters described in Section 18(b), Borrower shall not cause or permit any
of the following:

 

(i)            the presence,
use, generation, release, treatment, processing, storage (including storage in
above ground and underground storage tanks), handling, or disposal of any
Hazardous Materials on or under the Mortgaged Property or any other property of
Borrower that is adjacent to the Mortgaged Property;

 

(ii)           the
transportation of any Hazardous Materials to, from, or across the Mortgaged
Property;

 

(iii)          any occurrence
or condition on the Mortgaged Property or any other property of Borrower that
is adjacent to the Mortgaged Property, which occurrence or condition is or may
be in violation of Hazardous Materials Laws;

 

(iv)          any violation
of or noncompliance with the terms of any Environmental Permit with respect to
the Mortgaged Property or any property of Borrower that is adjacent to the
Mortgaged Property; or

 

(v)           any violation
or noncompliance with the terms of any O&M Program as defined in
subsection (d).

 

The
matters described in clauses (i) through (v) above, except as
otherwise provided in Section 18(b), are referred to collectively in this
Section 18 as “Prohibited Activities or
Conditions.”

 

(b)                                 Prohibited
Activities or Conditions shall not include lawful conditions permitted by an
O&M Program or the safe and lawful use and storage of quantities of
(i) pre-packaged 

 

19

 

supplies, cleaning materials and petroleum products
customarily used in the operation and maintenance of comparable multifamily
properties, (ii) cleaning materials, personal grooming items and other
items sold in pre-packaged containers for consumer use and used by tenants and
occupants of residential dwelling units in the Mortgaged Property; and
(iii) petroleum products used in the operation and maintenance of motor
vehicles from time to time located on the Mortgaged Property’s parking areas,
so long as all of the foregoing are used, stored, handled, transported and
disposed of in compliance with Hazardous Materials Laws.

 

(c)                                  Borrower shall
take all commercially reasonable actions (including the inclusion of
appropriate provisions in any Leases executed after the date of this
Instrument) to prevent its employees, agents, and contractors, and all
tenants and other occupants from causing or permitting any Prohibited
Activities or Conditions.  Borrower shall
not lease or allow the sublease or use of all or any portion of the Mortgaged
Property to any tenant or subtenant for nonresidential use by any user that, in
the ordinary course of its business, would cause or permit any Prohibited
Activity or Condition.

 

(d)                                 As required by
Lender, Borrower shall also have established a written operations and
maintenance program with respect to certain Hazardous Materials.  Each such operations and maintenance program
and any additional or revised operations and maintenance programs established
for the Mortgaged Property pursuant to this Section 18 must be approved by
Lender and shall be referred to herein as an “O&M
Program.”  Borrower shall
comply in a timely manner with, and cause all employees, agents, and
contractors of Borrower and any other persons present on the Mortgaged Property
to comply with each O&M Program. 
Borrower shall pay all costs of performance of Borrower’s obligations
under any O&M Program, and Lender’s out-of-pocket costs incurred in
connection with the monitoring and review of each O&M Program and Borrower’s
performance shall be paid by Borrower upon demand by Lender.  Any such out-of-pocket costs of Lender that
Borrower fails to pay promptly shall become an additional part of the
Indebtedness as provided in Section 12.

 

(e)                                  Borrower
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing (which written disclosure may be in certain
environmental assessments and other written reports accepted by Lender in
connection with the funding of the Indebtedness and dated prior to the date of
this Instrument):

 

(i)            Borrower has
not at any time engaged in, caused or permitted any Prohibited Activities or
Conditions on the Mortgaged Property;

 

(ii)           to the best of
Borrower’s knowledge after reasonable and diligent inquiry, no Prohibited
Activities or Conditions exist or have existed on the Mortgaged Property;

 

(iii)          the Mortgaged
Property does not now contain any underground storage tanks, and, to the best
of Borrower’s knowledge after reasonable and diligent inquiry, the Mortgaged
Property has not contained any underground storage tanks in the past.  If there is an underground storage tank
located on the Mortgaged Property that has been previously disclosed by
Borrower to Lender in writing, that tank complies with all requirements of
Hazardous Materials Laws;

 

(iv)          to the best of
Borrower’s knowledge after reasonable and diligent inquiry, Borrower has
complied with all Hazardous Materials Laws, including all requirements for
notification regarding releases of Hazardous Materials.

 

20

 

Without limiting the
generality of the foregoing, Borrower has obtained all Environmental Permits
required for the operation of the Mortgaged Property in accordance with
Hazardous Materials Laws now in effect and all such Environmental Permits are
in full force and effect;

 

(v)           to the best of
Borrower’s knowledge after reasonable and diligent inquiry, no event has
occurred with respect to the Mortgaged Property that constitutes, or with the
passing of time or the giving of notice would constitute, noncompliance with
the terms of any Environmental Permit;

 

(vi)          there are no
actions, suits, claims or proceedings pending or, to the best of Borrower’s
knowledge after reasonable and diligent inquiry, threatened that involve the
Mortgaged Property and allege, arise out of, or relate to any Prohibited
Activity or Condition; and

 

(vii)         Borrower has
not received any written complaint, order, notice of violation or other
communication from any Governmental Authority with regard to air emissions,
water discharges, noise emissions or Hazardous Materials, or any other
environmental, health or safety matters affecting the Mortgaged Property or any
other property of Borrower that is adjacent to the Mortgaged Property.

 

(f)                                    Borrower shall
promptly notify Lender in writing upon the occurrence of any of the following
events:

 

(i)            Borrower’s
discovery of any Prohibited Activity or Condition;

 

(ii)           Borrower’s
receipt of or knowledge of any written complaint, order, notice of violation or
other communication from any tenant, management agent, Governmental Authority
or other person with regard to present or future alleged Prohibited Activities
or Conditions, or any other environmental, health or safety matters affecting
the Mortgaged Property or any other property of Borrower that is adjacent to
the Mortgaged Property; or

 

(iii)          Borrower’s
breach of any of its obligations under this Section 18.

 

Any such notice given by Borrower shall not relieve Borrower of, or
result in a waiver of, any obligation under this Instrument, the Note, or any
other Loan Document.

 

(g)                                 Borrower shall
pay promptly the costs of any environmental inspections, tests or audits, a
purpose of which is to identify the extent or cause of or potential for a
Prohibited Activity or Condition (“Environmental
Inspections”), required by Lender in connection with any
foreclosure or deed in lieu of foreclosure, or as a condition of Lender’s
consent to any Transfer under Section 21, or required by Lender following
a reasonable determination by Lender that Prohibited Activities or Conditions
may exist.  Any such costs incurred by
Lender (including Attorneys’ Fees and Costs and the costs of technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) that Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12.  As long as (i) no Event of Default has
occurred and is continuing, (ii) Borrower has actually paid for or
reimbursed Lender for all costs of any such Environmental Inspections performed
or required by Lender, and (iii) Lender is not prohibited by law, contract
or otherwise from doing so, Lender shall make available to Borrower, without
representation of any kind, copies of Environmental

 

21

 

Inspections prepared by third parties and delivered
to Lender.  Lender hereby reserves the
right, and Borrower hereby expressly authorizes Lender, to make available to
any party, including any prospective bidder at a foreclosure sale of the
Mortgaged Property, the results of any Environmental Inspections made by or for
Lender with respect to the Mortgaged Property. 
Borrower consents to Lender notifying any party (either as part of a
notice of sale or otherwise) of the results of any Environmental
Inspections made by or for Lender. 
Borrower acknowledges that Lender cannot control or otherwise assure the
truthfulness or accuracy of the results of any Environmental Inspections and
that the release of such results to prospective bidders at a foreclosure sale
of the Mortgaged Property may have a material and adverse effect upon the
amount that a party may bid at such sale. 
Borrower agrees that Lender shall have no liability whatsoever as a
result of delivering the results to any third party of any Environmental
Inspections made by or for Lender, and Borrower hereby releases and forever
discharges Lender from any and all claims, damages, or causes of action,
arising out of, connected with or incidental to the results of, the delivery of
any of Environmental Inspections made by or for Lender.

 

(h)                                 If any
investigation, site monitoring, containment, clean-up, restoration or other
remedial work (“Remedial Work”) is
necessary to comply with any Hazardous Materials Law or order of any
Governmental Authority that has or acquires jurisdiction over the Mortgaged
Property or the use, operation or improvement of the Mortgaged Property, or is
otherwise required by Lender as a consequence of any Prohibited Activity or
Condition or to prevent the occurrence of a Prohibited Activity or Condition,
Borrower shall, by the earlier of (i) the applicable deadline required by
Hazardous Materials Law or (ii) 30 days after Notice from Lender demanding
such action, begin performing the Remedial Work, and thereafter diligently
prosecute it to completion, and shall in any event complete the work by the
time required by applicable Hazardous Materials Law.  If Borrower fails to begin on a timely basis
or diligently prosecute any required Remedial Work, Lender may, at its option,
cause the Remedial Work to be completed, in which case Borrower shall reimburse
Lender on demand for the cost of doing so. 
Any reimbursement due from Borrower to Lender shall become part of the
Indebtedness as provided in Section 12.

 

(i)                                     Borrower shall
comply with all Hazardous Materials Laws applicable to the Mortgaged
Property.  Without limiting the
generality of the previous sentence, Borrower shall (i) obtain and
maintain all Environmental Permits required by Hazardous Materials Laws and
comply with all conditions of such Environmental Permits; (ii) cooperate with
any inquiry by any Governmental Authority; and (iii) comply with any
governmental or judicial order that arises from any alleged Prohibited Activity
or Condition.

 

(j)                                     Borrower shall
indemnify, hold harmless and defend (i) Lender, (ii) any prior owner
or holder of the Note, (iii) the Loan Servicer, (iv) any prior Loan
Servicer, (v) the officers, directors, shareholders, partners, employees
and trustees of any of the foregoing, and (vi) the heirs, legal
representatives, successors and assigns of each of the foregoing (collectively,
the “Indemnitees”) from and
against all proceedings, claims, damages, penalties and costs (whether
initiated or sought by Governmental Authorities or private parties), including
Attorneys’ Fees and Costs and remediation costs, whether incurred in connection
with any judicial or administrative process or otherwise, arising directly or
indirectly from any of the following:

 

(i)                                     any breach of
any representation or warranty of Borrower in this Section 18;

 

(ii)                                  any failure by
Borrower to perform any of its obligations under this Section 18;

 

22

 

(iii)          the existence
or alleged existence of any Prohibited Activity or Condition;

 

(iv)          the presence or
alleged presence of Hazardous Materials on or under the Mortgaged Property or
in any of the Improvements or on or under any property of Borrower that is
adjacent to the Mortgaged Property; and

 

(v)           the actual or
alleged violation of any Hazardous Materials Law.

 

(k)                                  Counsel
selected by Borrower to defend Indemnitees shall be subject to the approval of
those Indemnitees.  In any circumstances
in which the indemnity under this Section 18 applies, Lender may employ
its own legal counsel and consultants to prosecute, defend or negotiate any
claim or legal or administrative proceeding and Lender, with the prior written
consent of Borrower (which shall not be unreasonably withheld, delayed or
conditioned) may settle or compromise any action or legal or
administrative proceeding.  However,
unless an Event of Default has occurred and is continuing, or the interests of
Borrower and Lender are in conflict, as determined by Lender in its discretion,
Lender shall permit Borrower to undertake the actions referenced in this
Section 18 in accordance with this Section 18(k) and
Section 18(l) so long as Lender approves such action, which approval
shall not be unreasonably withheld or delayed. 
Borrower shall reimburse Lender upon demand for all costs and expenses
incurred by Lender, including all costs of settlements entered into in good
faith, consultants’ fees and Attorneys’ Fees and Costs.

 

(l)                                     Borrower shall
not, without the prior written consent of those Indemnitees who are named as
parties to a claim or legal or administrative proceeding (a “Claim”), settle or compromise the Claim if
the settlement (i) results in the entry of any judgment that does not include
as an unconditional term the delivery by the claimant or plaintiff to Lender of
a written release of those Indemnitees, satisfactory in form and substance to
Lender; or (ii) may materially and adversely affect Lender, as determined by
Lender in its discretion.

 

(m)                               Borrower’s obligation
to indemnify the Indemnitees shall not be limited or impaired by any of the
following, or by any failure of Borrower or any guarantor to receive notice of
or consideration for any of the following:

 

(i)            any amendment
or modification of any Loan Document;

 

(ii)           any extensions
of time for performance required by any Loan Document;

 

(iii)          any provision
in any of the Loan Documents limiting Lender’s recourse to property securing
the Indebtedness, or limiting the personal liability of Borrower or any other
party for payment of all or any part of the Indebtedness;

 

(iv)          the accuracy or
inaccuracy of any representations and warranties made by Borrower under this
Instrument or any other Loan Document;

 

(v)           the release of
Borrower or any other person, by Lender or by operation of law, from
performance of any obligation under any Loan Document;

 

(vi)          the release or
substitution in whole or in part of any security for the Indebtedness; and

 

23

 

(vii)         Lender’s failure
to properly perfect any lien or security interest given as security for the
Indebtedness.

 

(n)                                 Borrower shall,
at its own cost and expense, do all of the following:

 

(i)            pay or satisfy
any judgment or decree that may be entered against any Indemnitee or
Indemnitees in any legal or administrative proceeding incident to any matters
against which Indemnitees are entitled to be indemnified under this
Section 18;

 

(ii)           reimburse
Indemnitees for any expenses paid or incurred in connection with any matters
against which Indemnitees are entitled to be indemnified under this
Section 18; and

 

(iii)          reimburse
Indemnitees for any and all expenses, including Attorneys’ Fees and Costs, paid
or incurred in connection with the enforcement by Indemnitees of their rights under
this Section 18, or in monitoring and participating in any legal or
administrative proceeding.

 

(o)                                 The provisions
of this Section 18 shall be in addition to any and all other obligations
and liabilities that Borrower may have under applicable law or under other Loan
Documents, and each Indemnitee shall be entitled to indemnification under this
Section 18 without regard to whether Lender or that Indemnitee has
exercised any rights against the Mortgaged Property or any other security,
pursued any rights against any guarantor, or pursued any other rights available
under the Loan Documents or applicable law. If Borrower consists of more than
one person or entity, the obligation of those persons or entities to indemnify
the Indemnitees under this Section 18 shall be joint and several. The
obligation of Borrower to indemnify the Indemnitees under this Section 18
shall survive any repayment or discharge of the Indebtedness, any foreclosure
proceeding, any foreclosure sale, any delivery of any deed in lieu of foreclosure,
and any release of record of the lien of this Instrument.  Notwithstanding the foregoing, if Lender has
never been a mortgagee-in-possession of, or held title to, the Mortgaged
Property, Borrower shall have no obligation to indemnify the Indemnitees under
this Section 18 after the date of the release of record of the lien of
this Instrument by payment in full at the Maturity Date or by voluntary
prepayment in full.

 

19.                               PROPERTY
AND LIABILITY INSURANCE.

 

(a)                                  Borrower shall
keep the Improvements insured at all times against such hazards as Lender may
from time to time require, which insurance shall include but not be limited to
coverage against loss by fire, windstorm and allied perils, general boiler and
machinery coverage, and business interruption including loss of rental value
insurance for the Mortgaged Property with extra expense insurance.  If Lender so requires, such insurance shall
also include sinkhole insurance, mine subsidence insurance, earthquake
insurance, and, if the Mortgaged Property does not conform to applicable zoning
or land use laws, building ordinance or law coverage.  In the event any updated reports or other
documentation are reasonably required by Lender in order to determine whether
such additional insurance is necessary or prudent, Borrower shall pay for all
such documentation at its sole cost and expense.  Borrower acknowledges and agrees that
Lender’s insurance requirements may change from time to time throughout the
term of the Indebtedness.  If any of the
Improvements is located in an area identified by the Federal Emergency
Management Agency (or any successor to that agency) as an area having
special flood hazards, Borrower shall insure such Improvements against loss by
flood.  All insurance required pursuant
to this Section 19(a) shall be referred to as “Hazard

 

24

 

Insurance.”  All policies of Hazard Insurance must include
a non-contributing, non-reporting mortgagee clause in favor of, and in a form
approved by, Lender.

 

(b)                                 All premiums on
insurance policies required under this Section 19 shall be paid in the
manner provided in Section 7, unless Lender has designated in writing
another method of payment.  All such
policies shall also be in a form approved by Lender.  Borrower shall deliver to Lender a legible
copy of each insurance policy (or duplicate original) and Borrower shall
promptly deliver to Lender a copy of all renewal and other notices received by
Borrower with respect to the policies and all receipts for paid premiums.  At least 5 days prior to the expiration date
of any insurance policy, Borrower shall deliver to Lender evidence acceptable
to Lender that the policy has been renewed. 
If Borrower has not delivered a legible copy of each renewal policy (or
a duplicate original) prior to the expiration date of any insurance
policy, Borrower shall deliver a legible copy of each renewal policy (or a
duplicate original) in a form satisfactory to Lender within 120 days after
the expiration date of the original policy.

 

(c)                                  Borrower shall
maintain at all times commercial general liability insurance, workers’
compensation insurance and such other liability, errors and omissions and
fidelity insurance coverages as Lender may from time to time require.  All policies for general liability insurance
must contain a standard additional insured provision, in favor of, and in a
form approved by, Lender.

 

(d)                                 All insurance
policies and renewals of insurance policies required by this Section 19
shall be in such amounts and for such periods as Lender may from time to time
require, and shall be issued by insurance companies satisfactory to Lender.

 

(e)                                  Borrower shall
comply with all insurance requirements and shall not permit any condition to
exist on the Mortgaged Property that would invalidate any part of any insurance
coverage that this Instrument requires Borrower to maintain.

 

(f)                                    In the event of
loss, Borrower shall give immediate written notice to the insurance carrier and
to Lender.  Borrower hereby authorizes
and appoints Lender as attorney-in-fact for Borrower to make proof of loss, to
adjust and compromise any claims under policies of Hazard Insurance, to appear
in and prosecute any action arising from such Hazard Insurance policies, to
collect and receive the proceeds of Hazard Insurance, and to deduct from such
proceeds Lender’s expenses incurred in the collection of such proceeds.  This power of attorney is coupled with an
interest and therefore is irrevocable. 
However, nothing contained in this Section 19 shall require Lender
to incur any expense or take any action. 
Lender may, at Lender’s option, (i) require a “repair or
replacement” settlement, in which case the proceeds will be used to reimburse
Borrower for the cost of restoring and repairing the Mortgaged Property to the
equivalent of its original condition or to a condition approved by Lender (the
“Restoration”), or (ii) require an
“actual cash value” settlement in which case the proceeds may be applied to the
payment of the Indebtedness, whether or not then due. To the extent Lender
determines to require a repair or replacement settlement and apply insurance
proceeds to Restoration, Lender shall apply the proceeds in accordance with
Lender’s then-current policies relating to the restoration of casualty damage
on similar multifamily properties.

 

(g)                                 Notwithstanding
any provision to the contrary in this Section 19, as long as no Event of
Default, or any event which, with the giving of Notice or the passage of time,
or both, would constitute an Event of Default, has occurred and is continuing,

 

(i)                                     in the event of
a casualty resulting in damage to the Mortgaged Property which will cost
$10,000 or less to repair, the Borrower shall have the sole

 

25

 

right to make proof of loss,
adjust and compromise the claim and collect and receive any proceeds directly
without the approval or prior consent of the Lender so long as the insurance
proceeds are used solely for the Restoration of the Mortgaged Property; and

 

(ii)           in the event of
a casualty resulting in damage to the Mortgaged Property which will cost more
than $10,000 but less than $50,000 to repair, the Borrower is authorized to
make proof of loss and adjust and compromise the claim without the prior
consent of Lender, and Lender shall hold the applicable insurance proceeds to
be used to reimburse Borrower for the cost of Restoration of the Mortgaged
Property and shall not apply such proceeds to the payment of sums due under
this Instrument.

 

(h)                                 Lender will
have the right to exercise its option to apply insurance proceeds to the
payment of the Indebtedness only if Lender determines that at least one of the
following conditions is met:

 

(i)            an Event of
Default (or any event, which, with the giving of Notice or the passage of time,
or both, would constitute an Event of Default) has occurred and is
continuing;

 

(ii)           Lender
determines, in its discretion, that there will not be sufficient funds from
insurance proceeds, anticipated contributions of Borrower of its own funds or
other sources acceptable to Lender to complete the Restoration;

 

(iii)          Lender
determines, in its discretion, that the rental income from the Mortgaged
Property after completion of the Restoration will not be sufficient to meet all
operating costs and other expenses, Imposition Deposits, deposits to
reserves and loan repayment obligations relating to the Mortgaged Property;

 

(iv)          Lender
determines, in its discretion, that the Restoration will not be completed at
least one year before the Maturity Date (or six months before the Maturity
Date if Lender determines in its discretion that re-leasing of the Mortgaged
Property will be completed within such six-month period); or

 

(v)           Lender
determines that the Restoration will not be completed within one year after the
date of the loss or casualty.

 

(i)                                     If the
Mortgaged Property is sold at a foreclosure sale or Lender acquires title to
the Mortgaged Property, Lender shall automatically succeed to all rights of
Borrower in and to any insurance policies and unearned insurance premiums and
in and to the proceeds resulting from any damage to the Mortgaged Property
prior to such sale or acquisition.

 

(j)                                     Unless Lender
otherwise agrees in writing, any application of any insurance proceeds to the
Indebtedness shall not extend or postpone the due date of any monthly
installments referred to in the Note, Section 7 of this Instrument or any
Collateral Agreement, or change the amount of such installments.

 

(k)                                  Borrower agrees
to execute such further evidence of assignment of any insurance proceeds as
Lender may require.

 

26

 

20.                               CONDEMNATION.

 

(a)                                  Borrower shall
promptly notify Lender in writing of any action or proceeding or notice
relating to any proposed or actual condemnation or other taking, or conveyance
in lieu thereof, of all or any part of the Mortgaged Property, whether direct
or indirect (a “Condemnation”).  Borrower shall appear in and prosecute or
defend any action or proceeding relating to any Condemnation unless otherwise
directed by Lender in writing.  Borrower
authorizes and appoints Lender as attorney-in-fact for Borrower to commence,
appear in and prosecute, in Lender’s or Borrower’s name, any action or
proceeding relating to any Condemnation and to settle or compromise any claim
in connection with any Condemnation, after consultation with Borrower and
consistent with commercially reasonable standards of a prudent lender.  This power of attorney is coupled with an
interest and therefore is irrevocable. 
However, nothing contained in this Section 20 shall require Lender
to incur any expense or take any action. 
Borrower hereby transfers and assigns to Lender all right, title and
interest of Borrower in and to any award or payment with respect to
(i) any Condemnation, or any conveyance in lieu of Condemnation, and
(ii) any damage to the Mortgaged Property caused by governmental action
that does not result in a Condemnation.

 

(b)                                 Lender may
apply such awards or proceeds, after the deduction of Lender’s expenses
incurred in the collection of such amounts (including Attorneys’ Fees and
Costs) at Lender’s option, to the restoration or repair of the Mortgaged
Property or to the payment of the Indebtedness, with the balance, if any, to
Borrower.  Unless Lender otherwise agrees
in writing, any application of any awards or proceeds to the Indebtedness shall
not extend or postpone the due date of any monthly installments referred to in
the Note, Section 7 of this Instrument or any Collateral Agreement, or
change the amount of such installments. 
Borrower agrees to execute such further evidence of assignment of any
awards or proceeds as Lender may require.

 

21.                               TRANSFERS
OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.  [RIGHT TO UNLIMITED TRANSFERS — WITH LENDER
APPROVAL].

 

(a)                                  “Transfer” means

 

(i)            a sale,
assignment, transfer or other disposition (whether voluntary, involuntary or by
operation of law);

 

(ii)           the granting,
creating or attachment of a lien, encumbrance or security interest (whether
voluntary, involuntary or by operation of law);

 

(iii)          the issuance or
other creation of an ownership interest in a legal entity, including a
partnership interest, interest in a limited liability company or corporate
stock;

 

(iv)          the withdrawal,
retirement, removal or involuntary resignation of a partner in a partnership or
a member or manager in a limited liability company; or

 

(v)           the merger,
dissolution, liquidation, or consolidation of a legal entity or the
reconstitution of one type of legal entity into another type of legal entity.

 

27

 

For
purposes of defining the term “Transfer,” the term “partnership” shall mean a
general partnership, a limited partnership, a joint venture and a limited
liability partnership, and the term “partner” shall mean a general partner, a
limited partner and a joint venturer.

 

(b)                                 “Transfer” does
not include

 

(i)            a conveyance of
the Mortgaged Property at a judicial or non-judicial foreclosure sale under
this Instrument,

 

(ii)           the Mortgaged
Property becoming part of a bankruptcy estate by operation of law under the
United States Bankruptcy Code, or

 

(iii)          a lien against
the Mortgaged Property for local taxes and/or assessments not then due and
payable.

 

(c)                                  The occurrence
of any of the following Transfers shall not constitute an Event of Default
under this Instrument, notwithstanding any provision of
Section 21(e) to the contrary:

 

(i)            a Transfer to
which Lender has consented;

 

(ii)           a Transfer that
occurs in accordance with Section 21(d);

 

(iii)          the grant of a
leasehold interest in an individual dwelling unit for a term of two years or
less not containing an option to purchase;

 

(iv)          a Transfer of
obsolete or worn out Personalty or Fixtures that are contemporaneously replaced
by items of equal or better function and quality, which are free of liens,
encumbrances and security interests other than those created by the Loan
Documents or consented to by Lender;

 

(v)           the creation of
a mechanic’s, materialman’s, or judgment lien against the Mortgaged Property,
which is released of record or otherwise remedied to Lender’s satisfaction
within 60 days of the date of creation;

 

(vi)          if Borrower is
a housing cooperative corporation or association, the Transfer of more than 49
percent of the shares in the housing cooperative or the assignment of more than
49 percent of the occupancy agreements or leases relating thereto by tenant
shareholders of the housing cooperative or association to other tenant
shareholders; and

 

(vii)         any Transfer of
an interest in Borrower or any interest in a Controlling Entity (which, if such
Controlling Entity were Borrower, would result in an Event of
Default) listed in (A) through (F) below (a “Preapproved Transfer”), under the terms and
conditions listed as items (1) through (7) below:

 

(A)          a sale or
transfer to one or more of the transferor’s immediate family members; or

 

(B)           a sale or
transfer to any trust having as its sole beneficiaries the transferor and/or
one or more of the transferor’s immediate family members; or

 

28

 

(C)           a sale or
transfer from a trust to any one or more of its beneficiaries who are immediate
family members of the transferor ; or

 

(D)          the
substitution or replacement of the trustee of any trust with a trustee who is
an immediate family member of the transferor; or

 

(E)           a sale or
transfer to an entity owned and controlled by the transferor or the
transferor’s immediate family members; or

 

(F)           a sale or
transfer to an individual or entity that has an existing interest in the
Borrower or in a Controlling Entity.

 

(1)           Borrower shall
provide Lender with prior written Notice of the proposed Preapproved Transfer,
which Notice must be accompanied by a non-refundable review fee in the amount
of $3,000.00.

 

(2)           For the
purposes of these Preapproved Transfers, a transferor’s immediate family
members will be deemed to include a spouse, parent, child or grandchild of such
transferor.

 

(3)           Either directly
or indirectly, [See Exhibit B] shall retain at all times a managing
interest in the Borrower.

 

(4)           At the time of
the proposed Preapproved Transfer, no Event of Default shall have occurred and
be continuing and no event or condition shall have occurred and be continuing
that, with the giving of Notice or the passage of time, or both, would become
an Event of Default.

 

(5)           Lender shall be
entitled to collect all costs, including the cost of all title searches, title
insurance and recording costs, and all Attorneys’ Fees and Costs.

 

(6)           Lender shall
not be entitled to collect a transfer fee as a result of these Preapproved
Transfers.

 

(7)           In the event of
a Transfer prohibited by or requiring Lender’s approval under this
Section 21, this Section (c)(vii) may be modified or rendered
void by Lender at Lender’s option by Notice to Borrower and the transferee(s),
as a condition of Lender’s consent.

 

(d)                                 The occurrence
of any of the following Transfers shall not constitute an Event of Default
under this Instrument, provided that Borrower has notified Lender in writing
within 30 days following the occurrence of any of the following, and such
Transfer does not constitute an Event of Default under any other
Section of this Instrument:

 

(i)            a change of the
Borrower’s name, provided that UCC financing statements and/or amendments
sufficient to continue the perfection of Lender’s 

 

29

 

security interest have been
properly filed and copies have been delivered to Lender;

 

(ii)           a change of the form of the
Borrower not involving a transfer of the Borrower’s assets and not resulting in
any change in liability of any Initial Owner, provided that UCC financing
statements and/or amendments sufficient to continue the perfection of Lender’s
security interest have been properly filed and copies have been delivered to
Lender;

 

(iii)          the merger of the Borrower
with another entity when the Borrower is the surviving entity;

 

(iv)          a Transfer that occurs by
devise, descent, or by operation of law upon the death of a natural person; and

 

(v)           the grant of an easement, if
before the grant Lender determines that the easement will not materially affect
the operation or value of the Mortgaged Property or Lender’s interest in the
Mortgaged Property, and Borrower pays to Lender, upon demand, all costs and
expenses, including Attorneys’ Fees and Costs, incurred by Lender in connection
with reviewing Borrower’s request.

 

(e)                                  The occurrence
of any of the following Transfers shall constitute an Event of Default under
this Instrument:

 

(i)            a Transfer of all or any
part of the Mortgaged Property or any interest in the Mortgaged Property;

 

(ii)           if Borrower is a limited partnership,
a Transfer of (A) any general partnership interest, or (B) limited
partnership interests in Borrower that would cause the Initial Owners of
Borrower to own less than a Controlling Interest of all limited partnership
interests in Borrower;

 

(iii)          if Borrower is a general
partnership or a joint venture, a Transfer of any general partnership or joint
venture interest in Borrower;

 

(iv)          if Borrower is a limited
liability company, (A) a Transfer of any membership interest in Borrower
which would cause the Initial Owners to own less than a Controlling Interest of
all the membership interests in Borrower, (B) a Transfer of any membership
or other interest of a manager in Borrower that results in a change of manager
or (C) a change in a nonmember manager;

 

(v)           if Borrower is a corporation
(A) the Transfer of any voting stock in Borrower which would cause the
Initial Owners to own less than a Controlling Interest of any class of voting
stock in Borrower or (B) if the outstanding voting stock in Borrower is held
by 100 or more shareholders, one or more Transfers by a single transferor
within a 12-month period affecting an aggregate of 5 percent or more of
that stock;

 

(vi)          if Borrower is a trust,
(A) a Transfer of any beneficial interest in Borrower which would cause
the Initial Owners to own less than a Controlling

 

30

 

Interest of all the
beneficial interests in Borrower, (B) the termination or revocation of the
trust, or (C) the removal, appointment or substitution of a trustee of
Borrower;

 

(vii)         if Borrower is a limited
liability partnership, (A) a Transfer of any partnership interest in
Borrower which would cause the Initial Owners to own less than a Controlling
Interest of all partnership interests in Borrower, or (B) a transfer of
any partnership or other interest of a managing partner in Borrower that
results in a change of manager; and

 

(viii)        a Transfer of any interest
in a Controlling Entity which, if such Controlling Entity were Borrower, would
result in an Event of Default under any of Sections 21(e)(i) through
(vii) above.

 

Lender
shall not be required to demonstrate any actual impairment of its security or
any increased risk of default in order to exercise any of its remedies with
respect to an Event of Default under this Section 21.

 

(f)                                    Lender shall
consent, without any adjustment to the rate at which the Indebtedness secured
by this Instrument bears interest or to any other economic terms of the
Indebtedness set forth in the Note, to a Transfer that would otherwise violate
this Section 21 if, prior to the Transfer, Borrower has satisfied each of
the following requirements:

 

(i)            the submission to Lender of
all information required by Lender to make the determination required by this
Section 21(f);

 

(ii)           the absence of any Event of
Default;

 

(iii)          the transferee meets all of
the eligibility, credit, management and other standards (including but not
limited to any standards with respect to previous relationships between Lender
and the transferee) customarily applied by Lender at the time of the proposed
Transfer to the approval of borrowers in connection with the origination or
purchase of similar mortgages on multifamily properties;

 

(iv)          the transferee’s
organization, credit and experience in the management of similar properties are
deemed by the Lender, in its discretion, to be appropriate to the overall
structure and documentation of the existing financing;

 

(v)           the Mortgaged Property, at
the time of the proposed Transfer, meets all standards as to its physical
condition, occupancy, net operating income and the collection of reserves that
are customarily applied by Lender at the time of the proposed Transfer to the
approval of properties in connection with the origination or purchase of
similar mortgages on multifamily properties;

 

(vi)          in the case of a Transfer of
all or any part of the Mortgaged Property, (A) the execution by the
transferee of Lender’s then-standard assumption agreement that, among other
things, requires the transferee to perform all obligations of Borrower set
forth in the Note, this Instrument and any other Loan Documents, and may
require that the transferee comply with

 

31

 

any provisions of this
Instrument or any other Loan Document which previously may have been waived or
modified by Lender, (B) if Lender requires, the transferee causes one or
more individuals or entities acceptable to Lender to execute and deliver to
Lender a guaranty in a form acceptable to Lender, and (C) the transferee
executes such additional Collateral Agreements as Lender may require;

 

(vii)         in the case of a Transfer of
any interest in a Controlling Entity, if a guaranty has been executed and
delivered in connection with the Note, this Instrument or any of the other Loan
Documents, the Borrower causes one or more individuals or entities acceptable
to Lender to execute and deliver to Lender a guaranty in a form acceptable to
Lender; and

 

(viii)        Lender’s receipt of all of
the following:

 

(A)          a review fee in the amount
of $3,000.00;

 

(B)           a transfer fee in an amount
equal to 1 percent of the unpaid principal balance of the Indebtedness
immediately before the applicable Transfer; and

 

(C)           the amount of Lender’s
out-of-pocket costs (including reasonable Attorneys’ Fees and
Costs) incurred in reviewing the Transfer request.

 

22.                               EVENTS OF DEFAULT.  The occurrence
of any one or more of the following shall constitute an Event of Default under
this Instrument:

 

(a)                                  any failure by
Borrower to pay or deposit when due any amount required by the Note, this
Instrument or any other Loan Document;

 

(b)                                 any failure by
Borrower to maintain the insurance coverage required by Section 19;

 

(c)                                  any failure by
Borrower to comply with the provisions of Section 33;

 

(d)                                 fraud or
material misrepresentation or material omission by Borrower, any of its
officers, directors, trustees, general partners or managers or any guarantor in
connection with (i) the application for or creation of the Indebtedness,
(ii) any financial statement, rent schedule, or other report or
information provided to Lender during the term of the Indebtedness, or
(iii) any request for Lender’s consent to any proposed action, including a
request for disbursement of funds under any Collateral Agreement;

 

(e)                                  any failure by
Borrower to comply with the provisions of Section 20;

 

(f)                                    any Event of
Default under Section 21;

 

(g)                                 the
commencement of a forfeiture action or proceeding, whether civil or criminal,
which, in Lender’s reasonable judgment, could result in a forfeiture of the
Mortgaged Property or otherwise materially impair the lien created by this
Instrument or Lender’s interest in the Mortgaged Property;

 

32

 

(h)                                 any failure by
Borrower to perform any of its obligations under this Instrument (other than
those specified in Sections 22(a) through (g)), as and when required,
which continues for a period of 30 days after Notice of such failure by Lender
to Borrower.  However, if Borrower’s
failure to perform its obligations as described in this Section 22(h) is
of the nature that it cannot be cured within the 30 day grace period but
reasonably could be cured within 90 days, then Borrower shall have additional
time as determined by Lender in its discretion, not to exceed an additional 60 days,
in which to cure such default, provided that Borrower has diligently commenced
to cure such default during the 30-day grace period and diligently pursues the
cure of such default.  However, no such
Notice or grace periods shall apply in the case of any such failure which
could, in Lender’s judgment, absent immediate exercise by Lender of a right or
remedy under this Instrument, result in harm to Lender, impairment of the Note
or this Instrument or any other security given under any other Loan Document;

 

(i)                                     any failure by
Borrower to perform any of its obligations as and when required under any Loan
Document other than this Instrument which continues beyond the applicable cure
period, if any, specified in that Loan Document;

 

(j)                                     any exercise by
the holder of any other debt instrument secured by a mortgage, deed of trust or
deed to secure debt on the Mortgaged Property of a right to declare all amounts
due under that debt instrument immediately due and payable;

 

(k)                                  any voluntary
filing by Borrower for bankruptcy protection under the United States Bankruptcy
Code or any reorganization, receivership, insolvency proceeding or other
similar proceeding pursuant to any other federal or state law affecting debtor
and creditor rights to which Borrower voluntarily becomes subject, or the
commencement of any involuntary case against Borrower by any creditor (other
than Lender) of Borrower pursuant to the United States Bankruptcy Code or
other federal or state law affecting debtor and creditor rights which case is
not dismissed or discharged within 90 days after filing; and

 

(l)                                     any
representations and warranties by Borrower in this Instrument which is false or
misleading in any material respect.

 

23.                               REMEDIES CUMULATIVE.  Each right and
remedy provided in this Instrument is distinct from all other rights or
remedies under this Instrument or any other Loan Document or afforded by
applicable law, and each shall be cumulative and may be exercised concurrently,
independently, or successively, in any order.

 

24.                               FORBEARANCE.

 

(a)                                  Lender may (but
shall not be obligated to) agree with Borrower, from time to time, and
without giving notice to, or obtaining the consent of, or having any effect
upon the obligations of, any guarantor or other third party obligor, to take
any of the following actions:  extend the
time for payment of all or any part of the Indebtedness; reduce the payments
due under this Instrument, the Note, or any other Loan Document; release anyone
liable for the payment of any amounts under this Instrument, the Note, or any
other Loan Document; accept a renewal of the Note; modify the terms and time of
payment of the Indebtedness; join in any extension or subordination agreement;
release any Mortgaged Property; take or release other or additional security;
modify the rate of interest or period of amortization of the Note or change the
amount of the monthly installments payable under the Note; and otherwise modify
this Instrument, the Note, or any other Loan Document.

 

33

 

(b)                                 Any forbearance
by Lender in exercising any right or remedy under the Note, this Instrument, or
any other Loan Document or otherwise afforded by applicable law, shall not be a
waiver of or preclude the exercise of any other right or remedy, or the
subsequent exercise of any right or remedy. 
The acceptance by Lender of payment of all or any part of the
Indebtedness after the due date of such payment, or in an amount which is less
than the required payment, shall not be a waiver of Lender’s right to require
prompt payment when due of all other payments on account of the Indebtedness or
to exercise any remedies for any failure to make prompt payment. Enforcement by
Lender of any security for the Indebtedness shall not constitute an election by
Lender of remedies so as to preclude the exercise of any other right available
to Lender.  Lender’s receipt of any
awards or proceeds under Sections 19 and 20 shall not operate to cure or
waive any Event of Default.

 

25.                               LOAN CHARGES.  If any applicable
law limiting the amount of interest or other charges permitted to be collected
from Borrower is interpreted so that any charge provided for in any Loan
Document, whether considered separately or together with other charges levied
in connection with any other Loan Document, violates that law, and Borrower is
entitled to the benefit of that law, that charge is hereby reduced to the
extent necessary to eliminate that violation. 
The amounts, if any, previously paid to Lender in excess of the
permitted amounts shall be applied by Lender to reduce the principal of the
Indebtedness.  For the purpose of
determining whether any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower has been violated, all
Indebtedness which constitutes interest, as well as all other charges levied in
connection with the Indebtedness which constitute interest, shall be deemed to
be allocated and spread over the stated term of the Note.  Unless otherwise required by applicable law,
such allocation and spreading shall be effected in such a manner that the rate
of interest so computed is uniform throughout the stated term of the Note.

 

26.                               WAIVER OF STATUTE OF LIMITATIONS.  Borrower hereby
waives the right to assert any statute of limitations as a bar to the
enforcement of the lien of this Instrument or to any action brought to enforce
any Loan Document.

 

27.                               WAIVER OF MARSHALLING.  Notwithstanding
the existence of any other security interests in the Mortgaged Property held by
Lender or by any other party, Lender shall have the right to determine the
order in which any or all of the Mortgaged Property shall be subjected to the
remedies provided in this Instrument, the Note, any other Loan Document or
applicable law.  Lender shall have the right
to determine the order in which any or all portions of the Indebtedness are
satisfied from the proceeds realized upon the exercise of such remedies.  Borrower and any party who now or in the
future acquires a security interest in the Mortgaged Property and who has
actual or constructive notice of this Instrument waives any and all right to
require the marshalling of assets or to require that any of the Mortgaged
Property be sold in the inverse order of alienation or that any of the
Mortgaged Property be sold in parcels or as an entirety in connection with the
exercise of any of the remedies permitted by applicable law or provided in this
Instrument.

 

28.                               FURTHER ASSURANCES.  Borrower shall
execute, acknowledge, and deliver, at its sole cost and expense, all further
acts, deeds, conveyances, assignments, estoppel certificates, financing
statements or amendments, transfers and assurances as Lender may require from
time to time in order to better assure, grant, and convey to Lender the rights
intended to be granted, now or in the future, to Lender under this Instrument
and the Loan Documents.

 

29.                               ESTOPPEL CERTIFICATE.  Within 10 days
after a request from Lender, Borrower shall deliver to Lender a written
statement, signed and acknowledged by Borrower, certifying to Lender or any
person designated by Lender, as of the date of such statement, (i) that

 

34

 

the Loan Documents are unmodified and in full force
and effect (or, if there have been modifications, that the Loan Documents are
in full force and effect as modified and setting forth such modifications);
(ii) the unpaid principal balance of the Note; (iii) the date to
which interest under the Note has been paid; (iv) that Borrower is not in
default in paying the Indebtedness or in performing or observing any of the
covenants or agreements contained in this Instrument or any of the other Loan
Documents (or, if the Borrower is in default, describing such default in
reasonable detail); (v) whether or not there are then existing any setoffs
or defenses known to Borrower against the enforcement of any right or remedy of
Lender under the Loan Documents; and (vi) any additional facts requested
by Lender.

 

30.                               GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

 

(a)                                  This
Instrument, and any Loan Document which does not itself expressly identify the
law that is to apply to it, shall be governed by the laws of the jurisdiction
in which the Land is located (the “Property
Jurisdiction”).

 

(b)                                 Borrower agrees
that any controversy arising under or in relation to the Note, this Instrument,
or any other Loan Document may be litigated in the Property Jurisdiction.  The state and federal courts and authorities
with jurisdiction in the Property Jurisdiction shall have jurisdiction over all
controversies that shall arise under or in relation to the Note, any security
for the Indebtedness, or any other Loan Document.  Borrower irrevocably consents to service,
jurisdiction, and venue of such courts for any such litigation and waives any other
venue to which it might be entitled by virtue of domicile, habitual residence
or otherwise.  However, nothing in this
Section 30 is intended to limit Lender’s right to bring any suit, action
or proceeding relating to matters under this Instrument in any court of any
other jurisdiction.

 

31.                               NOTICE.

 

(a)                                  All Notices,
demands and other communications (“Notice”) under
or concerning this Instrument shall be in writing.  Each Notice shall be addressed to the
intended recipient at its address set forth in this Instrument, and shall be
deemed given on the earliest to occur of (i) the date when the Notice is
received by the addressee; (ii) the first Business Day after the Notice is
delivered to a recognized overnight courier service, with arrangements made for
payment of charges for next Business Day delivery; or (iii) the third
Business Day after the Notice is deposited in the United States mail with
postage prepaid, certified mail, return receipt requested.

 

(b)                                 Any party to
this Instrument may change the address to which Notices intended for it are to
be directed by means of Notice given to the other party in accordance with this
Section 31.  Each party agrees that
it will not refuse or reject delivery of any Notice given in accordance with
this Section 31, that it will acknowledge, in writing, the receipt of any
Notice upon request by the other party and that any Notice rejected or refused
by it shall be deemed for purposes of this Section 31 to have been
received by the rejecting party on the date so refused or rejected, as
conclusively established by the records of the U.S. Postal Service or the
courier service.

 

(c)                                  Any Notice
under the Note and any other Loan Document that does not specify how Notices
are to be given shall be given in accordance with this Section 31.

 

32.                               SALE OF NOTE; CHANGE IN SERVICER; LOAN SERVICING.  The Note or a partial
interest in the Note (together with this Instrument and the other Loan
Documents) may be sold one or more times without prior Notice to
Borrower.  A sale may result in a change
of the Loan Servicer.  There also may be
one or more changes of the Loan Servicer

 

35

 

unrelated to a sale of the Note.  If there is a change of the Loan Servicer,
Borrower will be given Notice of the change.  All
actions regarding the servicing of the loan evidenced by the Note, including
the collection of payments, the giving and receipt of Notice, inspections of
the Mortgaged Property, inspections of books and records, and the granting of
consents and approvals, may be taken by the Loan Servicer unless Borrower
receives Notice to the contrary.  If
Borrower receives conflicting Notices regarding the identity of the Loan
Servicer or any other subject, any such Notice from Lender shall govern.

 

33.                               SINGLE ASSET BORROWER.  Until the
Indebtedness is paid in full, Borrower (a) shall not own any real or
personal property other than the Mortgaged Property and personal property
related to the operation and maintenance of the Mortgaged Property;  (b) shall not operate any business other
than the management and operation of the Mortgaged Property; and (c) shall
not maintain its assets in a way difficult to segregate and identify.

 

34.                               SUCCESSORS AND ASSIGNS BOUND.  This Instrument
shall bind, and the rights granted by this Instrument shall inure to, the
respective successors and assigns of Lender and Borrower.  However, a Transfer not permitted by
Section 21 shall be an Event of Default.

 

35.                               JOINT AND SEVERAL LIABILITY.  If more than
one person or entity signs this Instrument as Borrower, the obligations of such
persons and entities shall be joint and several.

 

36.                               RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

 

(a)                                  The
relationship between Lender and Borrower shall be solely that of creditor and
debtor, respectively, and nothing contained in this Instrument shall create any
other relationship between Lender and Borrower.

 

(b)                                 No creditor of
any party to this Instrument and no other person shall be a third party
beneficiary of this Instrument or any other Loan Document.  Without limiting the generality of the
preceding sentence, (i) any arrangement (a “Servicing Arrangement”) between the Lender and any Loan
Servicer for loss sharing or interim advancement of funds shall constitute a
contractual obligation of such Loan Servicer that is independent of the
obligation of Borrower for the payment of the Indebtedness, (ii) Borrower
shall not be a third party beneficiary of any Servicing Arrangement, and
(iii) no payment by the Loan Servicer under any Servicing Arrangement will
reduce the amount of the Indebtedness.

 

37.                               SEVERABILITY; AMENDMENTS.  The invalidity or unenforceability of any
provision of this Instrument shall not affect the validity or enforceability of
any other provision, and all other provisions shall remain in full force and
effect.  This Instrument contains the
entire agreement among the parties as to the rights granted and the obligations
assumed in this Instrument.  This
Instrument may not be amended or modified except by a writing signed by the party
against whom enforcement is sought; provided, however, that in the event of a
Transfer prohibited by or requiring Lender’s approval under Section 21,
any or some or all of the Modifications to Instrument set forth in Exhibit B
(if any) may be modified or rendered void by Lender at Lender’s option by
Notice to Borrower and the transferee(s).

 

38.                               CONSTRUCTION.  The captions
and headings of the Sections of this Instrument are for convenience only
and shall be disregarded in construing this Instrument.  Any reference in this Instrument to an
“Exhibit” or a “Section” shall, unless otherwise explicitly provided, be
construed as referring, respectively, to an Exhibit attached to this
Instrument or to a Section of this Instrument.  All Exhibits attached to or referred to in
this Instrument are

 

36

 

incorporated by reference into this Instrument.  Any reference in this Instrument to a statute
or regulation shall be construed as referring to that statute or regulation as
amended from time to time.  Use of the
singular in this Agreement includes the plural and use of the plural includes
the singular.  As used in this
Instrument, the term “including” means “including, but not limited to.”

 

39.                               DISCLOSURE OF INFORMATION.  Lender may
furnish information regarding Borrower or the Mortgaged Property to third
parties with an existing or prospective interest in the servicing, enforcement,
evaluation, performance, purchase or securitization of the Indebtedness,
including but not limited to trustees, master servicers, special servicers,
rating agencies, and organizations maintaining databases on the underwriting
and performance of multifamily mortgage loans, as well as governmental
regulatory agencies having regulatory authority over Lender.  Borrower irrevocably waives any and all
rights it may have under applicable law to prohibit such disclosure, including
but not limited to any right of privacy.

 

40.                               NO CHANGE IN FACTS OR CIRCUMSTANCES. 
Borrower warrants that (a) all information in the application for
the loan submitted to Lender (the “Loan
Application”) and in all financial statements, rent schedules,
reports, certificates and other documents submitted in connection with the Loan
Application are complete and accurate in all material respects; and
(b) there has been no material adverse change in any fact or circumstance
that would make any such information incomplete or inaccurate.

 

41.                               SUBROGATION.  If, and to
the extent that, the proceeds of the loan evidenced by the Note, or subsequent
advances under Section 12, are used to pay, satisfy or discharge a Prior
Lien, such loan proceeds or advances shall be deemed to have been advanced by
Lender at Borrower’s request, and Lender shall automatically, and without
further action on its part, be subrogated to the rights, including lien
priority, of the owner or holder of the obligation secured by the Prior Lien,
whether or not the Prior Lien is released.

 

42.                               ADJUSTABLE RATE MORTGAGE - THIRD PARTY CAP AGREEMENT “CAP COLLATERAL.”

 

(a)                                  If the Note
provides for interest to accrue at an adjustable or variable interest rate
(other than during the “Extension Period,” as defined in the Note, if
applicable), then the definition of “Mortgaged Property” shall include the “Cap Collateral.”  The “Cap Collateral” shall mean

 

(i)            any interest rate cap
agreement, interest rate swap agreement, or other interest rate-hedging
contract or agreement obtained by Borrower as a requirement of any Loan
Document or as a condition of Lender’s making the Loan (a “Cap Agreement”);

 

(ii)           any and all moneys
(collectively, “Cap Payments”)
payable pursuant to any Cap Agreement by the interest rate cap provider or
other counterparty to a Cap Agreement or any guarantor of the obligations of
any such cap provider or counterparty (a “Cap
Provider”);

 

(iii)          all rights of Borrower under
any Cap Agreement and all rights of Borrower to all Cap Payments, including
contract rights and general intangibles, whether existing now or arising after
the date of this Instrument;

 

37

 

(iv)          all rights, liens and
security interests or guaranties granted by a Cap Provider or any other person
to secure or guaranty payment of any Cap Payment whether existing now or
granted after the date of this Instrument;

 

(v)           all documents, writings,
books, files, records and other documents arising from or relating to any of
the foregoing, whether existing now or created after the date of this
Instrument; and

 

(vi)          all cash and non-cash
proceeds and products of (ii) — (v) above.

 

(b)                                 As additional
security for Borrower’s obligation under the Loan Documents, Borrower hereby
assigns and pledges to Lender all of Borrower’s right, title and interest in
and to the Cap Collateral.  Borrower has
instructed and will instruct each Cap Provider and any guarantor of a Cap
Provider’s obligations to make Cap Payments directly to Lender or to Loan
Servicer on behalf of Lender.

 

(c)                                  So long as
there is no Event of Default, Lender or Loan Servicer will remit to Borrower
each Cap Payment received by Lender or Loan Servicer with respect to any month
for which Borrower has paid in full the monthly installment of principal and
interest or interest only, as applicable, due under the Note.  Alternatively, at Lender’s option so long as there
is no Event of Default, Lender may apply a Cap Payment received by Lender or
Loan Servicer with respect to any month to the applicable monthly payment of
accrued interest due under the Note if Borrower has paid in full the remaining
portion of such monthly payment of principal and interest or interest only, as
applicable.

 

(d)                                 Following an
Event of Default, in addition to any other rights and remedies Lender may have,
Lender may retain any Cap Payments and apply them to the Indebtedness in such
order and amounts as Lender determines. 
Neither the existence of a Cap Agreement nor anything in this Instrument
shall relieve Borrower of its primary obligation to timely pay in full all
amounts due under the Note and otherwise due on account of the Indebtedness.

 

(e)                                  If the Note
does not provide for interest to accrue at an adjustable or variable interest
rate (other than during the Extension Period) then this Section 42 shall
be of no force or effect.

 

43.                               ACCELERATION; REMEDIES; WAIVER OF PERMISSIVE COUNTERCLAIMS.  At any time during the existence of an Event
of Default, Lender, at Lender’s option, may declare the Indebtedness to be
immediately due and payable without further demand, and may foreclose this
Instrument by judicial proceeding and may invoke any other remedies permitted
by Florida law or provided in this Instrument or in any other Loan
Document.  Lender shall be entitled to
collect all costs and expenses incurred in pursuing such remedies, including
attorneys’ fees, costs of documentary evidence, abstracts and title
reports.  Borrower waives any and all
rights to file or pursue permissive counterclaims in connection with any legal
action brought by Lender under this Instrument, the Note or any other Loan Document.

 

44.                               RELEASE.  Upon payment
of the Indebtedness, Lender shall release this Instrument.  Borrower shall pay Lender’s reasonable costs
incurred in releasing this Instrument.

 

45.                               FUTURE ADVANCES. 
Lender may from time to time, in Lender’s discretion, make optional
future or additional advances (collectively, “Future
Advances”) to Borrower, except that at no time shall the unpaid
principal balance of all indebtedness secured by the lien of this Instrument,
including Future Advances, be greater than an amount equal to two hundred

 

38

 

percent (200%) of the original principal amount of
this Note as set forth on the first page of this Instrument plus accrued
interest and amounts disbursed by Lender under Section 12 or any other
provision of this Instrument that treats a disbursement by Lender as being made
under Section 12.  All Future
Advances shall be made, if at all, within twenty (20) years after the date of
this Instrument, or within such lesser period that may in the future be
provided by law as a prerequisite for the sufficiency of actual or record
notice of Future Advances as against the rights of creditors or subsequent
purchasers for value.  Borrower shall,
immediately upon request by Lender, execute and deliver to Lender a promissory
note evidencing each Future Advance together with a notice of such Future
Advance in recordable form.  All
promissory notes evidencing Future Advances shall be secured, pari  passu,
by the lien of this Instrument, and each reference in this Instrument to the
Note shall be deemed to be a reference to all promissory notes evidencing
Future Advances.

 

46.                               WAIVER OF TRIAL BY JURY.  BORROWER AND LENDER EACH (A) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT
OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND
LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT
EXISTS NOW OR IN THE FUTURE.  THIS WAIVER
OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

 

ATTACHED EXHIBITS.  The following Exhibits are attached to this
Instrument:

 

	
  x

  	
   

  	
  Exhibit A

  	
   

  	
  Description
  of the Land (required).

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  x

  	
   

  	
  Exhibit B

  	
   

  	
  Modifications
  to Instrument

  

 

IN WITNESS WHEREOF, Borrower has signed and
delivered this Instrument or has caused this Instrument to be signed and
delivered by its duly authorized representative.

 

39

 

	
  WITNESS:

  	
   

  	
  15250 SONOMA DRIVE FEE OWNER, LLC, a Delaware
  limited liability company

  
	
   

  	
   

  	
   

  
	
  /s/
  David H. Paul

  	
   

  	
  By:

  	
  15250
  Sonoma Drive, LLC, a Delaware limited liability company, its Sole Member

  
	
  Print
  Name:

  	
  David
  H. Paul

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  Behringer
  Harvard Palms of Monterrey, LLC, a Delaware limited liability company, its
  Managing Member

  
	
  /s/
  Gwenyth S. Wood

  	
   

  	
   

  	
   

  
	
  Print
  Name:

  	
  Gwenyth
  S. Wood

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/
  Gerald J. Reihsen, III

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:
  Gerald J. Reihsen, III

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:
  Executive Vice President – Corporate Development & Legal

  

 

STATE
OF TEXAS

 

CITY/COUNTY
OF DALLAS, ss:

 

I
HEREBY CERTIFY that on this day, before me, an officer duly authorized in the
state aforesaid and in the county aforesaid to take acknowledgments, personally
appeared Gerald J. Reihsen, III, to me known to be the person described in
and who executed the foregoing instrument as the Executive Vice President —
Corporate Development & Legal of Behringer Harvard Palms of Monterrey,
LLC, a Delaware limited liability company, the Managing Member of 15250 Sonoma
Drive, LLC, a Delaware limited liability company, the Sole Member of 15250
Sonoma Drive Fee Owner, LLC, a Delaware limited liability company, and
acknowledged to me that he/she as such officer of the managing member, being authorized
to do so, executed the foregoing instrument for the purposes therein contained
in the name of such limited liability company by himself/herself as _ Executive
Vice President — Corporate Development & Legal of the managing member.

 

Witness
my hand and official seal in the county and state aforesaid, this 8th day of
June, 2010.

 

 

	
   

  	
  /s/ Authorized Signatory

  
	
   

  	
  Notary Public

  
	
   

  	
   

  
	
  My
  Commission Expires: 7/26/2012

  	
   

  

 

40

 

EXHIBIT A

 

[DESCRIPTION OF THE LAND]

 

A-1

 

EXHIBIT B

 

MODIFICATIONS TO INSTRUMENT

 

The
following modifications are made to the text of the Instrument that precedes
this Exhibit:

 

1.             Section 21(c)(vii) is
hereby deleted in its entirety.

 

2.             The second
sentence of Section 4(e) is modified to read as follows:

 

All
Leases for residential dwelling units shall be on forms approved by Lender,
shall be for initial terms of at least six months and not more than two years
(except not more than 5% of the residential dwelling units may have initial
terms of less than six months but not shorter than one month), and shall not
include options to purchase.

 

3.             Section 14(a) is
modified to read as follows:

 

(a)           Borrower shall keep and maintain at all times at the
Mortgaged Property or the management agent’s office (or, at Borrower’s option,
at the management agent’s office or at the corporate headquarters of Behringer
Harvard Opportunity II Management Services, LLC), and, within 2 Business Days
of Lender’s request, shall make available at the Mortgaged Property, complete
and accurate books of account and records (including copies of supporting bills
and invoices) adequate to reflect correctly the operation of the Mortgaged
Property, and copies of all written contracts, Leases, and other instruments
which affect the Mortgaged Property; provided, however, that each of the
following must be maintained on and available at the Mortgaged Property:

 

i.              lease files,

ii.             information regarding the leasing status of each unit,

iii.            documentation regarding marketing efforts,

iv.            any Moisture Management Plan (MMP),

v.             any
operations & maintenance (O&M) plans.

 

The books, records, contracts, Leases and other instruments shall be
subject to examination and inspection by Lender at any reasonable time.

 

4.             Section 19(g)(i) is
revised to replace “$10,000” with “$100,000.”

 

5.             Section 19(g)(ii) is
revised to replace the words “more than $10,000 but less than $50,000” with the
words “more than $100,000 but less than $250,000.”

 

6.             Section 21(e)(viii) is
revised to read as follows:

 

(viii)        a Transfer of any interest in a Controlling Entity
which, if such Controlling Entity were Borrower, would result in an Event of
Default under any of Sections 21(e)(i) through (vii) above;
provided, however, that the following will not constitute an Event of Default:

 

B-1

 

A.            a Transfer under
Section 21(e)(v) with respect to Behringer Harvard Opportunity REIT
II, a Maryland corporation (“BH Opp REIT II”), or

 

B.            a Transfer under
Section 21(e)(ii)(B) with respect to Behringer Harvard Opportunity OP
II LP, a Delaware limited partnership (“BHOP II”),

 

but
only if in each case (X) Behringer Harvard Opportunity Advisors II, LLC, a
Texas limited liability company (the “Advisor”) is managing the day-to-day
operations, either internally or externally, of BH Opp REIT II or BHOP II, as
applicable, and (Y) there is not a Transfer of a Controlling Interest in
the Advisor; provided, however, that it will not be an Event of Default if a
Transfer of the Advisor is made to BH Opp REIT II or BHOP II.

 

7.             Section 21(f)(vi) is
revised to add the following language at the end thereof:

 

“In
the event that Lender approves a Transfer pursuant to this
Section 21(f)(vi), and if and to the extent then approved by Lender, the
Borrower and its guarantors shall be released from any and all obligations
under the terms and provisions of the Loan Documents; provided, however, that
Borrower and the guarantors shall not be released from any liability pursuant
to Section 18 (ENVIRONMENTAL HAZARDS) of this Security Instrument arising
out of conditions existing on or before the date of the Transfer.”

 

8.             The following
new Section 47 is added to the Instrument:

 

47.          SUPPLEMENTAL FINANCING.

 

(a)           This Section shall apply only if:

 

(i)            the Federal Home Loan Mortgage Corporation (“Freddie
Mac”) is the holder of the Note and this Instrument,

 

(ii)           the Borrower named in this Instrument is the owner
of the Mortgaged Property,

 

(iii)          the Initial Owners are the owners of all ownership
interests in Borrower (except for changes in such ownership that are permitted
by Section 21(c) of this Instrument),

 

(iv)          no Event of Default has occurred, and

 

(v)           at the time of any application referred to below,
Freddie Mac has in effect a program described in its Multifamily Seller/Servicer Guide under which it purchases
mortgages on multifamily properties that meet specified criteria (a
“Supplemental Mortgage Program”).

 

(b)           After the first anniversary of the date of this
Instrument, Freddie Mac will consider an application from an originating lender
that is generally approved by Freddie Mac to sell mortgages to Freddie Mac
under the Supplemental Mortgage Program (an “Approved Seller/Servicer”) for the
purchase by Freddie Mac of a proposed indebtedness of Borrower to the Approved
Seller/Servicer to be secured by a second mortgage on the

 

B-2

 

Mortgaged
Property (such indebtedness and second mortgage being referred to together as a
“Supplemental Mortgage”).

 

(c)           Freddie Mac shall have no obligation to purchase any
proposed Supplemental Mortgage that is not acceptable to Freddie Mac for any reason,
in Freddie Mac’s sole and absolute judgment and discretion. Without limiting
the generality of the preceding sentence, Freddie Mac will not purchase any
proposed Supplemental Mortgage if, in Freddie Mac’s sole and absolute judgment,
(i) the proposed Supplemental Mortgage fails to meet any of the standards
applicable at the time under the Supplemental Mortgage Program, including but
not limited to standards pertaining to the physical condition, financial
performance or other characteristics of the Mortgaged Property or any aspect of
the Borrower, any guarantor or the applicable market,  or
(ii) Freddie Mac is not satisfied with respect to the term, interest rate
or amortization provisions of the proposed Supplemental Mortgage.

 

(d)           Freddie Mac shall have no obligation to consent to
any mortgage or lien on the property that secures any indebtedness other than
the Indebtedness.

 

B-3

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