Document:

sec document

                                                                    EXHIBIT 10.9

                                 TERM LOAN NOTE

$3,500,000                                                      October 29, 2003

            FOR  VALUE  RECEIVED  and  intending  to  be  legally   bound,   the
undersigned  MONTICELLO  RACEWAY  MANAGEMENT,   INC.,  a  New  York  corporation
("Borrower"),  promises to pay, in lawful money of the United States of America,
to the order of THE  BERKSHIRE  BANK  ("Lender"),  at its address at 4 East 39th
Street,  New York,  NY 10016,  the original  principal sum of Three Million Five
Hundred  Thousand Dollars  ($3,500,000)  plus interest in the amounts and on the
dates  set  forth  below.   This  note  (this   "Note")   evidences   Borrower's
unconditional  obligation  to repay that certain  loan (the "Loan")  established
pursuant to that certain Loan and Security Agreement, dated October 29, 2003, by
and  between  Borrower  and  Lender  (as  it  may  be  supplemented,   restated,
superseded,  amended or replaced from time to time, the "Loan  Agreement").  All
capitalized  terms  used  herein  without  further  definition  shall  have  the
respective meanings ascribed thereto in the Loan Agreement.

            Borrower agrees to pay interest on the outstanding principal balance
hereunder  at the  rate  and  calculated  in the  manner  specified  in the Loan
Agreement.

            The principal  amount of this Note  together with interest  shall be
paid in twenty-three (23) equal consecutive monthly installments  (calculated on
the basis of eighty-four  (84) month  amortization of principal and interest) in
the amount of $55,868.72 each,  commencing on December 1, 2003 and continuing on
the first day of each  calendar  month  thereafter,  with a final payment of the
entire  outstanding  principal  balance  hereunder  and all  accrued  but unpaid
interest, fees, costs and Expenses due on November 1, 2005. Interest payable for
the period commencing on the date hereof and ending on October 31, 2003 shall be
deducted from the Loan proceeds paid to Borrower on the Closing Date.

            This  Note may be  prepaid  only in  accordance  with the  terms and
conditions of the Loan Agreement.

            The Loan Agreement  provides for the  acceleration of the payment of
principal  of and interest on the Loan upon the  happening of certain  Events of
Default.  The obligations  evidenced by this Note are secured by the Collateral.
Borrower shall be obligated for Expenses incurred by Lender from time to time in
connection with the Loan to the extent set forth in the Loan Agreement

            To the extent  permitted by law,  Borrower  hereby  waives  protest,
demand,  notice of  nonpayment  and all other  notices  in  connection  with the
delivery, acceptance, performance or enforcement of this Note.

            THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH NEW
YORK LAW. To the extent  permitted by law, the provisions of this Note are to be
deemed severable and the invalidity or  unenforceability  of any provision shall
not affect or impair the remaining provisions of this Note which shall

                                       1

continue in full force and effect.  No  modification  hereof shall be binding or
enforceable against Lender unless approved in writing by Lender.

            BORROWER (AND LENDER BY ITS ACCEPTANCE HEREOF) HEREBY WAIVES ANY AND
ALL  RIGHTS  IT MAY HAVE TO A JURY  TRIAL  IN  CONNECTION  WITH ANY  LITIGATION,
PROCEEDING, CLAIM OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS
OF THE PARTIES  HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS
ARISING OUT OF ANY  DISCUSSIONS,  NEGOTIATIONS  OR  COMMUNICATIONS  INVOLVING OR
RELATED  TO  ANY   PROPOSED   RENEWAL,   EXTENSION,   AMENDMENT,   MODIFICATION,
RESTRUCTURE,   FORBEARANCE,   WORKOUT,   OR  ENFORCEMENT  OF  THE   TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS.

                           [SIGNATURE PAGE TO FOLLOW]

                                       2

            IN  WITNESS  WHEREOF,  and  intending  to be legally  bound  hereby,
Borrower has executed this Note as of the day and year first above written.

                                             MONTICELLO RACEWAY MANAGEMENT, INC.

                                             By: /s/ Cliff Ehrlich
                                                 ------------------------------
                                             Name:  Cliff Ehrlich
                                             Title: President

                       [SIGNATURE PAGE TO TERM LOAN NOTE]

                                       3sec document

                                                                   EXHIBIT 10.10

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

                MONTICELLO RACEWAY MANAGEMENT, INC., as mortgagor
                                   (Borrower)

                                       to

                        THE BERKSHIRE BANK, as mortgagee
                                    (Lender)

                     LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
                ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING

                             Dated: October 29, 2003

                         Location: Monticello, New York

            County:     Sullivan    A) Section 101          Block 1     Lot 1.1

            County:     Sullivan    B) Section 101          Block 1     Lot 1.3

            County:     Sullivan    C) Section 102          Block 4     Lot 1

            County:     Sullivan    D) Section 12           Block 1     Lot 46.2

            County:     Sullivan    E) Section 12           Block 1     Lot 48

            County:     Sullivan    F) Section 12           Block 1     Lot 64

         Maximum Principal Amount Secured: $3,500,000, plus other sums
                            described in Section 22.7

                              PREPARED BY AND UPON
                             RECORDATION RETURN TO:

                                 Blank Rome LLP
                              405 Lexington Avenue
                            New York, New York 10174
                       Attention: Michael J. Feinman, Esq.
                            BR File No.: 521464-00101

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

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE 1  GRANTS OF SECURITY..............................................  1

  Section 1.1.    PROPERTY MORTGAGED.......................................  1
  Section 1.2.    ASSIGNMENT OF RENTS......................................  2
  Section 1.3.    SECURITY AGREEMENT.......................................  2
  Section 1.4.    PLEDGE OF MONIES HELD....................................  2

ARTICLE 2. PAYMENTS........................................................  3

  Section 2.1.    DEBT AND OBLIGATIONS SECURED.............................  3
  Section 2.2.    PAYMENTS.................................................  3

ARTICLE 3. BORROWER COVENANTS..............................................  3

  Section 3.1.    PAYMENT OF DEBT..........................................  3
  Section 3.2.    INCORPORATION BY REFERENCE...............................  3
  Section 3.3.    INSURANCE................................................  3
  Section 3.4.    PAYMENT OF TAXES, ETC....................................  5
  Section 3.5.    INTENTIONALLY DELETED....................................  5
  Section 3.6.    CONDEMNATION.............................................  5
  Section 3.7.    LEASES AND RENTS.........................................  6
  Section 3.8.    MAINTENANCE OF PROPERTY..................................  7
  Section 3.9.    WASTE....................................................  7
  Section 3.10.   COMPLIANCE WITH LAWS.....................................  7
  Section 3.11.   INTENTIONALLY DELETED,...................................  7
  Section 3.12.   PAYMENT FOR LABOR AND MATERIALS..........................  7
  Section 3.13.   OTHER AGREEMENTS.........................................  8
  Section 3.14.   PROPERTY MANAGEMENT......................................  8
  Section 3.15.   GROUND LEASE.............................................  8

ARTICLE 4. SPECIAL COVENANTS............................................... 11

  Section 4.1.    PROPERTY USE............................................. 11
  Section 4.2.    RESTORATION AFTER CASUALTY/CONDEMNATION.................. 11

ARTICLE 5. REPRESENTATIONS AND WARRANTIES.................................. 11

  Section 5.1.    WARRANTY OF TITLE........................................ 11
  Section 5.2.    INTENTIONALLY DELETED.................................... 11
  Section 5.3.    INTENTIONALLY DELETED.................................... 12
  Section 5.4.    INTENTIONALLY DELETED.................................... 12
  Section 5.5.    INTENTIONALLY DELETED.................................... 12
  Section 5.6.    STATUS OF PROPERTY....................................... 12
  Section 5.7.    NO FOREIGN PERSON........................................ 12
  Section 5.8.    SEPARATE TAX LOT......................................... 12
  Section 5.9.    GROUND LEASE............................................. 12
  Section 5.10.   LEASES................................................... 13

                                      -i-

                                TABLE OF CONTENTS
                                   (continued)

                                                                            Page
                                                                            ----

  Section 5.11.   INTENTIONALLY DELETED...................................   13
  Section 5.12.   BUSINESS PURPOSES.......................................   13
  Section 5.13.   INTENTIONALLY DELETED...................................   13
  Section 5.14.   MAILING ADDRESSES.......................................   13
  Section 5.15.   NO CHANGE IN FACTS OR CIRCUMSTANCES.....................   13
  Section 5.16.   INTENTIONALLY DELETED...................................   13

ARTICLE 6. OBLIGATIONS AND RELIANCES......................................   13

  Section 6.1.    RELATIONSHIP OF BORROWER AND LENDER.....................   14
  Section 6.2.    NO RELIANCE ON LENDER...................................   14
  Section 6.3.    NO LENDER OBLIGATIONS...................................   14
  Section 6.4.    RELIANCE................................................   14

ARTICLE 7. FURTHER ASSURANCES.............................................   14

  Section 7.1.    RECORDING OF SECURITY INSTRUMENT, ETC...................   14
  Section 7.2.    INTENTIONALLY DELETED...................................   14
  Section 7.3.    CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY STAMP LAWS    15
  Section 7.4.    ESTOPPEL CERTIFICATES...................................   15

ARTICLE 8. SALE/ENCUMBRANCE...............................................   16

  Section 8.1.    INTENTIONALLY DELETED...................................   16
  Section 8.2.    NO SALE/ENCUMBRANCE.....................................   16
  Section 8.3.    INTENTIONALLY DELETED...................................   16

ARTICLE 9. PREPAYMENT.....................................................   16

  Section 9.1.    PREPAYMENT BEFORE EVENT OF DEFAULT......................   16

ARTICLE 10. DEFAULT.......................................................   16

  Section 10.1.   EVENTS OF DEFAULT.......................................   16

ARTICLE 11. RIGHTS AND REMEDIES...........................................   16

  Section 11.1.   REMEDIES................................................   16
  Section 11.2.   APPLICATION OF PROCEEDS.................................   17
  Section 11.3.   RIGHT TO CURE DEFAULTS..................................   17
  Section 11.4.   ACTIONS AND PROCEEDINGS.................................   18
  Section 11.5.   RECOVERY OF SUMS REQUIRED TO BE PAID....................   18
  Section 11.6.   EXAMINATION OF BOOKS AND RECORDS........................   18
  Section 11.7.   OTHER RIGHTS, ETC.......................................   18
  Section 11.8.   RIGHT TO RELEASE ANY PORTION OF THE PROPERTY............   18
  Section 11.9.   INTENTIONALLY DELETED...................................   19
  Section 11.10.  RIGHT OF ENTRY..........................................   19

                                      -ii-

                                TABLE OF CONTENTS
                                   (continued)

                                                                            Page
                                                                            ----

ARTICLE 12. ENVIRONMENTAL HAZARDS.........................................   19

  Section 12.1.   ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES............   19
  Section 12.2.   ENVIRONMENTAL COVENANTS.................................   19
  Section 12.3.   LENDER'S RIGHTS.........................................   20

ARTICLE 13. INDEMNIFICATION...............................................   20

  Section 13.1.   GENERAL INDEMNIFICATION.................................   20
  Section 13.2.   MORTGAGE AND/OR INTANGIBLE TAX..........................   20
  Section 13.3.   ENVIRONMENTAL INDEMNIFICATION...........................   21
  Section 13.4.   DUTY TO DEFEND; ATTORNEYS' FEES AND
                  OTHER FEES AND EXPENSES.................................   21

ARTICLE 14. WAIVERS.......................................................   21

  Section 14.1.   WAIVER OF COUNTERCLAIM..................................   21
  Section 14.2.   MARSHALLING AND OTHER MATTERS...........................   21
  Section 14.3.   WAIVER OF NOTICE........................................   21
  Section 14.4.   SOLE DISCRETION OF LENDER...............................   22
  Section 14.5.   SURVIVAL................................................   22
  Section 14.6.   INTENTIONALLY DELETED...................................   22

ARTICLE 15. INTENTIONALLY DELETED.........................................   22

ARTICLE 16. NOTICES.......................................................   22

  Section 16.1.   NOTICES.................................................   22

ARTICLE 17. INTENTIONALLY DELETED.........................................   22

ARTICLE 18. APPLICABLE LAW................................................   22

  Section 18.1.   CHOICE OF LAW...........................................   22
  Section 18.2.   USURY LAWS..............................................   22
  Section 18.3.   PROVISIONS SUBJECT TO APPLICABLE LAW....................   23

ARTICLE 19. INTENTIONALLY DELETED.........................................   23

ARTICLE 20. COSTS.........................................................   23

  Section 20.1.   PERFORMANCE AT BORROWER'S EXPENSE.......................   23
  Section 20.2.   INTENTIONALLY DELETED...................................   23

ARTICLE 21. MISCELLANEOUS.................................................   23

  Section 21.1.   NO ORAL CHANGE..........................................   23
  Section 21.2.   LIABILITY; SUCCESSORS AND ASSIGNS.......................   23
  Section 21.3.   INAPPLICABLE PROVISIONS.................................   24
  Section 21.4.   HEADINGS, ETC...........................................   24

                                     -iii-

                                TABLE OF CONTENTS
                                   (continued)

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                                                                            ----

  Section 21.5.   DUPLICATE ORIGINALS; COUNTERPARTS......................    24
  Section 21.6.   NUMBER AND GENDER......................................    24
  Section 21.7.   SUBROGATION............................................    24
  Section 21.8.   SATISFACTION OR ASSIGNMENT.............................    24

Article 22. NEW YORK PROVISIONS..........................................    24

  Section 22.1.   TRUST FUND.............................................    24
  Section 22.2.   COMMERCIAL PROPERTY....................................    24
  Section 22.3.   INSURANCE..............................................    25
  Section 22.4.   LEASES.................................................    25
  Section 22.5.   STATUTORY CONSTRUCTION.................................    25
  Section 22.6.   INTENTIONALLY DELETED..................................    25
  Section 22.7.   MAXIMUM PRINCIPAL AMOUNT SECURED.......................    25

Acknowledgments

Exhibit A   Description of Land

                                      -iv-

            LEASEHOLD  MORTGAGE,  SECURITY  AGREEMENT,  ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING (this  "SECURITY  INSTRUMENT")  made as of the ________
day of  October,  2003,  by  MONTICELLO  RACEWAY  MANAGEMENT,  INC.,  a New York
corporation  ("BORROWER"),  having its principal place of business at Monticello
Raceway, Route 17B, Monticello,  New York 12701, as mortgagor,  to THE BERKSHIRE
BANK  ("LENDER"),  having an address at 4 East 39th Street,  New York,  New York
10016, as mortgagee.

                                    RECITALS:

            WHEREAS,  pursuant to a certain Term Loan Note of even date herewith
executed  by  Borrower,  as maker,  in favor of Lender,  as payee,  Borrower  is
indebted to Lender in the principal  sum of Three Million Five Hundred  Thousand
AND 00/100 DOLLARS  ($3,500,000) in lawful money of the United States of America
(the note together with all extensions, renewals,  modifications,  substitutions
and amendments  thereof shall  collectively be referred to as the "NOTE"),  with
interest  thereon  from the date  thereof  at the  rates  set forth in the Note,
principal and interest to be payable in accordance with the terms and conditions
provided in the Note; and

            WHEREAS,  Borrower  and  Lender are  parties  to a certain  Loan and
Security  Agreement of even date  herewith (as modified  from time to time,  the
"LOAN AGREEMENT"); and

            NOW  THEREFORE,  Borrower  desires to secure the payment of the Debt
(as defmed in Article 2) and the performance of all of its obligations under the
Note, the Loan Agreement and the Other  Obligations (as defined in Article 2) as
follows:

                                   ARTICLE 1.

                               GRANTS OF SECURITY
                               ------------------

            Section 1.1.  PROPERTY  MORTGAGED.  Borrower  does hereby  mortgage,
grant, bargain,  sell, pledge, assign,  warrant,  transfer and convey to Lender,
and grant a security  interest  to Lender in, the  following  property,  rights,
interests   and  estates   now  owned,   or   hereafter   acquired  by  Borrower
(collectively,  the "PROPERTY"):  (a) Borrower's  leasehold interest in the real
property  described  in EXHIBIT A attached  hereto and made a part  hereof  (the
"LAND");  (b) Borrower's leasehold interest in all additional lands, estates and
development rights hereafter acquired by Borrower for use in connection with the
Land and the  development  of the  Land and all  additional  lands  and  estates
therein which may, from time to time, by  supplemental  mortgage or otherwise be
expressly made subject to the lien of this Security  Instrument;  (c) Borrower's
leasehold interest in all buildings and improvements now or hereafter erected or
located on the Land (the  "IMPROVEMENTS");  (d) Borrower's leasehold interest in
all easements,  rights-of-way or use, rights, strips and gores of land, streets,
ways, alleys,  passages,  sewer rights,  water, water courses,  water rights and
powers,  air rights and development  rights,  and all estates,  rights,  titles,
interests,  privileges,  liberties,  servitudes,  tenements,  hereditaments  and
appurtenances of any nature whatsoever,  in any way now or hereafter  belonging,
relating or  pertaining to the Land and the  Improvements  and the reversion and
reversions,  remainder  and  remainders,  and all  land  lying in the bed of any
street, road or avenue,  opened or proposed,  in front of or adjoining the Land,
to the center line thereof and all the estates, rights, titles, interests, dower
and rights of dower, curtesy and rights of curtesy, property,  possession, claim
and demand whatsoever,  both at law and in equity, of Borrower of, in and to the
Land  and  the  Improvements  and  every  part  and  parcel  thereof,  with  the
appurtenances thereto; (e) all of Borrower's right, title and interest in and to
all machinery,  equipment, fixtures (including, but not limited to, all heating,
air conditioning,  plumbing, lighting, communications and elevator fixtures) and
other  property of every kind and nature  whatsoever  owned by  Borrower,  or in
which Borrower has or shall have an interest,  now or hereafter located upon the
Land and the Improvements, or appurtenant thereto, and usable in connection with
the present or future  operation and occupancy of the Land and the  Improvements
and all building  equipment,  materials  and  supplies of any nature  whatsoever
owned by Borrower,  or in which  Borrower has or shall have an interest,  now or
hereafter located upon the Land and the Improvements, or appurtenant thereto, or
usable in connection  with the present or future  operation and occupancy of the
Land and the  Improvements  (collectively,  the  "PERSONAL  PROPERTY"),  and the
right,  title and  interest of Borrower in and to any of the  Personal  Property
which may be  subject to any  security  interests,  as  defined  in the  Uniform
Commercial  Code, as adopted and enacted by the state or states where any of the
Property is located (the  "UNIFORM  COMMERCIAL  CODE"),  superior in lien to the
lien of this Security Instrument and all proceeds and products of the above; (f)

all leases and other agreements affecting the use, enjoyment or occupancy of the
Land and the Improvements  heretofore or hereafter  entered into,  including any
and all  guaranties  of any such lease (a "LEASE"  or  "LEASES")  and all right,
title and interest, if any, of Borrower,  its successors and assigns therein and
thereunder,   including,   without  limitation,  cash  or  securities  deposited
thereunder  to  secure  the  performance  by the  lessees  of their  obligations
thereunder  and all  rents,  additional  rents,  revenues,  issues  and  profits
(including all oil and gas or other mineral royalties and bonuses) from the Land
and the  Improvements  (the  "RENTS")  and all  proceeds  from the sale or other
disposition  of the Leases and the right (to the extent now or hereafter held by
Borrower)  to receive  and apply the Rents to the  payment of the Debt;  (g) all
awards  or  payments,  including  interest  thereon,  which may  heretofore  and
hereafter be made with respect to the Property, whether from the exercise of the
right of eminent domain  (including but not limited to any transfer made in lieu
of or in anticipation  of the exercise of the right),  or for a change of grade,
or for any other  injury to or  decrease in the value of the  Property;  (h) all
proceeds of and any unearned  premiums on any  insurance  policies  covering the
Property,  including,  without  limitation,  the right to receive  and apply the
proceeds of any insurance,  judgments,  or settlements made in lieu thereof, for
damage to the Property; (i) all refunds, rebates or credits in connection with a
reduction in real estate taxes and assessments charged against the Property as a
result of tax certiorari or any  applications or proceedings  for reduction;  j)
all  proceeds  of  the  conversion,  voluntary  or  involuntary,  of  any of the
foregoing including, without limitation,  proceeds of insurance and condemnation
awards,  into cash or  liquidation  claims;  (k) the  right,  in the name and on
behalf of  Borrower,  to appear in and defend any action or  proceeding  brought
with respect to the Property and to commence any action or proceeding to protect
the  interest  of  Lender  in  the  Property;  (1)  all  agreements,  contracts,
certificates,  instruments, franchises, permits, licenses, plans, specifications
and other documents,  now or hereafter  entered into, and all rights therein and
thereto,  respecting  or  pertaining  to  the  use,  occupation,   construction,
management or operation of the Land and any part thereof and any Improvements or
respecting  any business or activity  conducted on the Land and any part thereof
and all right, title and interest of Borrower therein and thereunder, including,
without limitation, the right, upon the happening and continuance of an Event of
Default, to receive and collect any sums payable to Borrower thereunder; (m) all
tradenames,  trademarks,  servicemarks,  logos, copyrights,  goodwill, books and
records and all other general intangibles relating to or used in connection with
the  operation  of the  Property;  (n) the  lessee's  interest  in that  certain
agreement of lease more  particularly  described  on EXHIBIT B hereto,  together
with all exhibits and renewals,  modifications  and extensions,  if any, thereto
(collectively,  the "GROUND LEASE") and the leasehold estate created thereby and
all  credits,  deposits,  options,  privileges  and rights of Borrower as tenant
under the Ground  Lease;  and (o) any and all other rights of Borrower in and to
the items set forth in Subsections (a) through (n) above.

            Section 1.2.  ASSIGNMENT OF RENTS.  Borrower  hereby  absolutely and
unconditionally assigns to Lender Borrower's right, title and interest in and to
all current and future Leases and Rents; it being intended by Borrower that this
assignment constitutes a present,  absolute assignment and not an assignment for
additional security only. Nevertheless, subject to the terms of this Section 1.2
and Section 3.7,  Lender  grants to Borrower a revocable  license to collect and
receive the Rents.

            Section 1.3. SECURITY AGREEMENT.  This Security Instrument is both a
real  property  mortgage  and a "security  agreement"  within the meaning of the
Uniform  Commercial Code. The Property  includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property.  By executing and delivering this Security Instrument,
Borrower hereby grants to Lender,  as security for the  Obligations  (defined in
Section  2.1),  a security  interest in the Property to the full extent that the
Property may be subject to the Uniform Commercial Code.

            Section  1.4.  PLEDGE OF MONIES  HELD.  Borrower  hereby  pledges to
Lender any and all monies now or hereafter  held by Lender,  including,  without
limitation, any Net Proceeds (as defined in Section 4.2) and condemnation awards
or payments described in Section 3.6, as additional security for the Obligations
until expended or applied as provided in this Security Instrument.

                               CONDITIONS TO GRANT

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

            PROVIDED,  HOWEVER,  these  presents are upon the express  condition
that, if Borrower shall well and truly pay to Lender the Debt at the time and in

                                      -2-

the manner  provided in the Note and this  Security  Instrument,  shall well and
truly perform the Other Obligations as set forth in this Security Instrument and
shall  well and truly  abide by and  comply  with each and  every  covenant  and
condition set forth herein and in the Note, these presents and the estate hereby
granted shall, at the request and at the expense of Borrower, be terminated.

                                   ARTICLE 2.

                                    PAYMENTS

            Section 2.1. DEBT AND OBLIGATIONS SECURED.  This Security Instrument
and the grants,  assignments  and transfers  made in Article 1 are given for the
purpose of  securing  the  following,  in such order of  priority  as Lender may
determine in its sole discretion (collectively,  the "DEBT"): (a) the payment of
the  indebtedness  evidenced by the Note in lawful money of the United States of
America;  (b) the payment of interest,  prepayment  premiums,  default interest,
late charges and other sums, as provided in the Note,  this Security  Instrument
or the other Loan Documents (defined below); (c) the payment of all other moneys
agreed or provided to be paid by Borrower in the Note, this Security  Instrument
or the other Loan  Documents;  (d) the payment of all sums advanced  pursuant to
this  Security  Instrument to protect and preserve the Property and the lien and
the security  interest created hereby;  and (e) the payment of all sums advanced
and costs and  expenses  incurred by Lender in  connection  with the Debt or any
part thereof, any renewal,  extension, or change of or substitution for the Debt
or any part thereof,  or the acquisition or perfection of the security therefor,
whether  made or incurred at the  request of Borrower or Lender.  This  Security
Instrument and the grants,  assignments and transfers made in Article 1 are also
given for the purpose of securing the  performance  of all other  obligations of
Borrower  contained  herein and the  performance of each  obligation of Borrower
contained in any renewal,  extension,  amendment,  modification,  consolidation,
change of, or substitution or replacement  for, all or any part of this Security
Instrument,  the Note or the other  Loan  Documents  (collectively,  the  "OTHER
OBLIGATIONS").  Borrower's  obligations  for the  payment  of the  Debt  and the
performance of the Other Obligations shall be referred to collectively herein as
the "OBLIGATIONS."

            Section  2.2.  PAYMENTS.  Unless  payments  are made in the required
amount at the place where the Note is payable,  remittances in payment of all or
any part of the Debt  shall not,  regardless  of any  receipt  or credit  issued
therefor,  constitute  payment until the required amount is actually received by
Lender at the place where the Note is payable (or any other place as Lender,  in
Lender's sole  discretion,  may have  established  by delivery of written notice
thereof to  Borrower)  and shall be made and accepted  subject to the  condition
that any check or draft may be handled for  collection  in  accordance  with the
practice of the collecting bank or banks. Acceptance by Lender of any payment in
an amount less than the amount then due shall be deemed an acceptance on account
only, and the failure to pay the entire amount then due shall be and continue to
be an Event of Default (defined below).

                                   ARTICLE 3.

                               BORROWER COVENANTS
                               ------------------

            Borrower covenants and agrees that:

            Section 3.1. PAYMENT OF DEBT. Borrower will pay the Debt at the time
and in the manner provided in the Note and in this Security Instrument.

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

            Section 3.3. INSURANCE.

                                       -3-

            (a) Supplementing Section 6.2 of the Loan Agreement,  Borrower shall
maintain,  at its sole cost and  expense,  with  respect  to the  Property,  all
insurance  required to be maintained under the Loan Agreement.  Without limiting
the foregoing, Borrower shall obtain and maintain during the entire term of this
Security  Instrument  policies of  insurance  against loss or damage by fire and
against loss or damage by other risks and hazards covered by a standard extended
coverage  insurance  policy  including,   without  limitation,  riot  and  civil
commotion,  vandalism,  malicious  mischief,  burglary and theft. Such insurance
shall be in an amount  equal to the  greatest  of (i) the then full  replacement
cost of the Improvements and Personal  Property,  without deduction for physical
depreciation, (ii) the outstanding principal balance of the Note, and (iii) such
amount  that the  insurer  would  not deem  Borrower  a  co-insurer  under  said
policies.  The policies of insurance  carried in accordance  with this paragraph
shall be paid  annually  in  advance  and  shall  contain  a  "Replacement  Cost
Endorsement" with a waiver of depreciation.

            (b) Borrower,  at its sole cost and expense,  for the mutual benefit
of Borrower and Lender, shall also obtain and maintain during the entire term of
this Security Instrument the following policies of insurance:

                (i) Flood insurance if any part of the Property is located in an
area  identified by the Federal  Emergency  Management  Agency as an area having
special flood hazards and in which flood insurance has been made available under
the National  Flood  Insurance  Act of 1968 (and any  amendment or successor act
thereto) in an amount at least equal to the outstanding  principal amount of the
loan  evidenced  by the Note or the  maximum  limit of coverage  available  with
respect to the Improvements and Personal  Property under said Act,  whichever is
less.

                (ii) Comprehensive public liability  insurance,  including broad
form property damage, blanket contractual and personal injuries (including death
resulting  therefrom)  coverages and containing minimum limits per occurrence of
$20,000,000 for the Property.

                (iii)  Rental  loss  and/or  business   interruption   insurance
(including rental value if any of the Property is leased in whole or in part) in
an annual  aggregate  amount equal to all rents or estimated gross revenues from
the operations of the Property, as may be applicable, and covering rental losses
or business interruption, as may be applicable, for a period of at least one (1)
year  after the date of the fire or  casualty  in  question.  The amount of such
insurance  shall be increased from time to time during the term of this Security
Instrument  as and when new Leases and renewal  Leases are entered  into and the
rents payable  increase or the annual estimate of (or the actual) gross revenue,
as may be applicable,  increases to reflect such increases. The proceeds of such
insurance  shall be and are  hereby  assigned  to  Lender,  to be applied to the
payment of principal  and interest on the Note,  Taxes  (defined  below),  Other
Charges (defined below), and Insurance Premiums (defined below), in any order of
preference  determined  by Lender,  until such time as the damaged  Improvements
shall have been restored and placed in full operation,  at which time,  provided
Borrower is not then in default under this Security  Instrument,  the balance of
such insurance proceeds, if any, held by Lender shall be returned to Borrower.

                (iv)  Worker's  compensation   insurance  with  respect  to  any
employees  of  Borrower,  as required  by any  governmental  authority  or legal
requirement.

                (v) During any period of repair or  restoration,  builder's "all
risk"  insurance in an amount equal to not less than the full insurable value of
the  Property  against  such  risks  (including,  without  limitation,  fire and
extended  coverage and collapse of the  Improvements to agreed limits) as Lender
may request, in form and substance acceptable to Lender.

                (vii)  Such  other  insurance  as  may  from  time  to  time  be
reasonably required by Lender in order to protect its interests.

            (c) All policies of insurance (the "POLICIES")  required pursuant to
this paragraph: (i) shall be issued by companies approved by Lender and licensed
to do business in the state where the Property is located,  with a claims paying
ability rating of "A" or better by Standard & Poor's  Corporation or a rating of

                                      -4-

"A:VII"  or better in the  current  Best's  Insurance  Reports;  (ii) shall name
Lender as an additional insured; (iii) shall contain a Non-Contributory Standard
Mortgagee Clause and a Lender's Loss Payable  Endorsement  (Form 438 BFU NS), or
their  equivalents,  naming  Lender as first  mortgagee-loss  payee;  (iv) shall
contain  a waiver  of  subrogation  against  Lender;  (v)  shall  be  maintained
throughout  the term of this Security  Instrument  without cost to Lender;  (vi)
shall be assigned  and, if so requested by Lender,  the  originals (or duplicate
originals  certified to be true and correct by the related insurer) delivered to
Lender; (vii) shall contain such provisions as Lender deems reasonably necessary
or desirable to protect its interest including, without limitation, endorsements
providing  that  neither  Borrower,  Lender  nor  any  other  party  shall  be a
co-insurer  under said  Policies and that Lender  shall  receive at least thirty
(30) days prior written notice of any  modification,  reduction or cancellation;
and (viii) shall be  satisfactory  in form and  substance to Lender and shall be
approved by Lender as to amounts, form, risk coverage,  deductibles, loss payees
and insureds.  Borrower shall pay the premiums for such Policies (the "INSURANCE
PREMIUMS")  as the same  become  due and  payable  and shall  furnish  to Lender
evidence  of the  renewal  of each of the new  Policies  with  receipts  for the
payment of the Insurance  Premiums or other evidence of such payment  reasonably
satisfactory to Lender.  If Borrower does not furnish such evidence and receipts
at least thirty (30) days prior to the  expiration  of any  apparently  expiring
Policy,  then Lender may procure,  but shall not be  obligated to procure,  such
insurance  and pay the  Insurance  Premiums  therefor,  and  Borrower  agrees to
reimburse  Lender for the cost of such  Insurance  Premiums  promptly on demand.
Within  thirty (30) days after  request by Lender,  Borrower  shall  obtain such
increases in the amounts of coverage  required  hereunder  as may be  reasonably
requested  by Lender,  taking into  consideration  changes in the value of money
over time,  changes in liability laws, changes in prudent customs and practices,
and the like.

            (d) If the Property  shall be damaged or  destroyed,  in whole or in
part,  by fire or other  casualty,  Borrower  shall give  prompt  notice of such
damage to Lender  and shall  promptly  commence  and  diligently  prosecute  the
completion of the repair and  restoration  of the Property as nearly as possible
to the  condition  the Property was in  immediately  prior to such fire or other
casualty, with such alterations as may be approved by Lender (the "RESTORATION")
and  otherwise  in  accordance  with  Section 4.2 of this  Security  Instrument.
Borrower shall pay all costs of such  Restoration  whether or not such costs are
covered by insurance.  In case of loss covered by Policies,  Borrower shall have
the right,  so long as no Event of Default and no event which with the giving of
notice or the passage of time or both would  constitute  an Event of Default (an
"UNMATURED  DEFAULT") has occurred and is  continuing,  to collect all insurance
proceeds below the Threshold Amount (defmed below) for application in the manner
provided by Section 4.2 of this  Security  Instrument.  All  insurance  proceeds
equal to or in  excess  of the  Threshold  Amount  shall be paid to  Lender  for
application in the manner  provided by Section 4.2. If an Event of Default or an
Unmatured  Default has  occurred  and is  continuing,  all  insurance  proceeds,
regardless of amount,  shall be payable to Lender, who shall have the right, but
not the obligation, to apply them in reduction of the Debt.

            Section 3.4.  PAYMENT OF TAXES,  ETC.  Borrower shall pay all taxes,
assessments,  water rates,  sewer  rents,  governmental  impositions,  and other
charges, including without limitation vault charges and license fees for the use
of vaults,  chutes and similar areas adjoining the Land, now or hereafter levied
or assessed or imposed  against the Property or any part thereof (the  "TAXES"),
all ground  rents,  maintenance  charges and similar  charges,  now or hereafter
levied or assessed  or imposed  against the  Property or any part  thereof  (the
"OTHER  CHARGES"),  in the manner  specified  in,  and  subject to the terms and
conditions of, the Loan Agreement.

            Section 3.5. [Intentionally deleted.]

            Section  3.6.  CONDEMNATION.  Borrower  shall  promptly  give Lender
written  notice of the actual or  threatened  (in writing)  commencement  of any
condemnation or eminent domain  proceeding and shall deliver to Lender copies of
any and all papers served in connection with such proceedings.  Lender is hereby
granted the exclusive right to collect,  receive and retain any award or payment
payable  to  Borrower  for any taking  accomplished  through a  condemnation  or
eminent domain proceeding and to make any compromise or settlement in connection
therewith.  All condemnation  awards or proceeds shall be paid to Lender and (a)
if in an amount less than or equal to the Threshold Amount (hereinafter  defmed)
made  available  to Borrower  for  restoration  of the  Property or (b) if in an
amount greater than the Threshold  Amount applied,  as determined by Lender,  in
its sole  discretion,  either (i) to repayment of the Debt  (whether or not then
due and  payable) or (ii) made  available  to Borrower  for  Restoration  of the
Property   on  such  terms  and   conditions   as  Lender   deems   appropriate.
Notwithstanding  any  taking by any  public or  quasi-public  authority  through
eminent  domain or otherwise  (including but not limited to any transfer made in
lieu of or in anticipation of the exercise of such taking), Borrower shall

                                       -5-

continue to pay the Debt at the time and in the manner  provided for its payment
in the Note and in this  Security  Instrument  and the Debt shall not be reduced
until any award or  payment  therefor  shall  have been  actually  received  and
applied by  Lender,  after the  deduction  of  expenses  of  collection,  to the
reduction or discharge of the Debt.  Lender shall not be limited to the interest
paid on the award by the  condemning  authority but shall be entitled to receive
out of the award interest at the rate or rates  provided  herein or in the Note.
Any award or payment to be applied to the  reduction or discharge of the Debt or
any portion  thereof may be so applied  whether or not the Debt or such  portion
thereof is then due and payable. If the Property is sold, through foreclosure or
otherwise,  prior to the receipt by Lender of the award or payment, Lender shall
have the right, whether or not a deficiency judgment on the Note shall have been
or may be sought,  recovered  or denied,  to receive the award or payment,  or a
portion thereof sufficient to pay the Debt.

            Section 3.7. LEASES AND RENTS.

            (a) Borrower does hereby  absolutely and  unconditionally  assign to
Lender Borrower's right,  title and interest,  if any, in all current and future
Leases and Rents, it being intended by Borrower that this assignment constitutes
a present,  absolute  assignment and not an assignment  for additional  security
only.  Such  assignment  to Lender  shall not be construed to bind Lender to the
performance of any of the covenants,  conditions or provisions  contained in any
such Lease or otherwise impose any obligation upon Lender,  except to the extent
that Lender shall be operating the Property  following a  foreclosure.  Borrower
agrees to execute and deliver to Lender such additional instruments, in form and
substance  reasonably  satisfactory  to Lender,  as may  hereafter be reasonably
requested  by  Lender  to  further   evidence   and  confirm  such   assignment.
Nevertheless,  subject  to the  terms of this  Section  3.7,  Lender  grants  to
Borrower a revocable  license to operate and manage the  Property and to collect
the Rents.  Upon the happening and  continuance of an Event of Default,  without
the need for notice or demand,  the  license  granted to Borrower  herein  shall
automatically be revoked, and Lender shall immediately be entitled to possession
of all  Rents,  whether  or not  Lender  enters  upon or  takes  control  of the
Property.  Lender is hereby  granted and assigned by Borrower the right,  at its
option,  upon  revocation  of the  license  granted  herein,  to enter  upon the
Property  in person,  by agent or by  court-appointed  receiver  to collect  the
Rents.  Any Rents  collected  after the revocation of the license may be applied
toward  payment of the Debt in such  priority and  proportions  as Lender in its
sole  discretion  shall deem  proper.  This  section is made with  reference  to
Section 291-f of the New York Real Property Law for the purpose of obtaining for
Lender the benefit of said section in connection with this Security Instrument.

            (b) All  Leases  shall  be  written  on the  standard  form of lease
approved in writing by Lender, such approval not to be unreasonably  withheld or
delayed.  No changes may be made to the  Lender-approved  standard lease without
the prior  written  consent of Lender which  consent  shall not be  unreasonably
withheld or delayed.  All Leases shall provide that they are subordinate to this
Security Instrument and that the tenant thereunder agrees to attorn to Lender.

            (c)  Borrower  (i) shall  observe and  perform  all the  obligations
imposed  upon the lessor  under the Leases and shall not do or permit to be done
anything to impair the value of the Leases as security for the Debt;  (ii) shall
promptly  send copies to Lender of all notices of default which  Borrower  shall
receive  thereunder;  (iii) shall not collect any of the Rents more than one (1)
month in  advance;  and (iv)  shall  not  execute  any other  assignment  of the
lessor's  interest  in the Leases or the Rents.  Borrower  shall  promptly  send
copies to Lender of all notices of default which  Borrower  shall send under any
Lease and (A) shall enforce all of the terms, covenants and conditions contained
in the Lease upon the part of the lessee thereunder to be observed or performed,
short of termination thereof; (B) shall not alter, modify or change the terms of
the Leases  without the prior written  consent of Lender which consent shall not
be unreasonably  withheld or delayed; (C) shall not convey or transfer or suffer
or permit a conveyance or transfer of the Property or of any interest therein so
as to effect a merger of the estates and rights,  or a termination or diminution
of the  obligations  of, tenants under the Leases;  and (D) shall not consent to
any  assignment  of or subletting  under the Leases not in  accordance  with the
terms of the Leases,  without the prior written  consent of Lender which consent
shall not be unreasonably withheld or delayed.

            (d)  Borrower  shall not execute any Lease (i) demising in excess of
10,000 square feet,  individually or when combined with any other Leases or (ii)
for a term of more than one year,  unless Lender shall have consented thereto in
writing, in each instance. Borrower shall furnish Lender with executed copies of
all Leases and any  amendments or other  agreements  pertaining  thereto  within
ten (10) days of the execution thereof.

                                       -6-

            (e) All  security  deposits of tenants,  whether held in cash or any
other form,  shall not be  commingled  with any other funds of Borrower  and, if
cash,  shall be deposited by Borrower with Lender or an Affiliate  thereof or at
such other commercial or savings bank or banks as may be satisfactory to Lender.
Any bond or other instrument which Borrower is permitted to hold in lieu of cash
security  deposits  under  any  applicable  legal   requirements  (i)  shall  be
maintained in full force and effect in the full amount of such  deposits  unless
replaced by cash deposits as hereinabove  described,  (ii) shall be issued by an
institution  reasonably  satisfactory  to  Lender,  (iii)  shall,  if  permitted
pursuant to any legal  requirements,  name Lender as payee or lender  thereunder
(or at Lender's  option,  be fully  assignable to Lender) and (iv) shall, in all
respects,  comply  with any  applicable  legal  requirements  and  otherwise  be
reasonably satisfactory to Lender. Borrower shall, upon request,  provide Lender
with evidence  reasonably  satisfactory to Lender of Borrower's  compliance with
the foregoing.  Following the occurrence and during the  continuance of an Event
of  Default,  Borrower  shall,  upon  Lender's  request,  if  permitted  by  any
applicable legal  requirements,  turn over to Lender the security  deposits (and
any interest  theretofore  earned thereon) with respect to all or any portion of
the Property, to be held by Lender subject to the terms of the Leases.

            Section 3.8. MAINTENANCE OF PROPERTY.  Supplementing  Section 6.2 of
the Loan Agreement, Borrower shall not conduct, demolish or materially alter any
improvements on the Land without the consent of Lender,  which consent shall not
be unreasonably withheld or delayed.  Borrower shall promptly repair, replace or
rebuild any part of the  Property  which may be destroyed  by any  casualty,  or
become  damaged,  worn or dilapidated or which may be affected by any proceeding
of the  character  referred to in Section 3.6 hereof and shall  complete and pay
for any  structure at any time in the process of  construction  or repair on the
Land.  Borrower  shall not  initiate,  join in,  acquiesce in, or consent to any
change  in any  private  restrictive  covenant,  zoning  law or other  public or
private  restriction,  limiting  or  defining  the uses which may be made of the
Property or any part  thereof  which may have a material  adverse  affect on the
use,  operation or value of the Property.  If under applicable zoning provisions
the use of all or any portion of the Property is or shall become a nonconforming
use,  Borrower will not cause or permit the nonconforming use to be discontinued
or abandoned without the express written consent of Lender.

            Section 3.9. WASTE. Borrower shall not knowingly commit any waste of
the  Property  and  shall  use  diligent  efforts  to  prevent  any waste to the
Property.  Borrower  shall not make any change in the use of the Property  which
will in any way materially increase the risk of fire or other hazard arising out
of the  operation of the Property,  or take any action that might  invalidate or
give cause for  cancellation  of any Policy,  or do or permit to be done thereon
anything that may in any way impair the value of the Property or the security of
this Security  Instrument  unless  Lender shall have  consented  thereto,  which
consent shall not be unreasonably withheld. Borrower will not, without the prior
written consent of Lender, permit any drilling or exploration for or extraction,
removal, or production of any minerals from the surface or the subsurface of the
Land,  regardless  of the depth  thereof or the  method of mining or  extraction
thereof.

            Section 3.10. COMPLIANCE WITH LAWS. Supplementing Section 6.2 of the
Loan Agreement, Borrower shall from time to time, upon Lender's request, provide
Lender  with  evidence  reasonably  satisfactory  to  Lender  that the  Property
complies  with all existing and future  federal,  state and local laws,  orders,
ordinances,  governmental  rules and  regulations  or court orders  affecting or
which may be interpreted to affect the Property, or the use thereof ("APPLICABLE
LAWS") or is exempt from compliance with  Applicable  Laws.  Borrower shall give
prompt  notice to Lender of the receipt by  Borrower of any notice  related to a
violation of any Applicable  Laws and of the  commencement of any proceedings or
investigations which relate to compliance with Applicable Laws.

            Section 3.11. [Intentionally deleted.]

            Section  3.12.  PAYMENT  FOR  LABOR  AND  MATERIALS.  Borrower  will
promptly pay when due all bills and costs for labor, materials, and specifically
fabricated  materials  incurred in connection with the Property and never permit
to exist  beyond the due date  thereof in  respect of the  Property  or any part
thereof any lien or security interest, even though inferior to the liens and the
security  interests hereof, and in any event never permit to be created or exist
in respect of the Property or any part thereof any other or  additional  lien or
security interest other than the liens or security interests hereof,  except for
the Permitted Exceptions (defined below).  Nothing contained herein shall affect
or impair Borrower's ability to diligently and in good faith contest any lien or

                                       -7-

bill for labor or  materials,  provided  that any lien placed upon the  Property
must be fully and irrevocably  discharged (by bond or otherwise)  within 60 days
after the date the same is first placed upon the Property.

            Section 3.13. OTHER AGREEMENTS.

            (a)  Borrower  shall  observe and perform  each and every term to be
observed or  performed  by Borrower  pursuant to the terms of any  agreement  or
recorded  instrument  affecting  or  pertaining  to the  Property,  or  given by
Borrower to Lender for the purpose of further  securing  an  obligation  secured
hereby and any amendments, modifications or changes thereto.

            (b) Except with respect to or in connection  with the  Consolidation
Transaction,  unless  Lender  shall  have  consented  thereto in writing in each
instance,  Borrower shall not execute any  agreements,  other than Leases (which
are governed by the  provisions  of Section 3.7  hereof),  for a term that would
extend beyond the maturity date of the Loan, which agreement would be binding on
the  successor  lessor  under  Ground  Lease in the  event of a  foreclosure  or
deed-in-lieu of foreclosure of this Security Instrument,  unless such agreements
are terminable without penalty upon 30 days' notice.

            (c) [Intentionally deleted.]

            (d) On or before the date hereof, Borrower has delivered to Lender a
true  and  correct  copy of each  Lease  and  each  other  agreement  materially
affecting the Property.

            Section  3.14.  PROPERTY  MANAGEMENT.   In  the  event  that  Lender
determines  that the Property is not being managed in accordance  with generally
accepted  management  practices for properties  similar to the Property,  Lender
shall deliver  written  notice  thereof to Borrower,  which notice shall specify
with particularity the grounds for Lender's determination.  If Lender determines
that the  conditions  specified in Lender's  notice are not remedied to Lender's
satisfaction  by Borrower within thirty (30) days from receipt of such notice or
that  Borrower has failed to diligently  undertake  correcting  such  conditions
within such thirty  (30)  day period,  Borrower  shall,  at Lender's  direction,
terminate  any existing  management  agreement for the Property and enter into a
property  management  agreement  acceptable to Lender with a management  company
acceptable to Lender.

            Section 3.15 GROUND LEASE.

            (a) Borrower will comply in all material respects with the terms and
conditions  of the Ground Lease.  Borrower will not do or permit  anything to be
done, the doing of which, or refrain from doing anything, the omission of which,
will impair or tend to impair the  interest of the tenant under the Ground Lease
or will be grounds for declaring a forfeiture of the Ground Lease.

            (b) Borrower  shall enforce the Ground Lease and will not terminate,
modify, cancel, change,  supplement,  alter or amend the Ground Lease, or waive,
excuse,  condone or in any way release or discharge  Ground Lessor  (hereinafter
defined) of or from any of the material covenants and conditions to be performed
or observed by Ground Lessor. Borrower does hereby bargain, sell, assign and set
over to Lender, all of Borrower's  interests in the Ground Lease. The assignment
of  Borrower's  interest  set  forth in this  Section  3.15(b)  is an  absolute,
unconditional  and  present  assignment  from  Borrower  to  Lender  and  not an
assignment  for security and the existence or exercise of  Borrower's  revocable
license to take all actions  with  respect to the Ground Lease shall not operate
to subordinate  this  assignment to any subsequent  assignment.  The exercise by
Lender of any of its rights or remedies  pursuant to this Section  3.15(b) shall
not be  deemed  to make  Lender a  Lender-in-possession.  So long as no Event of
Default shall have occurred and be  continuing,  Borrower shall have a revocable
license to take all  actions  with  respect to the Ground  Lease  subject to the
terms of this Security Instrument. Any surrender of the leasehold estate created
by  the  Ground  Lease  or  termination,  cancellation,   modification,  change,
supplement,  alteration  or  amendment  of the Ground  Lease  without  the prior
written  consent  of Lender in each  instance  shall be void and of no force and
effect.

            (c) Lender shall have the right after  notice to  Borrower,  but not
the  obligation,  to perform any  obligations of Borrower under the terms of the
Ground  Lease  during  the  continuance  of an Event of  Default.  All costs and
expenses  (including,   without  limitation,   reasonable  attorneys'  fees  and

                                       -8-

expenses) so incurred,  shall be treated as an advance  secured by this Security
Instrument,  shall bear  interest  thereon at the Default  Rate from the date of
payment  by Lender  until paid in full and shall be paid by  Borrower  to Lender
during the continuance of an Event of Default within five (5) days after written
demand. No performance by Lender of any obligations of Borrower shall constitute
a waiver of any Event of  Default  arising  by reason of  Borrower's  failure to
perform  the same.  If Lender  shall make any payment or perform any act or take
action in accordance with this Section  3.15(c),  Lender will notify Borrower of
the making of any such payment,  the  performance of any such act, or the taking
of any such  action.  In any such  event,  subject  to the  rights  of  lessees,
sublessees  and other  occupants  under the Leases,  Lender and any  individual,
corporation,  limited liability  company,  partnership,  joint venture,  estate,
trust,  unincorporated  association,  any  federal,  state,  county or municipal
government or any bureau,  department or agency thereof and any fiduciary acting
in such capacity on behalf of any of the foregoing (the "PERSON")  designated by
Lender shall have, and are hereby granted,  the right to enter upon the Property
at any time and from time to time for the purpose of taking any such action.

            (d) To the extent permitted by law, the price payable by Borrower or
any  other  Person  in  the  exercise  of  any  right  of  redemption  following
foreclosure of the Property shall include all rents paid and other sums advanced
by Lender on behalf of Borrower,  together with interest  thereon at the Default
Rate.

            (e) Unless Lender shall otherwise consent, the fee title to the Land
and the leasehold estate in the Ground Lease shall not merge but shall always be
kept separate and distinct,  notwithstanding the union of said estates either in
Ground Lessor or in Borrower, or in any other Person, by purchase or otherwise.

            (f) If the  Ground  Lessor  shall  deliver  to  Lender a copy of any
notice of default  sent by the Ground  Lessor to  Borrower,  as tenant under the
Ground Lease,  such notice shall  constitute  full  protection to Lender for any
action taken or omitted to be taken by Lender,  in good faith in accordance with
this Security Instrument, in reliance thereon.

            (g) [Intentionally deleted.]

            (h) Each Lease or sublease  hereafter  made, or any other  agreement
providing for the use and occupancy of a portion of the Property hereafter made,
as the same may be amended, renewed and each renewal of any existing Lease shall
provide that,  (i) in the event of the  termination  of the Ground  Lease,  such
Lease shall not terminate or be  terminable by the lessee;  (ii) in the event of
any action for the foreclosure of this Security Instrument, such Lease shall not
terminate or be  terminable  by the lessee by reason of the  termination  of the
Ground  Lease  unless  the lessee is  specifically  named and joined in any such
action and unless a judgment is obtained  therein against the lessee;  and (iii)
in the event that the Ground Lease is  terminated as aforesaid and a "new lease"
is granted,  the lessee  under such Lease shall attorn to the Borrower or to the
purchaser at the sale of the Property upon such foreclosure, as the case may be.

            (i) Borrower hereby  assigns,  transfers and sets over to Lender all
of  Borrower's  claims and rights to the  payment  of damages  arising  from any
rejection by the Ground  Lessor of the Ground Lease under the  Bankruptcy  Code.
Borrower shall notify Lender promptly (and in any event within ten (10) days) of
any claim,  suit,  action or proceeding  relating to the rejection of the Ground
Lease.  Lender is hereby irrevocably  appointed as Borrower's  attorney-in-fact,
coupled with an interest,  with exclusive  power to file and  prosecute,  to the
exclusion of Borrower, any proofs of claim, complaints,  motions,  applications,
notices and other  documents,  in any case in respect of the Ground Lessor under
the Bankruptcy Code during the continuance of an Event of Default.  Borrower may
make any compromise or settlement in connection with such  proceedings  (subject
to Lender's  reasonable  approval);  provided,  however,  that  Lender  shall be
authorized  and entitled to  compromise  or settle any such  proceeding  if such
compromise or settlement is made after the occurrence and during the continuance
of an Event of Default.  Borrower shall  promptly  execute and deliver to Lender
any  and all  instruments  reasonably  required  in  connection  with  any  such
proceeding after request therefor by Lender. Except as set forth above, Borrower
shall not adjust, compromise, settle or enter into any agreement with respect to
such  proceedings  without the prior  written  consent of Lender,  which consent
shall not be unreasonably withheld or delayed.

            (j) Borrower  shall not,  without  Lender's  prior written  consent,
elect to treat the Ground Lease as  terminated  under  Section  365(h)(1) of the
Bankruptcy  Code. Any such election made without  Lender's prior written consent
shall be void.

                                       -9-

            (k)  If  pursuant  to  Section  365(h)(2)  of the  Bankruptcy  Code,
Borrower  seeks to offset  against  the rent  reserved  in the Ground  Lease the
amount of any damages caused by the  non-performance by the Ground Lessor of any
of the Ground Lessor's obligations under the Ground Lease after the rejection by
the Ground Lessor of the Ground Lease under the Bankruptcy Code, Borrower shall,
prior to effecting such offset, notify Lender of its intention to do so, setting
forth the amounts proposed to be so offset and the basis therefor. If Lender has
failed to object as aforesaid within ten (10) days after notice from Borrower in
accordance with the first sentence of this Section 3.15(k), Borrower may proceed
to effect such offset in the amounts  set forth in  Borrower's  notice.  Neither
Lender's failure to object as aforesaid nor any objection or other communication
between Lender and Borrower relating to such offset shall constitute an approval
of any such offset by Lender.  Borrower shall indemnify and save Lender harmless
from and against  any and all  claims,  demands,  actions,  suits,  proceedings,
damages,  losses,  costs and  expenses of every  nature  whatsoever  (including,
without limitation,  reasonable attorneys' fees and disbursements)  arising from
or  relating to any such  offset by  Borrower  against the rent  reserved in the
Ground Lease.

            (1) Borrower shall immediately,  after obtaining  knowledge thereof,
notify Lender of any filing by or against the Ground Lessor of a petition  under
the Bankruptcy Code. Borrower shall thereafter  forthwith give written notice of
such filing to Lender,  setting forth any  information  available to Borrower as
to' the date of such filing, the court in which such petition was filed, and the
relief sought  therein.  Borrower  shall  promptly  deliver to Lender  following
receipt,  any and all  notices,  summonses,  pleadings,  applications  and other
documents  received by Borrower in  connection  with any such  petition  and any
proceedings relating thereto.

            (m) If there shall be filed by or against  Borrower a petition under
the Bankruptcy Code, and Borrower,  as the tenant under the Ground Lease,  shall
determine  to  reject  the  Ground  Lease  pursuant  to  Section  365(a)  of the
Bankruptcy  Code,  then Borrower  shall give Lender not less than ten (10) days'
prior notice of the date on which Borrower  shall apply to the bankruptcy  court
for authority to reject the Ground Lease.  Lender shall have the right,  but not
the  obligation,  to serve upon  Borrower  within  such  10-day  period a notice
stating that (i) Lender demands that Borrower assume and assign the Ground Lease
to  Lender  pursuant  to  Section  365 of the  Bankruptcy  Code and (ii)  Lender
covenants to cure or provide  adequate  assurance of prompt cure of all defaults
and provide adequate  assurance of future performance under the Ground Lease. If
Lender  serves upon  Borrower the notice  described in the  preceding  sentence,
Borrower  shall not seek to reject the Ground  Lease and shall  comply  with the
demand  provided for in clause (i) of the preceding  sentence within thirty (30)
days  after the notice  shall have been  given,  subject to the  performance  by
Lender of the covenant provided for in clause (ii) of the preceding sentence.

            (n)  Effective  upon the entry of an order for  relief in respect of
Borrower under the  Bankruptcy  Code,  Borrower  hereby assigns and transfers to
Lender a non-exclusive right to apply to the appropriate  bankruptcy court under
Section  365(d)(4)  of the  Bankruptcy  Code for an order  extending  the period
during which the Ground Lease may be rejected or assumed.

            (o) Borrower  will give Lender prompt (and in all events within five
(5) days)  notice of any  default  under the Ground  Lease or of the  receipt by
Borrower of any notice of default from Ground  Lessor.  Borrower  will  promptly
(and in all  events  within  five (5)  days)  furnish  to  Lender  copies of all
information  furnished to Ground  Lessor by the terms of the Ground Lease or the
provisions of this Section 3.15. Borrower will deposit with Lender an exact copy
of any  notice,  communication,  plan,  specification  or  other  instrument  or
document  received or given by Borrower in any way relating to or affecting  the
Ground Lease which may concern or affect the estate of Ground Lessor or Borrower
thereunder in or under the Ground Lease or in the real estate thereby demised.

            (p) Upon acquisition of the fee title or any other estate,  title or
interest in the Land by Borrower, this Security Instrument shall,  automatically
and without the  necessity of execution  of any other  documents,  attach to and
cover and be a lien upon such other  estate so  acquired,  and such other estate
shall be considered  as mortgaged,  assigned and conveyed to Lender and the lien
hereof  spread to cover  such  estate  with the same  force and effect as though
specifically  herein  mortgaged,  assigned and conveyed.  The provisions of this
subsection  shall not  apply if Lender  acquires  title to the Land  and/or  the
Ground Lessor's interest in the Improvements unless Lender shall so elect.

                                      -10-

                                   ARTICLE 4.

                                SPECIAL COVENANTS
                                -----------------

            Borrower covenants and agrees that:

            Section 4.1.  PROPERTY USE. The Property  shall be used only for its
current use or for racing, gaming,  entertainment,  retail, hotel,  restaurants,
any other use related to so-called  "tourism"  and other  ancillary  and related
activities  thereto only, and for no other use without the prior written consent
of  Lender,  which  consent  may be  withheld  in  Lender's  sole  and  absolute
discretion.

            Section 4.2. RESTORATION AFTER  CASUALTY/CONDEMNATION.  In the event
of a casualty or a taking by eminent  domain,  the  following  provisions  shall
apply in connection with the Restoration of the Property:

            (a) If the Net Proceeds  (defined below) shall be less than or equal
to $500,000  (the  "THRESHOLD  AMOUNT"),  the Net Proceeds  will be disbursed by
Lender to Borrower upon receipt,  provided that no Event of Default or Unmatured
Default shall have occurred.

            (b) If the Net Proceeds are greater than the Threshold  Amount,  the
Net Proceeds shall,  at Lender's  election and in Lender's sole  discretion,  be
applied by Lender  toward the  payment of the Debt  (whether or not then due and
payable) or made  available to Borrower on such terms and  conditions  as Lender
deems  appropriate.  The term "NET  PROCEEDS"  for  purposes of this Section 4.2
shall  mean:  (I) the net amount of all  insurance  proceeds  received by Lender
pursuant to  Subsections  3.3(a) and  3.3(b)(i),  (iv) and (vi) of this Security
Instrument  as a result of such damage or  destruction,  after  deduction of its
reasonable  out-of-pocket  costs and  expenses  (including,  but not limited to,
reasonable  counsel fees), if any, in collecting the same or (II) the net amount
of all  awards  and  payments  received  by  Lender  with  respect  to a  taking
referenced in Section 3.6 of this Security  Instrument,  after  deduction of its
reasonable  out-of-pocket  costs and  expenses  (including,  but not limited to,
reasonable counsel fees), if any, in collecting the same, whichever the case may
be.

            (c) If an Event of Default  shall have  occurred and be  continuing,
all Net  Proceeds  (whether  less than  equal to or greater  than the  Threshold
Amount)  may be retained  and  applied by Lender  toward the payment of the Debt
whether or not then due and payable in such order,  priority and  proportions as
Lender in its discretion  shall deem proper.  If Lender shall receive and retain
any Net Proceeds,  the lien of this Security Instrument shall be reduced only by
the amount  thereof  received  and  retained by Lender and  actually  applied by
Lender in reduction of the Debt.

                                   ARTICLE 5.

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

            Supplementing  the  provisions  of Article 5 of the Loan  Agreement,
Borrower represents and warrants to Lender that:

            Section 5.1. WARRANTY OF TITLE.  Borrower has the right to mortgage,
grant, bargain, sell, pledge, assign, warrant,  transfer and convey the same and
that Borrower  possesses a leasehold estate in the Land and the Improvements and
such  interest  is held free and clear of all liens,  encumbrances  and  charges
whatsoever  except Permitted Liens.  Borrower shall forever warrant,  defend and
preserve the title and the  validity  and priority of the lien of this  Security
Instrument  and shall forever  warrant and defend the same to Lender against the
claims of all persons whomsoever.

            Section 5.2. [Intentionally deleted.]

                                      -11-

            Section 5.3. [Intentionally deleted.]

            Section 5.4. [Intentionally deleted.]

            Section 5.5. [Intentionally deleted.]

            Section 5.6. STATUS OF PROPERTY.  (a) No portion of the Improvements
is  located  in an  area  identified  by the  Secretary  of  Housing  and  Urban
Development  or any  successor  thereto as an area having  special flood hazards
pursuant  to the  National  Flood  Insurance  Act of 1968 or the Flood  Disaster
Protection Act of 1973, as amended,  or any successor law, or, if located within
any such area, Borrower has obtained and will maintain the insurance  prescribed
in Section 3.3 hereof.

            (b) [Intentionally deleted].

            (c) The  Property and the present use and  occupancy  thereof are in
compliance  in all material  respects  with all  applicable  zoning  ordinances,
building codes,  land use and  environmental  laws and other similar laws except
where the  failure to be in  compliance  would  reasonably  result in a Material
Adverse Effect.

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

            (e) All public roads and streets necessary for service of and access
to the Property for the current or contemplated use thereof have been completed,
are  serviceable  and all-weather and are physically and legally open for use by
the public.

            (f) [Intentionally deleted.]

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

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

            (i) [Intentionally deleted.]

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

            Section 5.7. NO FOREIGN PERSON.  Borrower is not a "foreign  person"
within the meaning of Sections  1445(f)(3) of the Code and the related  Treasury
Department regulations, including temporary regulations.

            Section  5.8.  SEPARATE  TAX LOT.  The Property is assessed for real
estate tax purposes as one or more wholly independent tax lot or lots,  separate
from any adjoining land or improvements  not  constituting a part of such lot or
lots, and no other land or  improvements is assessed and taxed together with the
Property or any portion thereof.

            Section 5.9. GROUND LEASE.

            (a)  Borrower  has  delivered a true and correct  copy of the Ground
Lease to Lender. The Ground Lease is unmodified and in full force and effect and
represents  the entire  agreement of Borrower and Catskill  Development,  L.L.C.
(together  with its  successors  and assigns as lessor  under the Ground  Lease,
"GROUND  LESSOR"),  and the Ground Lease represents the entire agreement between

                                      -12-

Ground Lessor and Borrower. Borrower is authorized to assign its interest in any
condemnation  award which Borrower is entitled to receive pursuant to the Ground
Lease.

            (b)  Borrower  has the right to  encumber  the Ground  Lease and the
leasehold estate created thereby without the consent of the Ground Lessor.

            (c) The Ground Lease  requires  the Ground  Lessor to give copies of
all  notices  of default  which are given  under the  Ground  Lease to  Borrower
contemporaneously to Lender.

            (e) The Ground Lease cannot be cancelled solely by Ground Lessor and
requires Lender's consent for all modifications.

            (f)  All  rents  (including  additional  rents  and  other  charges)
reserved for in the Ground Lease and payable  prior to the date hereof have been
paid.

            (g) To the best of  Borrower's  knowledge,  no  party to the  Ground
Lease is in default of any obligation such party has thereunder and no event has
occurred which,  with the giving of notice or the lapse of time, or both,  would
constitute such a default.

            (h) No  notice  or  other  written  or oral  communication  has been
provided to any party under the Ground Lease which  alleges that, as of the date
hereof, either a default exists or with the passage of time will exist under the
provisions of such Ground Lease.

            Section 5.10.  LEASES.  (a) Borrower is the sole owner of the entire
lessor's interest in the Leases;  (b) the Leases are valid and enforceable;  (c)
the terms of all  alterations,  modifications  and  amendments to the Leases are
reflected  in the  certified  occupancy  statement  delivered to and approved by
Lender;  (d) none of the Rents  reserved  in the Leases  have been  assigned  or
otherwise pledged or hypothecated; (e) none of the Rents have been collected for
more than one (1) month in advance;  (f) the demised  under the Leases have been
completed and the tenants under the Leases have accepted the same and have taken
possession of the same on a rent-paying basis; and (g) to the best of Borrower's
knowledge,  there  exist no offsets or defenses to the payment of any portion of
the Rents.

            Section 5.11. [Intentionally deleted.]

            Section 5.12.  BUSINESS PURPOSES.  The loan evidenced by the Note is
solely for the business  purpose of Borrower,  and is not for personal,  family,
household, or agricultural purposes.

            Section 5.13. [Intentionally deleted.]

            Section 5.14. MAILING ADDRESSES.  Borrower's mailing address, as set
forth in the  opening  paragraph  hereof or as  changed in  accordance  with the
provisions hereof, is true and correct.

            Section 5.15. NO CHANGE IN FACTS OR  CIRCUMSTANCES.  All information
submitted  to Lender in  connection  with any request by  Borrower  for the loan
evidenced by the Note and/or any letter of application,  preliminary  commitment
letter,  final  commitment  letter  or other  application  or  letter  of intent
(including,  but not limited to, all financial  statements,  rent rolls, reports
and certificates) are accurate,  complete and correct in all material  respects.
There has been no adverse change in any condition,  fact,  circumstance or event
that  would  make any  such  information  inaccurate,  incomplete  or  otherwise
misleading.

            Section 5.16. [Intentionally deleted.]

                                   ARTICLE 6.

                            OBLIGATIONS AND RELIANCES
                            -------------------------

                                      -13-

            Section 6.1.  RELATIONSHIP OF BORROWER AND LENDER.  The relationship
between  Borrower and Lender is solely that of debtor and  creditor,  and Lender
has no fiduciary or other special  relationship  with  Borrower,  and no term or
condition  of any of the Note,  this  Security  Instrument  and the  other  Loan
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.

            Section   6.2.  NO  RELIANCE  ON  LENDER.   The  general   partners,
shareholders,  members,  principals or other  beneficial  owners of Borrower are
experienced  in  the  ownership  and  operation  of  properties  similar  to the
Property,  and Borrower and Lender are relying  solely upon such  expertise  and
business  plan in  connection  with the ownership and operation of the Property.
Borrower  is not  relying on Lender's  expertise,  business  acumen or advice in
connection with the Property.

            Section 6.3. NO LENDER OBLIGATIONS.

            (a)   Notwithstanding   any  of  the  provisions  of  this  Security
Instrument (including,  but not limited to, the provisions of Subsections 1.1(f)
and (1), Section 1.2 or Section 3.7),  Lender is not undertaking the performance
of (i) any obligations under the Leases; or (ii) any obligations with respect to
such agreements,  contracts,  certificates,  instruments,  franchises,  permits,
trademarks, licenses and other documents.

            (b) By  accepting  or  approving  anything  required to be observed,
performed  or  fulfilled  or to be given to  Lender  pursuant  to this  Security
Instrument, the Note or the other Loan Documents,  including without limitation,
any officer's certificate,  balance sheet, statement of profit and loss or other
financial statement, survey, appraisal, or insurance policy, Lender shall not be
deemed  to have  warranted,  consented  to, or  affirmed  the  sufficiency,  the
legality or effectiveness of same, and such acceptance or approval thereof shall
not constitute any warranty or affirmation with respect thereto by Lender.

            Section 6.4. RELIANCE.  Borrower recognizes and acknowledges that in
accepting  the Note,  this  Security  Instrument  and the other Loan  Documents,
Lender is  expressly  and  primarily  relying on the truth and  accuracy  of the
warranties and  representations set forth in Article 5 without any obligation to
investigate the Property and  notwithstanding  any investigation of the Property
by Lender;  that such  reliance  existed on the part of Lender prior to the date
hereof;  that the warranties and  representations  are a material  inducement to
Lender in  accepting  the Note,  this  Security  Instrument  and the other  Loan
Documents;  and that Lender  would not be willing to make the loan  evidenced by
the Note, this Security  Instrument and the other Loan Documents and accept this
Security  Instrument in the absence of the warranties and representations as set
forth in Article 5.

                                   ARTICLE 7.

                               FURTHER ASSURANCES
                               ------------------

            Section  7.1.  RECORDING  OF  SECURITY  INSTRUMENT.   ETC.  Borrower
forthwith  upon the  execution  and  delivery of this  Security  Instrument  and
thereafter,  from time to time,  will cause this Security  Instrument and any of
the other Loan Documents  creating a lien or security interest or evidencing the
lien hereof upon the Property  and each  instrument  of further  assurance to be
filed,  registered  or  recorded  in such  manner  and in such  places as may be
required by any present or future law in order to publish notice of and fully to
protect and perfect the lien or security  interest hereof upon, and the interest
of Lender in, the Property. Borrower will pay all taxes, filing, registration or
recording  fees,  and  all  expenses  incident  to the  preparation,  execution,
acknowledgment and/or recording of the Note, this Security Instrument, the other
Loan  Documents,   any  note  or  mortgage  supplemental  hereto,  any  security
instrument with respect to the Property and any instrument of further assurance,
and any modification or amendment of the foregoing  documents,  and all federal,
state,  county and municipal  taxes,  duties,  imposts,  assessments and charges
arising out of or in connection with the execution and delivery of this Security
Instrument,  any mortgage  supplemental  hereto,  any security  instrument  with
respect  to the  Property  or any  instrument  of  further  assurance,  and  any
modification  or  amendment  of  the  foregoing  documents,   except  to  extent
prohibited by law so to do.

            Section 7.2. [Intentionally deleted.].

                                      -14-

            Section 7.3.  CHANGES IN TAX,  DEBT,  CREDIT AND  DOCUMENTARY  STAMP
LAWS.

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

            (b)  Borrower  will not claim or demand or be entitled to any credit
or credits on account of the Debt for any part of the Taxes or all ground rents,
maintenance charges and similar charges,  now or hereafter levied or assessed or
imposed against the Property or the Other Charges assessed against the Property,
or any part thereof,  and no deduction  shall  otherwise be made or claimed from
the assessed  value of the Property,  or any part  thereof,  for real estate tax
purposes  by reason of this  Security  Instrument  or the Debt.  If such  claim,
credit or deduction shall be required by law,  Lender shall have the option,  by
written  notice  of not  less  than  ninety  (90)  days,  to  declare  the  Debt
immediately due and payable.

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

            Section 7.4. ESTOPPEL CERTIFICATES.

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

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

            (c) Lender, by its acceptance of this Security Instrument, agrees to
deliver to Borrower  promptly upon Borrower's  request  therefor  (provided such
request is not made more than twice in any  calendar  year) a written  statement
setting forth the unpaid  principal  amount of the Note,  the accrued and unpaid
interest  thereon  and the date on  which  an  installment  of  interest  and/or
principal were last paid thereunder.

                                      -15-

                                   ARTICLE 8.

                                SALE/ENCUMBRANCE
                                ----------------

            Section 8.1. [Intentionally deleted.].

            Section 8.2. NO  SALE/ENCUMBRANCE.  Except as expressly permitted in
the Loan  Agreement,  or herein,  Borrower shall not,  without the prior written
consent of Lender, sell, convey,  mortgage,  grant, bargain,  encumber,  pledge,
assign,  or  otherwise  transfer  the Property or any part thereof or permit the
Property  or  any  part  thereof  to  be  sold,  conveyed,  mortgaged,  granted,
bargained, encumbered, pledged, assigned, or otherwise transferred.

            Section 8.3. [Intentionally deleted.]

                                   ARTICLE 9.

                                   PREPAYMENT
                                   ----------

            Section 9.1.  PREPAYMENT  BEFORE  EVENT OF DEFAULT.  The Debt may be
prepaid in  accordance  with the terms and  conditions,  and upon payment of the
amounts specified, in the Loan Agreement.

                                   ARTICLE 10.

                                     DEFAULT
                                     -------

            Section  10.1.  EVENTS OF DEFAULT.  An "Event of Default"  under the
Loan Agreement shall constitute an "EVENT OF DEFAULT" hereunder.

                                   ARTICLE 11.

                               RIGHTS AND REMEDIES
                               -------------------

            Section  11.1.   REMEDIES.   Except  to  the  extent  prohibited  by
applicable  law, upon the occurrence and during the  continuance of any Event of
Default,  Borrower  agrees that Lender may take such action,  without  notice or
demand, as it deems advisable to protect and enforce its rights against Borrower
and in and to the  Property,  including,  but  not  limited  to,  the  following
actions,  each of which may be pursued  concurrently or otherwise,  at such time
and in such  order as Lender  may  determine,  in its sole  discretion,  without
impairing or otherwise  affecting  the other rights and remedies of Lender:  (a)
declare the entire unpaid Debt to be immediately due and payable;  (b) institute
judicial  proceedings for the complete  foreclosure of this Security  Instrument
under any applicable provision of law in which case the Property or any interest
therein may be sold for cash or upon credit in one or more parcels or in several
interests or portions and in any order or manner;  (c) with or without entry, to
the extent permitted and pursuant to the procedures  provided by applicable law,
institute  proceedings for the partial  foreclosure of this Security  Instrument
for the portion of the Debt then due and payable, subject to the continuing lien
and security  interest of this Security  Instrument  for the balance of the Debt
not then due,  unimpaired  and  without  loss of  priority;  (d)  [intentionally
deleted]; (e) institute an action, suit or proceeding in equity for the specific
performance of any covenant,  condition or agreement  contained  herein,  in the
Note or in the Other Loan  Documents;  (f)  recover  judgment on the Note either
before,  during or after any  proceedings  for the  enforcement of this Security
Instrument  or the Other  Loan  Documents;  (g) apply for the  appointment  of a
receiver, trustee, liquidator or conservator of the Property, without notice and
without  regard for the adequacy of the security for the Debt and without regard
for the solvency of Borrower or of any person,  firm or other entity  liable for
the payment of the Debt; (h) subject to any applicable  law, the license granted
to  Borrower  under  Section 1.2 shall  automatically  be revoked and Lender may
enter into or upon the Property, either personally or by its agents, nominees or
attorneys and dispossess Borrower and its agents and servants therefrom, without
liability for trespass, damages or otherwise and exclude Borrower and its agents
or servants wholly therefrom, and take possession of all books, records and

                                      -16-

accounts  relating  thereto and Borrower  agrees to surrender  possession of the
Property  and of such books,  records and  accounts to Lender upon  demand,  and
thereupon  Lender  may (i) use,  operate,  manage,  control,  insure,  maintain,
repair,  restore and otherwise  deal with all and every part of the Property and
conduct the business thereat;  (ii) complete any construction on the Property in
such  manner  and  form as  Lender  deems  advisable;  (iii)  make  alterations,
additions,  renewals,  replacements and improvements to or on the Property; (iv)
exercise all rights and powers of Borrower with respect to the Property, whether
in the name of Borrower or otherwise,  including,  without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand,
sue for,  collect and receive all Rents of the Property and every part  thereof;
(v)  require  Borrower  to pay  monthly in advance  to Lender,  or any  receiver
appointed to collect the Rents, the fair and reasonable rental value for the use
and occupation of such part of the Property as may be occupied by Borrower; (vi)
require Borrower to vacate and surrender possession of the Property to Lender or
to such  receiver  and, in default  thereof,  Borrower may be evicted by summary
proceedings or otherwise;  and (vii) apply the receipts from the Property to the
payment of the Debt,  in such order,  priority and  proportions  as Lender shall
deem appropriate in its sole discretion  after deducting  therefrom all expenses
(including reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges,  insurance
and  other  expenses  in  connection  with  the  Property,  as well as just  and
reasonable  compensation  for the services of Lender,  its  counsel,  agents and
employees;  (i) exercise  any and all rights and  remedies  granted to a secured
party  upon  default  under the  Uniform  Commercial  Code,  including,  without
limiting the  generality of the foregoing:  (i) the right to take  possession of
the Personal  Property or any part thereof,  and to take such other  measures as
Lender may deem  necessary  for the care,  protection  and  preservation  of the
Personal  Property,  and (ii)  request  Borrower at its expense to assemble  the
Personal  Property  and  make it  available  to  Lender  at a  convenient  place
acceptable to Lender.  Any notice of sale,  disposition or other intended action
by Lender with respect to the Personal  Property  sent to Borrower in accordance
with the provisions hereof at least twenty (20) days prior to such action, shall
constitute  commercially  reasonable  notice  to  Borrower;  (j)  surrender  the
Policies maintained pursuant to Article 3 hereof, collect the unearned Insurance
Premiums  and  apply  such  sums as a credit  on the Debt in such  priority  and
proportion  as Lender in its  discretion  shall deem proper,  and in  connection
therewith,  Borrower hereby appoints Lender as agent and attorney-in-fact (which
is coupled  with an  interest  and is  therefore  irrevocable)  for  Borrower to
collect such  Insurance  Premiums;  (k) pursue such other remedies as Lender may
have under applicable law; (1) apply the undisbursed balance of any Net Proceeds
Deficiency  deposit,  together with interest thereon, to the payment of the Debt
in such order,  priority and  proportions as Lender shall deem to be appropriate
in its discretion. or (m) [intentionally deleted].

            Except to the extent prohibited by applicable law, in the event of a
sale,  by  foreclosure,  or otherwise,  of less than all of the  Property,  this
Security  Instrument  shall  continue  as a lien and  security  interest  on the
remaining  portion of the Property  unimpaired and without loss of priority.  In
the  event of a sale,  by  foreclosure,  or  otherwise,  Lender  may bid for and
acquire the Property and, in lieu of paying cash therefor,  may make  settlement
for the purchase price by crediting  against the  Obligations  the amount of the
bid made therefor,  after deducting therefrom the expenses of the sale, the cost
of any  enforcement  proceeding  hereunder  and any other sums  which  Lender is
authorized to deduct under the terms hereof,  to the extent necessary to satisfy
such bid.

            Section 11.2.  APPLICATION OF PROCEEDS. The purchase money, proceeds
and avails of any disposition of the Property, or any part thereof, or any other
sums collected by Lender pursuant to the Note,  this Security  Instrument or the
other Loan  Documents,  may be  applied by Lender to the  payment of the Debt in
such priority and  proportions  as Lender in its  discretion  shall deem proper.
Upon any  foreclosure  sale or sales of all or any portion of the Property under
judicial  order,  Lender  may bid for and  purchase  the  Property  and shall be
entitled to apply all or any part of the Debt as a credit to the purchase price.

            Section 11.3.  RIGHT TO CURE  DEFAULTS.  Upon the  occurrence of any
Event of Default or if  Borrower  fails to make any  payment or to do any act as
herein  provided,  Lender may, but without any  obligation  to do so and without
notice  to or  demand  on  Borrower  and  without  releasing  Borrower  from any
obligation  hereunder,  make or do the same in such manner and to such extent as
Lender may deem necessary to protect the security  hereof.  Lender is authorized
to enter upon the Property for such purposes, or appear in, defend, or bring any
action or  proceeding  to protect its  interest in the  Property or to foreclose
this Security  Instrument or collect the Debt, and the cost and expense  thereof
(including  reasonable  attorneys'  fees to the extent  permitted by law),  with
interest as provided in this  Section  11.3,  shall  constitute a portion of the
Debt and shall be due and  payable  to Lender  upon  demand.  All such costs and
expenses  incurred by Lender in  remedying  such Event of Default or such failed
payment or act or in  appearing  in,  defending,  or bringing any such action or

                                      -17-

proceeding  shall bear interest at the default rate  specified in Section 2.3(c)
of the Loan Agreement (the "DEFAULT  RATE"),  for the period incurring such cost
or  expense  to the date of  payment  to  Lender.  All such  costs and  expenses
incurred by Lender together with interest thereon calculated at the Default Rate
shall be  deemed to  constitute  a portion  of the Debt and be  secured  by this
Security  Instrument and the other Loan  Documents and shall be immediately  due
and payable upon demand by Lender therefor.

            Section 11.4.  ACTIONS AND  PROCEEDINGS.  After the  occurrence  and
during the continuance of an Event of Default, Lender has the right to appear in
and defend any action or proceeding  brought with respect to the Property and to
bring any action or  proceeding,  in the name and on behalf of  Borrower,  which
Lender, in its discretion,  decides should be brought to protect its interest in
the Property.

            Section  11.5.  RECOVERY OF SUMS  REQUIRED TO BE PAID.  Lender shall
have the right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due,  without regard to whether
or not the balance of the Debt shall be due, and without  prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Borrower  existing at the time such earlier  action was
commenced.

            Section 11.6. EXAMINATION OF BOOKS AND RECORDS.  Lender, its agents,
accountants  and  attorneys  shall have the  right,  upon  reasonable  notice to
Borrower and during  reasonable  business hours, to examine the records,  books,
management  and other papers of Borrower and its  affiliates  which reflect upon
their financial condition, at the Property or at any office regularly maintained
by Borrower or its affiliates or where the books and records are located. Lender
and its  agents  shall  have the  right to make  copies  and  extracts  from the
foregoing records and other papers. In addition, Lender, its agents, accountants
and attorneys shall have the right to examine and audit the books and records of
Borrower and its affiliates pertaining to the income,  expenses and operation of
the Property,  upon reasonable notice to Borrower and during reasonable business
hours, at any office of Borrower and its affiliates  where the books and records
are located.

            Section 11.7. OTHER RIGHTS, ETC. (a) To the extent permitted by law,
the failure of Lender to insist upon strict performance of any term hereof shall
not be deemed to be a waiver of any term of this Security  Instrument.  Borrower
shall not be relieved of Borrower's  obligations  hereunder by reason of (i) the
failure of Lender to comply  with any  request of Borrower to take any action to
foreclose  this Security  Instrument or otherwise  enforce any of the provisions
hereof or of the Note or the other Loan Documents, (ii) the release,  regardless
of  consideration,  of the whole or any part of the  Property,  or of any person
liable  for  the  Debt  or any  portion  thereof,  or  (iii)  any  agreement  or
stipulation  by Lender  extending the time of payment or otherwise  modifying or
supplementing the terms of the Note, this Security  Instrument or the other Loan
Documents.

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

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

            Section 11.8.  RIGHT TO RELEASE ANY PORTION OF THE PROPERTY.  Lender
may release any portion of the  Property  for such  consideration  as Lender may
require  without,  as to the remainder of the Property,  in any way impairing or
affecting  the lien or priority of this  Security  Instrument,  or improving the
position of any  subordinate  lienholder  with  respect  thereto,  except to the

                                      -18-

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

            Section 11.9. [Intentionally deleted.]

            Section 11.10. RIGHT OF ENTRY.  Lender and its agents shall have the
right to enter and inspect the Property at all reasonable  times, and upon prior
written notice to Borrower.  Provided there is no Event of Default,  Lender will
use reasonable efforts to minimize interference with occupants at the Property.

                                   ARTICLE 12.

                              ENVIRONMENTAL HAZARDS
                              ---------------------

            Section 12.1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower
represents  and warrants that, to Borrower's  knowledge,  without  inquiry:  (a)
there  are  no  hazardous   materials  or   hazardous   substances   ("HAZARDOUS
SUBSTANCES") or underground storage tanks in, on, or under the Property,  except
those that are both (i) in  compliance  with  environmental  laws and (ii) fully
disclosed to Lender in writing  pursuant to the written  reports  resulting from
the  environmental   assessments  of  the  Property  delivered  to  Lender  (the
"ENVIRONMENTAL   REPORT");  (b)  [Intentionally   deleted];  (c)  [Intentionally
deleted]; (d) [Intentionally deleted]; and (e) Borrower has truthfully and fully
provided to Lender, in writing,  any and all information  relating to conditions
in,  on,  under or from the  Property  that is  known  to  Borrower  and that is
contained  in  Borrower's  files and records,  including  but not limited to any
reports  relating to  Hazardous  Substances  in, on,  under or from the Property
and/or to the environmental  condition of the Property.  "Hazardous  Substances"
shall not include cleaning  materials  customarily used at properties similar to
the Property,  to the extent such materials are used,  stored and disposed of in
accordance with Environmental Laws.

            Section 12.2. ENVIRONMENTAL COVENANTS. Borrower covenants and agrees
that  so  long  as  the  Security   Instrument   encumbers  the  Property:   (a)
[Intentionally  deleted]; (b) there shall be no releases of Hazardous Substances
by Borrower,  its agents or employees  in, on, under or from the  Property;  (c)
[Intentionally  deleted];  (d) the Property  shall be kept free and clear of all
liens and other encumbrances  imposed pursuant to any environmental law, whether
due to any act or  omission  of  Borrower  or any other  person or  entity;  (e)
Borrower shall, at its sole cost and expense,  have an environmental  consultant
reasonably  satisfactory to Lender perform an  environmental  site assessment or
other investigation of environmental conditions in connection with the Property,
pursuant  to any  written  request  of  Lender  (including  but not  limited  to
sampling, testing and analysis of soil, water, air, building materials and other
materials and substances  whetherr solid,  liquid or gas), and share with Lender
the reports and other results thereof,  and Lender and other Indemnified Parties
(as defined  herein) shall be entitled to rely on such reports and other results
thereof;  (f)  Borrower  shall,  at its sole cost and  expense,  comply with all
reasonable  written requests of Lender to (i) comply with any Environmental Law;
and  (ii)  take  any  other  reasonable  action  necessary  or  appropriate  for
protection  of human health or the  environment;  (g)  Borrower  shall not do or
allow any tenant or other  user of the  Property  to do any act that  materially
increases the dangers to human health or the environment,  poses an unreasonable
risk of harm to any person or entity  (whether on or off the Property),  impairs
or may impair the value of the Property,  is contrary to any  requirement of any
insurer,  constitutes  a public  or  private  nuisance,  constitutes  waste,  or
violates  any  covenant,  condition,  agreement  or easement  applicable  to the
Property; and (h) Borrower shall immediately notify Lender in writing of (A) any
presence or releases or  threatened  releases of  Hazardous  Substances  in, on,
under, from or migrating towards the Property;  (B) any non-compliance  with any
environmental  laws  related  in any  way to the  Property;  (C) any  actual  or
potential  environmental  lien;  (D) any  required  or proposed  remediation  of
environmental  conditions relating to the Property;  and (E) any written or oral
notice or other  communication  which  Borrower  becomes  aware  from any source
whatsoever  (including but not limited to a governmental entity) relating in any
way to Hazardous  Substances or remediation  thereof,  possible liability of any
person  or  entity  pursuant  to  any  Environmental  Law,  other  environmental
conditions  in  connection  with  the  Property,  or  any  actual  or  potential
administrative  or judicial  proceedings in connection with anything referred to
in this Article 12. Any failure of Borrower to perform its obligations  pursuant
to this  Section  12.2 shall  constitute  bad faith  waste  with  respect to the
Property.

                                      -19-

            Section 12.3. LENDER'S RIGHTS. Lender and any other person or entity
designated  by  Lender,   including  but  not  limited  to  any  receiver,   any
representative of a governmental entity, and any environmental consultant, shall
have the  right,  but not the  obligation,  to enter  upon the  Property  at all
reasonable times to assess any and all aspects of the environmental condition of
the  Property  and  its  use,  including  but  not  limited  to  conducting  any
environmental  assessment  or audit (the scope of which shall be  determined  in
Lender's sole and absolute  discretion) and taking samples of soil,  groundwater
or other  water,  air, or building  materials,  and  conducting  other  invasive
testing. Borrower shall cooperate with and provide access to Lender and any such
person  or  entity  designated  by  Lender.  The  costs  and  expenses  of  such
assessments  shall be borne by Lender  except in instances  where such report or
assessment is performed due to Borrower's failure to comply with its obligations
under Section 12.2(e) or following an Event of Default, in which cases the costs
and expenses of such assessments shall be paid for by Borrower.

                                   ARTICLE 13.

                                 INDEMNIFICATION
                                 ---------------

            Section 13.1. GENERAL  INDEMNIFICATION.  Borrower shall, at its sole
cost and expense,  protect,  defend,  indemnify,  release and hold  harmless the
Indemnified  Parties  from and against any and all  claims,  suits,  liabilities
(including,  without  limitation,  strict  liabilities),  actions,  proceedings,
obligations,  debts,  damages,  losses, costs,  expenses,  diminutions in value,
fines, penalties,  charges, fees, expenses,  judgments,  awards, amounts paid in
settlement,   punitive  damages,  foreseeable  and  unforeseeable  consequential
damages,  of whatever  kind or nature  (including  but not limited to attorneys'
fees and other costs of defense) (the  "LOSSES")  imposed upon or incurred by or
asserted against any Indemnified  Parties and directly or indirectly arising out
of or in any way  relating  to any one or more of the  following,  except to the
extent any of  the following are attributable to the gross negligence or willful
misconduct of an Indemnified  Party: (a) ownership of this Security  Instrument,
the Property or any interest  therein or receipt of any Rents; (b) any amendment
to, or restructuring of, the Debt, and the Note, this Security Instrument or any
other Loan Documents;  (c) any and all lawful action that may be taken by Lender
in connection with the enforcement of the provisions of this Security Instrument
or the Note or any of the other Loan Documents,  whether or not suit is filed in
connection with same, or in connection  with Borrower and/or any partner,  joint
venturer or shareholder  thereof  becoming a party to a voluntary or involuntary
federal or state bankruptcy, insolvency or similar proceeding; (d) any accident,
injury to or death of persons or loss of or damage to property  occurring in, on
or about the Property or any part thereof orr on the adjoining sidewalks, curbs,
adjacent  property  or adjacent  parking  areas,  streets or ways;  (e) any use,
nonuse or  condition  in, on or about the Property or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets
or ways;  (f)  performance  of any labor or  services or the  furnishing  of any
materials or other property in respect of the Property or any part thereof;  (g)
any failure of the Property to be in compliance  with any  Applicable  Laws; (h)
the enforcement by any  Indemnified  Party of the provisions of this Article 13;
(i) any and all claims and  demands  whatsoever  which may be  asserted  against
Lender by reason  of any  alleged  obligations  or  undertakings  on its part to
perform or discharge any of the terms, covenants, or agreements contained in any
Lease;  (j) the payment of any  commission,  charge or  brokerage  fee to anyone
which may be payable in connection with the funding of the loan evidenced by the
Note and secured by this Security Instrument;  or (k) any misrepresentation made
by Borrower in this Security Instrument or any other Loan Document.  Any amounts
payable to Lender by reason of the application of this Section 13.1 shall become
immediately due and payable and shall bear interest at the Default Rate from the
date loss or damage is  sustained  by Lender  until paid.  For  purposes of this
Article  13, the term  "Indemnified  Parties"  means  Lender and any  directors,
officers, shareholders,  partners, employees, agents, servants, representatives,
contractors, subcontractors,  affiliates, subsidiaries, participants, successors
and assigns of Lender or any and all of the foregoing

            Section 13.2. MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall, at its
sole cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses imposed upon or incurred
by or  asserted  against any  Indemnified  Parties  and  directly or  indirectly
arising out of or in any way relating to any tax on the making and/or  recording
of this Security Instrument,  the Note or any of the other Loan Document, except
for net income taxes and franchise  taxes  (imposed in lieu of net income taxes)
imposed on an  Indemnified  Party as a result of a present or former  connection
between the jurisdiction of the government or taxing authority imposing such tax
and the  Indemnified  Party  (excluding  a  connection  arising  solely from the
Indemnified  Party having executed,  delivered,  or performed its obligations or

                                      -20-

received a payment under, or enforced,  this Security  Instrument,  the Note and
the other Loan  Documents)  or any  political  subdivision  or taxing  authority
thereof or therein.

            Section 13.3. ENVIRONMENTAL INDEMNIFICATION.  Borrower shall, at its
sole cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified  Parties from and against any and all Losses and costs  imposed upon
or incurred by or asserted  against any  Indemnified  Parties,  and  directly or
indirectly  arising  out of or in any  way  relating  to any  one or more of the
following  (except to the extent the same relate solely to Hazardous  Substances
first  introduced to the Property by anyone other than  Borrower,  its agents or
employees following the foreclosure of this Security Instrument (or the delivery
and  acceptance of a deed in lieu of such  foreclosure),  the  expiration of any
right of redemption  with respect  thereto and the obtaining by the purchaser at
such foreclosure sale or grantee under such deed of possession of the Property):
(a) any  presence  of any  Hazardous  Substances  in,  on,  above,  or under the
Property;  (b) any past, present or threatened  release of Hazardous  Substances
in, on,  above,  under or from the Property;  (c) any activity by Borrower,  any
person or entity  affiliated  with  Borrower  or any tenant or other user of the
Property in connection with any actual,  proposed or threatened use,  treatment,
storage,  transfer or  transportation  to or from the Property of any  Hazardous
Substances  at any time located in,  under,  on or above the  Property;  (d) any
past,  present  or  threatened  non-compliance  with any  environmental  laws in
connection  with the Property;  (e) the  imposition,  recording or filing or the
threatened imposition, recording or filing of any environmental lien encumbering
the  Property;  (f) any  administrative  processes  or  proceedings  or judicial
proceedings in any way connected with any matter relating to Environmental Laws;
and (g) any misrepresentation or inaccuracy in any representation or warranty or
material  breach or  failure  to  perform  any  covenants  or other  obligations
pursuant to Article 12.

            Section  13.4.  DUTY TO DEFEND;  ATTORNEYS'  FEES AND OTHER FEES AND
EXPENSES.  Upon written request by any Indemnified Party,  Borrower shall defend
such  Indemnified  Party (if requested by any Indemnified  Party, in the name of
the  Indemnified  Party) by attorneys  and other  professionals  approved by the
Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may,
in their sole and  absolute  discretion,  engage their own  attorneys  and other
professionals  to defend or  assist  them,  and,  at the  option of  Indemnified
Parties,  their  attorneys  shall control the resolution of claim or proceeding.
Upon demand,  Borrower shall pay or, in the sole and absolute  discretion of the
Indemnified  Parties,  reimburse,  the  Indemnified  Parties  for the payment of
reasonable  fees  and  disbursements  of  attorneys,  engineers,   environmental
consultants, laboratories and other professionals in connection therewith.

                                   ARTICLE 14.

                                     WAIVERS
                                     -------

            Section 14.1.  WAIVER OF  COUNTERCLAIM.  Borrower  hereby waives the
right  to  assert  a   counterclaim,   other  than  a  mandatory  or  compulsory
counterclaim,  in any action or proceeding  brought against it by Lender arising
out of or in any way connected with this Security  Instrument,  the Note, any of
the other Loan Documents, or the Obligations.

            Section  14.2.  MARSHALLING  AND OTHER  MATTERS.  For  itself and on
behalf  of each and  every  person  acquiring  any  interest  in or title to the
Property subsequent to the date of this Security Instrument and on behalf of all
persons to the extent  permitted by applicable law,  Borrower hereby waives,  to
the extent permitted by law, the benefit of all appraisement,  valuation,  stay,
extension,  reinstatement  and redemption laws now or hereafter in force and all
rights of  marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein.  Further, Borrower hereby expressly waives
any and all  rights  of  redemption  from  sale  under  any  order or  decree of
foreclosure of this Security Instrument on behalf of Borrower,  and on behalf of
each and  every  person  acquiring  any  interest  in or  title to the  Property
subsequent to the date of this Security  Instrument and on behalf of all persons
to the extent permitted by applicable law.

            Section 14.3.  WAIVER OF NOTICE.  Borrower  shall not be entitled to
any notices of any nature  whatsoever from Lender except with respect to matters
for which this Security  Instrument  specifically and expressly provides for the
giving of notice by Lender to Borrower  and except  with  respect to matters for

                                      -21-

which Lender is required by applicable law to give notice,  and Borrower  hereby
expressly waives the right to receive any notice from Lender with respect to any
matter for which this Security  Instrument does not  specifically  and expressly
provide for the giving of notice by Lender to Borrower.

            Section 14.4. SOLE  DISCRETION OF LENDER  Wherever  pursuant to this
Security  Instrument  (a) Lender  exercises  any right given to it to approve or
disapprove,  (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other  decision or  determination  is to be made by Lender,  the decision of
Lender to approve or disapprove,  all decisions that  arrangements  or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender,  shall be in the sole and absolute  discretion of Lender and shall be
final and  conclusive,  except as may be otherwise  expressly  and  specifically
provided herein.

            Section  14.5.  SURVIVAL.  The  indemnifications  made  pursuant  to
Section  13.3 and the  representations  and  warranties,  covenants,  and  other
obligations arising under Article 12, shall continue  indefinitely in full force
and  effect  and  shall  survive  and  shall  in no  way  be  impaired  by:  any
satisfaction or other termination of this Security Instrument, any assignment or
other  transfer of all or any portion of this  Security  Instrument  or Lender's
interest in the Property  (but,  in such case,  shall  benefit both  Indemnified
Parties and any assignee or  transferee),  any  exercise of Lender's  rights and
remedies  pursuant hereto including but not limited to foreclosure or acceptance
of a deed in lieu of  foreclosure,  any  exercise  of any  rights  and  remedies
pursuant to the Note or any of the other Loan Documents,  any transfer of all or
any  portion  of the  Property  (whether  by  Borrower  or by  Lender  following
foreclosure  or  acceptance  of a deed in lieu of  foreclosure  or at any  other
time),  any amendment to this Security  Instrument,  the Note or the, other Loan
Documents,  and any act or  omission  that might  otherwise  be  construed  as a
release or discharge of Borrower from the obligations pursuant hereto.

            Section 14.6. [Intentionally deleted.]

                                   ARTICLE 15.

                            [Intentionally deleted.]

                                   ARTICLE 16.

                                     NOTICES
                                     -------

            Section 16.1. NOTICES.  All notices or other written  communications
hereunder  shall be deemed to have been  properly  if given in  accordance  with
Section 9.8 of the Loan Agreement and the Guaranty.

                                   ARTICLE 17.

                            [Intentionally deleted.]

                                   ARTICLE 18.

                                 APPLICABLE LAW
                                 --------------

            Section  18.1.  CHOICE OF LAW.  THIS  SECURITY  INSTRUMENT  SHALL BE
DEEMED TO BE A CONTRACT  ENTERED  INTO  PURSUANT TO THE LAWS OF THE STATE OF NEW
YORK.

            Section 18.2. USURY LAWS. This Security  Instrument and the Note are
subject to the express  condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the holder of
the Note to either civil or criminal liability as a result of being in excess of
the maximum  interest  rate which  Borrower is  permitted by  applicable  law to
contract or agree to pay. If by the terms of this Security Instrument,  the Loan
Agreement  or the Note,  Borrower is at any time  required or  obligated  to pay
interest  on the Debt at a rate in  excess  of such  maximum  rate,  the rate of

                                      -22-

interest  under  the  Security  Instrument  and the Note  shall be  deemed to be
immediately  reduced to such  maximum  rate and the  interest  payable  shall be
computed at such maximum rate and all prior interest  payments in excess of such
maximum  rate  shall be  applied  and shall be deemed to have been  payments  in
reduction of the  principal  balance of the Note.  All sums paid or agreed to be
paid to Lender for the use, forbearance,  or detention of the Debt shall, to the
extent  permitted by applicable  law, be  amortized,  prorated,  allocated,  and
spread throughout the full stated term of the Note until payment in full so that
the rate or amount of  interest  on  account  of the Debt  does not  exceed  the
maximum  lawful rate of interest  from time to time in effect and  applicable to
the Debt for so long as the Debt is outstanding.

            Section  18.3.  PROVISIONS  SUBJECT TO  APPLICABLE  LAW. All rights,
powers and remedies  provided in this Security  Instrument may be exercised only
to the  extent  that the  exercise  thereof  does  not  violate  any  applicable
provisions of law and are intended to be limited to the extent necessary so that
they will not render this  Security  Instrument  invalid,  unenforceable  or not
entitled  to be  recorded,  registered  or filed  under  the  provisions  of any
applicable  law.  If any term of this  Security  Instrument  or any  application
thereof  shall be invalid  or  unenforceable,  the  remainder  of this  Security
Instrument and any other application of the term shall not be affected thereby.

                                   ARTICLE 19.

                            [Intentionally deleted.]

                                   ARTICLE 20.

                                      COSTS
                                      -----

            Section  20.1.  PERFORMANCE  AT  BORROWER'S  EXPENSE.  Supplementing
Section 9.6 of the Loan  Agreement,  Borrower  acknowledges  and  confirms  that
Lender shall impose certain administrative  processing and/or commitment fees in
connection  with  (a)  the  extension,  renewal,  modification,   amendment  and
termination  of its  loans,  (b)  the  release  or  substitution  of  collateral
therefor, (c) obtaining certain consents,  waivers and approvals with respect to
the  Property,  or (d)  the  review  of  any  Lease  or  proposed  Lease  or the
preparation  or  review of any  subordination,  non-disturbance  agreement  (the
occurrence  of any of the above shall be called an  "Event").  Borrower  further
acknowledges  and confirms that it shall be  responsible  for the payment of all
costs of  reappraisal  of the  Property  or any part  thereof  required  by law,
regulation,  any governmental or  quasi-governmental  authority or, following an
Event of  Default,  Lender.  Borrower  hereby  acknowledges  and  agrees to pay,
immediately,  upon  demand,  all such  fees (as the  same  may be  increased  or
decreased  from  time to time),  and any  additional  fees of a similar  type or
nature which may be imposed by Lender from time to time,  upon the occurrence of
any Event or otherwise. Wherever it is provided for herein that Borrower pay any
costs and expenses,  such costs and expenses shall  include,  but not be limited
to, all reasonable  legal fees and  disbursements  of Lender,  whether  retained
firms, the reimbursement for the expenses of in-house staff or otherwise.

            Section 20.2. [Intentionally deleted.]

                                   ARTICLE 21

                                 MISCELLANEOUS.
                                 --------------

            Section 21.1.  NO ORAL CHANGE.  This  Security  Instrument,  and any
provisions  hereof, may not be modified,  amended,  waived,  extended,  changed,
discharged or  terminated  orally or by any act or failure to act on the part of
Borrower  or Lender,  but only by an  agreement  in writing  signed by the party
against whom  enforcement of any  modification,  amendment,  waiver,  extension,
change, discharge or termination is sought.

            Section  21.2.  LIABILITY;   SUCCESSORS  AND  ASSIGNS.  If  Borrower
consists of more than one person,  the  obligations and liabilities of each such
person hereunder shall be joint and several.  This Security  Instrument shall be
binding  upon and  inure  to the  benefit  of  Borrower  and  Lender  and  their
respective successors and assigns forever.

                                      -23-

            Section 21.3.  INAPPLICABLE  PROVISIONS.  To the extent permitted by
law, if any term,  covenant or condition of the Note or this Security Instrument
is held to be invalid,  illegal or  unenforceable  in any respect,  the Note and
this Security Instrument shall be construed without such provision.

            Section  21.4.  HEADINGS,  ETC. The headings and captions of various
Sections of this Security  Instrument are for  convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.

            Section  21.5.  DUPLICATE  ORIGINALS;  COUNTERPARTS.  This  Security
Instrument  may be  executed  in any  number  of  duplicate  originals  and each
duplicate original shall be deemed to be an original.  This Security  Instrument
may be executed in several  counterparts,  each of which  counterparts  shall be
deemed an original  instrument  and all of which  together  shall  constitute  a
single  Security  Instrument.  The failure of any party  hereto to execute  this
Security  Instrument,  or any  counterpart  hereof,  shall not relieve the other
signatories from their obligations hereunder.

            Section 21.6.  NUMBER AND GENDER.  Whenever the context may require,
any pronouns used herein shall include the corresponding masculine,  feminine or
neuter  forms,  and the singular  form of nouns and pronouns  shall  include the
plural and vice versa.

            Section 21.7. SUBROGATION. If any or all of the proceeds of the Note
have  been used to  extinguish,  extend  or renew  any  indebtedness  heretofore
existing against the Property,  then, to the extent of the funds so used, Lender
shall be subrogated to all of the rights,  claims,  liens, titles, and interests
existing against the Property  heretofore held by, or in favor of, the holder of
such indebtedness and such former rights,  claims, liens, titles, and interests,
if any,  are not waived but  rather  are  continued  in full force and effect in
favor of Lender  and are  merged  with the lien and  security  interest  created
herein as cumulative security for the repayment of the Debt, the performance and
discharge of Borrower's obligations hereunder, under the Note and the other Loan
Documents and the performance and discharge of the Other Obligations.

            Section 21.8. SATISFACTION OR ASSIGNMENT.  When Lender has been paid
all amounts due under the Note and all amounts then  outstanding  under the Loan
Agreement,  this Security Instrument and the other Loan Documents,  Lender will,
at the  Borrower's  written  request,  discharge  this  Security  Instrument  by
delivering  a  certificate  stating  that  this  Security  Instrument  has  been
satisfied.  In lieu of such a  discharge,  Lender  will,  if  Borrower  shall so
request,  assign the Note and this Security Instrument to a new lender financing
the Property.  Any such assignment shall be without recourse,  representation or
warranty.  Borrower shall pay all  out-of-pocket costs and expenses  incurred by
Lender, including, without limitation, reasonable attorneys' fees, in connection
with any such assignment. No such discharge or assignment shall relieve Borrower
of  obligations  that  expressly  survive  under  the  terms  of  this  Security
Instrument, the Loan Agreement or any other Loan Document.

                                   ARTICLE 22.

                               NEW YORK PROVISIONS
                               -------------------

            Section  22.1.  TRUST  FUND.  Pursuant to Section 13 of the New York
Lien Law,  Borrower shall receive the advances secured hereby and shall hold the
right to  receive  the  advances  as a trust  fund to be  applied  first for the
purpose of paying the cost of any improvement and shall apply the advances first
to the payment of the cost of any such  improvement on the Property before using
any part of the total of the same for any other purpose.

            Section 22.2.  COMMERCIAL  PROPERTY.  Borrower  represents that this
Security Instrument does not encumber real property  principally  improved or to
be improved by one or more structures  containing in the aggregate not more than
six residential dwelling units, each having its own separate cooking facilities.

                                      -24-

            Section 22.3.  INSURANCE.  The provisions of subsection 4 of Section
254 of the New York Real  Property  Law  covering  the  insurance  of  buildings
against loss by fire shall not apply to this Security  Instrument.  In the event
of any conflict,  inconsistency  or ambiguity  between the provisions of Section
3.3 hereof and the  provisions  of  subsection  4 of Section 254 of the New York
Real Property Law covering the insurance of buildings  against loss by fire, the
provisions of Section 3.3 shall control.

            Section 22.4.  LEASES.  Lender shall have all of the rights  against
lessees of the Property set forth in Section  291-f of the Real  Property Law of
New York.

            Section  22.5.  STATUTORY  CONSTRUCTION.  The clauses and  covenants
contained in this Security  Instrument  that are construed by Section 254 of the
New York Real  Property  Law shall be  construed  as provided in those  sections
(except as provided  in Section  22.3).  The  additional  clauses and  covenants
contained in this Security  Instrument  shall afford rights  supplemental to and
not exclusive of the rights conferred by the clauses and covenants  construed by
Section 254 and shall not impair, modify, alter or defeat such rights (except as
provided in Section  22.3),  notwithstanding  that such  additional  clauses and
covenants  may relate to the same  subject  matter or provide for  different  or
additional  rights  in the same or  similar  contingencies  as the  clauses  and
covenants  construed  by Section  254.  The rights of Lender  arising  under the
clauses and covenants  contained in this Security  Instrument shall be separate,
distinct and cumulative and none of them shall be in exclusion of the others. No
act of  Lender  shall be  construed  as an  election  to  proceed  under any one
provision  herein to the exclusion of any other  provision,  anything  herein or
otherwise to the contrary  notwithstanding.  In the event of any inconsistencies
between  the  provisions  of Section  254 and the  provisions  of this  Security
Instrument, the provisions of this Security Instrument shall prevail.

            Section 22.6 [Intentionally deleted.]

            Section 22.7.  MAXIMUM  PRINCIPAL  AMOUNT  SECURED.  Notwithstanding
anything to the contrary  contained  in this  Security  Instrument,  the maximum
amount of principal  indebtedness  secured by this Security  Instrument or which
under any contingency may be secured by this Security  Instrument is $3,500,000,
plus amounts  that Lender  expends  after a  declaration  of default  under this
Security Instrument to the extent that any such amounts shall constitute payment
of (i)  taxes,  charges  or  assessments  that  may be  imposed  by law upon the
Property;  (ii)  premiums on insurance  policies  covering the  Property;  (iii)
expenses incurred in upholding the lien of this Security  Instrument,  including
the  expenses  of any  litigation  to  prosecute  or defend  the rights and lien
created by this  Security  Instrument;  and (iv) any  amount,  cost or charge to
which  Lender  becomes  subrogated,   upon  payment,  whether  under  recognized
principles of law or equity, or under express statutory authority;  then, and in
each such event, such amounts or costs, together with interest thereon, shall be
added to the Debt and shall be secured by this Security Instrument.

                                      -25-

            IN WITNESS  WHEREOF,  THIS SECURITY  INSTRUMENT has been executed by
Borrower the day and year first above written.

                                             MONTICELLO RACEWAY MANAGEMENT, INC.

                                             By: /s/ Cliff Ehrlich
                                                 ---------------------
                                             Name:
                                             Title:

STATE OF NEW YORK )
                  ) ss:
COUNTY OF SULLIVAN)

            On the  23rd  day of  October  in  the  year  2003  before  me,  the
undersigned,  personally appeared Cliff Ehrlich personally known to me or proved
to me on the basis of satisfactory  evidence to be th dividual(s)  whose name(s)
is(are)  subscribed to the within  instrument and  acknowledged  to me that he/
she/they  executed  the  same  in   his/her/their   capacity(ies),   and  that  by
his/her/their signature(s) on the instrument,  the individual(s),  or the person
upon behalf of which the individual(s) acted, executed the instrument.

/s/ Regina M. Hensley
----------------------------------
Signature amd Office of individual
taking acknowledgment

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