UNITED STATES

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ByRpSYj6nSAfVJjJwlY3AIjcuRqwGO2mlQiXGLqK5BQVCHDim5bzttzOIgLW/HWn We2ihOjKkXqxLWFfB7a4Tg== 0000012779-05-000004.txt : 20050211 0000012779-05-000004.hdr.sgml : 20050211 20050211133543 ACCESSION NUMBER: 0000012779-05-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20041031 FILED AS OF DATE: 20050211 DATE AS OF CHANGE: 20050211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE RIDGE REAL ESTATE CO CENTRAL INDEX KEY: 0000012779 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 240854342 STATE OF INCORPORATION: PA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02844 FILM NUMBER: 05596895 BUSINESS ADDRESS: STREET 1: PO BOX 707 CITY: BLAKESLEE STATE: PA ZIP: 18610 BUSINESS PHONE: 7174438433 MAIL ADDRESS: STREET 1: PO BOX 707 CITY: BLAKESLEE STATE: PA ZIP: 18610 10-K 1 form10k.htm BLUE RIDGE/BIG BOULDER CORP FORM 10K FOR THE PERIOD ENDING OCT. 31, 2004 UNITED STATES

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(X)

ANNUAL REPORTS* PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended October 31, 2004

( )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

0-2844 (Blue Ridge)

Commission File No.

0-2843 (Big Boulder)

BLUE RIDGE REAL ESTATE COMPANY

BIG BOULDER CORPORATION

(exact name of Registrants as specified in their charters)

State or other jurisdiction of incorporation or organization:

Pennsylvania

24-0854342 (Blue Ridge)

I.R.S. Employer Identification Number:

24-0822326 (Big Boulder)

Address of principal executive office:

Blakeslee, Pennsylvania

Zip Code:

18610

Registrants’ telephone number, including area code: 570-443-8433

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, without par value, stated value $.30 per combined share*

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes X

No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (__)

Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2). Yes ___ No _X_

The aggregate market value of common stock, without par value, stated value $.30 per combined share, held by non-affiliates at April 30, 2004 (the last business day of the registrants’ most recently completed second fiscal quarter), was $39,759,697. The market value per share is based upon the per share cost of shares as indicated over the counter on April 30, 2004. There is no established public trading market for the registrants’ stock.

Number of shares outstanding of each of the registrants’ classes of common stock.

Class

Outstanding January 25, 2005

Common Stock, without par value

1,949,130 Shares

stated value $.30 per combined share

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrants’ 2004 Annual Report to Shareholders for the fiscal year ended October 31, 2004 are incorporated by reference into Parts II and IV hereof.

Specified portions of the registrants’ definitive Proxy Statement for the 2004 Annual Meetings of Shareholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report, are incorporated herein by reference.

__________________

*Under a Security Combination Agreement between Blue Ridge Real Estate Company (“Blue Ridge”) and Big Boulder Corporation (“Big Boulder”) (the “Companies”) and under the By-Laws of the Companies, shares of the Companies are combined in unit certificates, each certificate representing the same number of shares of each of the Companies. Shares of each corporation may be transferred only together with an equal number of shares of the other corporation. For this reason, a combined Blue Ridge/Big Boulder Form 10-K is being filed. Except as otherwise indicated, all information applies to both Companies.

BLUE RIDGE REAL ESTATE COMPANY

BIG BOULDER CORPORATION

ANNUAL REPORT ON FORM 10-K

For Fiscal Year Ended October 31, 2004

TABLE OF CONTENTS

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

PART I

Item 1 Business

Item 2 Properties

Item 3 Legal Proceedings

Item 4 Submission of Matters to a Vote of Security Holders

PART II

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

Item 6 Selected Financial Data

Item 7 Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Item 7A Quantitative and Qualitative Disclosures about Market Risk

Item 8 Financial Statements and Supplementary Data

Item 9 Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

Item 9A Controls and Procedures

Item 9B Other Information

PART III

Item 10 Directors and Executive Officers of the Registrants

Item 11 Executive Compensation

Item 12 Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters

Item 13 Certain Relationships and Related Transactions

Item 14 Principal Accountant Fees and Services

PART IV

Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K

For convenience, references in this Annual Report on Form 10-K to “we,” “us,” “our,” and the “Company” mean or relate to Blue Ridge Real Estate Company, Big Boulder Corporation and their subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Annual Report on Form 10-K constitute forward-looking statements.

These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. While we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report on Form 10-K, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future, about which we cannot be certain or even relatively certain. Many factors affect our ability to achieve our objectives and to successfully develop and commercialize our product candidates including:

Borrowing costs, and our ability to generate cash flow to pay interest and scheduled amortization payments as well as our ability to refinance such indebtedness or to sell assets when it comes due;

Our ability to continue to generate sufficient working capital to meet our operating requirements;

Our ability to maintain a good working relationship with our vendors and customers;

The ability of vendors to continue to supply our needs;

Our ability to provide competitive pricing to sell homes;

Actions by our competitors;

Fluctuations in the price of building materials;

Our ability to achieve gross profit margins at which we can be profitable, including margins on services we perform on a fixed price basis;

Our ability to attract and retain qualified personnel in our business;

Our ability to effectively manage our business;

Our ability to obtain and maintain approvals from local, state and federal authorities on regulatory issues;

Our relations with our controlling shareholder, including its continuing willingness to provide financing and other resources;

Pending or new litigation; and

Changes in market demand, weather and/or economic conditions within our local region and nationally.

In addition, you should refer to the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. As a result of these factors, we cannot assure you that the

forward-looking statements in this Annual Report on Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all.

In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. We may not update these forward-looking statements, even though our situation may change in the future.

We qualify all the forward-looking statements contained in this Annual Report on Form 10-K by the foregoing cautionary statements.

PART I

ITEM 1. BUSINESS

Blue Ridge Real Estate Company

Blue Ridge Real Estate Company, Blue Ridge, which was incorporated in Pennsylvania in 1911, is believed to be one of the largest owners of investment property in Northeastern Pennsylvania. It owns 18,689 acres of land which are predominately located in the Pocono Mountains. Of this acreage, 13,951 acres are held for investment and 4,738 are held for development. Income is derived from these lands through leases, selective timbering by third parties, condemnation, sales, and other dispositions. Blue Ridge also owns the Jack Frost Mountain Ski Area, which is leased to Jack Frost Mountain Company, a retail store leased to Wal-Mart, two shopping centers and 9 residential investment properties. The ski area, retail store and shopping centers are more fully described under Item 2.

Jack Frost Mountain Company, a wholly-owned subsidiary of Blue Ridge, was incorporated in Pennsylvania in 1980 and commenced operations on June 1, 1981. It was created to lease and operate the Jack Frost Mountain Ski Area and to provide certain services to other facilities, such as the Snow Ridge resort community, and to operate recreational facilities located within the Jack Frost Mountain tract.

Northeast Land Company, a wholly-owned subsidiary of Blue Ridge, was incorporated in Pennsylvania in 1967. The major assets of the company consist of 101 acres of land in Northeast Pennsylvania. Revenue for Northeast Land Company is derived from managing the rental homes at Snow Ridge, Blue Heron, Laurelwoods and Midlake as resort accommodations, from real estate commissions for the sale of homes at these resort communities, and from Trust and Condo fees for services to these resort communities. Northeast Land Company also receives revenue from a land lease to a Burger King franchise. Northeast Land Company owns 2 residential investment properties.

BRRE Holdings, Inc., a wholly-owned subsidiary of Blue Ridge, was incorporated in Delaware in 1986. It was established for investment purposes.

Boulder Creek Resort Company, a wholly-owned subsidiary of Blue Ridge, was incorporated in Pennsylvania in May of 2003 and commenced operations in November 2003. It is primarily focused

on facilitating land development, expanding our sales division, and marketing our ski resorts, with the ultimate goal of consolidating our branding and marketing us as one resort destination.

Oxbridge Square Shopping Center, LLC and Coursey Commons Shopping Center, LLC are wholly-owned subsidiaries of Blue Ridge and were organized in May 2004. They have no employees and are managed by Kimco Realty Corporation.

Blue Ridge employs 23 full-time employees. Jack Frost Mountain Company, which operates the Jack Frost Mountain Ski Area, has 32 full-time employees and during the skiing season there are approximately 500 additional employees. Northeast Land Company has 13 full-time employees. Boulder Creek Resort Company has four full-time employees.

Big Boulder Corporation

Big Boulder Corporation, Big Boulder, was incorporated in Pennsylvania in 1949. Big Boulder’s major assets are 925 acres of land, which includes a 175-acre lake, the Big Boulder Ski Area, and the Mountain’s Edge Restaurant. Of the 925 acres, 539 acres are held for investment and 386 acres are held for development. The principal source of revenue for Big Boulder is derived from the Big Boulder Ski Area which is leased to Lake Mountain Company.

Lake Mountain Company, a wholly-owned subsidiary of Big Boulder, was incorporated in Pennsylvania in 1983 and commenced operations on June 1, 1983. It was created to lease and operate the Big Boulder Ski Area, and operate the recreational facilities that are located within the Big Boulder Lake tract.

BBC Holdings, Inc., a wholly-owned subsidiary of Big Boulder, was incorporated in Delaware in 1986. It was established for investment purposes.

Big Boulder has no employees. Lake Mountain Company, which operates the Big Boulder Ski Area, no longer has any employees. The Lake Mountain Company’s former employees were merged with the payroll of Jack Frost Mountain Company. During the skiing season, there are approximately 525 additional employees.

Strategy

Since the early 1980’s, we have developed four residential communities in close proximity to our ski area resorts. Our resorts are located in the Pocono Mountains of Pennsylvania, an area which offers year-round regional tourist appeal and a quiet, relaxing vacation environment.

We believe the current and future real estate market in the Pocono Mountains is experiencing, and in the near future will continue to experience, an increase in buyer interest. This interest is partially attributable to current low mortgage interest rates and an uncertain economy that may be facilitating more regional tourist destinations. We expect that the construction of more homes closer to our resorts will result in an increase in skier visits.

We own 19,740 acres of land in Northeastern Pennsylvania. Of our core land holdings, we have designated 5,124 acres as held for development and are moving forward with municipal approvals. Based on independent market studies, we believe that our primary focus should be on single and multi-family dwellings in proximity to our ski area. Additionally, a proposed 18-hole golf course with surrounding resort community is planned for the Jack Frost Mountain ski area. The proposed golf course community will consist of approximately 40% single family homes and 60% multi-family units, as well as golf club amenities and the necessary infrastructure. It is expected that

all of the planned developments will result in approximately 3,700 lots or units. We anticipate that some lots will be subdivided and sold as parcels of land, while others will be developed into single and multi-family housing. We also expect that certain subdivisions may be sold outright in phases to nationally-recognized land developers in order to facilitate the market for housing and to reduce the inherent risk associated with any land development.

Business Segments

We operate in four business segments, which consist of the Ski Operations, Real Estate Management/Rental Operations, Summer Recreational Operations and Land Resource Management segments. Our business segments were determined from our internal organization and management reporting, which are based primarily on differences in services. Financial information about our segments can be found in note 14 to our audited financial statements.

Ski Operations

Ski Operations consist of two ski areas located in the Pocono Mountains of Northeastern Pennsylvania.

Real Estate Management/Rental Operations

Real Estate Management/Rental Operations consists of: investment properties leased to others located in Eastern Pennsylvania, South Carolina, Virginia and Louisiana; revenues derived from the management of investor-owned properties, principally resort homes; recreational club activities and services to the trusts that operate resort residential communities; sales of investment properties; and rental of land and land improvements.

Summer Recreation Operations

Summer Recreation Operations consist of seasonal recreational operating centers located in the Pocono Mountains of Northeastern Pennsylvania, which include the following: Splatter Paintball; Lake Mountain Sports Club; and Summer Music Festivals. As of July 31, 2004, we decided to close two summer operation centers. The Fern Ridge Campground was closed in October 2004. Our decision to close the campground was based on Tobyhanna Township’s decision not to renew future approvals for our existing sewage disposal process. It is management’s position that the cost of connecting the campground to the township’s central sewage system was not cost effective and not in our best interest. We will be exploring different options as to the future use of the campground site which is located in close proximity to Interstate 80 and Route 115 in Blakeslee, Pennsylvan ia. Traxx Motorcross Park closed in November 2004. We believe that this site, which is located next to the Jack Frost Mountain ski area, is a prime location for an additional housing community, which was the driving force behind our decision to close this park.

Land Resource Management

Land Resource Management consists of land sales, land purchases, timbering operations and a construction division. Timbering operations consist of selective timbering on our land holdings. Contracts are entered into for parcels which have had the timber selectively marked. We are devising a long-term plan of managed timbering whereby significant attention is given to protecting the environment and retaining the value of the land. The construction division is responsible for the residential land development activities which include overseeing the construction of single and multi-family homes and development of infrastructure.

Funds expended to date for real estate development in Laurelwoods have been primarily for infrastructure improvements. We are in the initial construction phase for 23 single family homes. Other expenditures for all development projects in the planning phases include fees for architects, engineers, consultants, studies and permits.

Competition

The skiing industry is highly competitive and capital intensive. Our competitors include major ski resorts throughout the United States, Canada and Europe as well as other worldwide recreation resorts, including warm weather resorts and various alternative leisure activities. Locally, we compete with other area ski resorts. There are approximately eight ski areas in close proximity to our resort: Camelback, Blue Mountain, Shawnee, Montage, Eagle Rock, Bear Creek, Alpine Mountain and Elk. We believe that local competition enhances the area and attracts tourists. Our competitive position depends on a number of factors, such as our proximity to population centers, the availability and cost of transportation to and within a resort, natural snowfall, the quality and coverage of snowmaking operations, resort size, the attractiveness of terrain, lift ti cket prices, prevailing weather conditions, the appeal of related services, the quality and the availability of lodging facilities, and resort reputation. Some of our competitors have greater competitive positions and relative ability to withstand adverse developments.

Our Real Estate Management/Rental Operations segment faces competition from similar retail centers that are near our retail properties with respect to the renewal of leases and re-letting of space as leases expire. Any new competitive properties that are developed close to our existing properties may impact our ability to lease space to creditworthy tenants. Increased competition for tenants may require us to make capital improvements to properties that we would not have otherwise planned to make, which could adversely affect our results of operations.

Planned Real Estate Development

During Fiscal 2004, we actively pursued land sales and purchases. In Fiscal 2005, we intend to continue selective sales and purchases of land. These sales are being treated as section 1031 - tax deferred exchanges. We are offering financing to attract new land sale customers. We intend to start construction of single and multi-family units at both ski areas. This is part of a comprehensive plan for our “core land” development. We will continue to generate timbering revenues from selective harvesting of timber.

We plan to develop a golf course and residential communities at Jack Frost Mountain and Big Boulder ski areas. We are currently negotiating with nationally-recognized golf course developers. If we do not develop a golf course at Jack Frost Mountain, we plan to develop residential communities at Jack Frost Mountain and Big Boulder ski areas.

Maintenance

We continue to invest in our ski areas by selectively upgrading on-mountain facilities and guest services, employing targeted marketing strategies to attract customers. We have invested approximately $1 million in capital expenditures during the last fiscal year. We believe our existing resort infrastructure is reasonably well maintained. We use targeted advertising, database marketing and strategic marketing alliances to enhance the image of our resorts and increase regional market share.

Executive Officers of the Registrant

Name and Title	Age	Office Held Since
Patrick M. Flynn Chief Executive Officer	28	2001
Eldon D. Dietterick Executive Vice President/Treasurer	59	2001
Richard T. Frey Vice President	54	2001

All officers of the Registrants serve for a one-year period or until their election at the first meeting of the Board of Directors after the Annual Meeting of Shareholders.

Patrick M. Flynn has served as President and Chief Executive Officer since October 2001. He has served as the Director of Real Estate at Kimco Realty Corporation since May 2001. Prior to joining us, from June 1995 to May 2001, Mr. Flynn was also a consultant at MIT Consulting.

Eldon D. Dietterick was appointed Executive Vice-President and Treasurer in October 2001. He has been employed by Blue Ridge and Big Boulder on a full-time basis since January 1985. Prior to his appointment as Executive Vice-President and Treasurer, Mr. Dietterick served as the Secretary and Treasurer from October 1998 until October 2001.

Richard T. Frey has served as Vice-President of Blue Ridge and Big Boulder since October 2001. From 1992 until October 2001, Mr. Frey was employed as our Director of Food Services at both Jack Frost and Big Boulder ski areas.

ITEM 2. PROPERTIES

Blue Ridge Real Estate Company

The physical properties of Blue Ridge consist of approximately 18,790 acres owned by Blue Ridge and Northeast Land Company. These properties include the Jack Frost Mountain Ski Area, the retail store leased to Wal-Mart, the Oxbridge Square Shopping Center in Richmond Virginia and the Coursey Commons Shopping Center in Baton Rouge, Louisiana, residential investment properties, a sewage treatment facility, corporate headquarters building, and other miscellaneous facilities.

Ski Facilities

The Jack Frost Mountain Ski Area, which has been under lease to Jack Frost Mountain Company since June 1, 1981, is located near White Haven, Carbon County, Pennsylvania, and commenced operations in December 1972. The Jack Frost Mountain Ski Area consists of 21 slopes and trails including a snowboard slope, snow tubing hill, four double chairlifts, two triple chairlifts, one quad chairlift, one dual double chairlift and various buildings, including a Summit Lodge with food service, a cocktail lounge, a ski shop, and a ski rental shop. The total lift capacity per hour is 13,200 skiers. These lifts are in good condition and are operated as needed during the ski season. These facilities are situated on approximately 473 acres owned by Blue Ridge and leased to Jack Frost Mountain Company.

Real Estate Management Operations

On June 1, 2004, Oxbridge Square Shopping Center located in Richmond, Virginia was acquired by Oxbridge Square Shopping Center, LLC, a newly-formed and wholly-owned subsidiary of Blue Ridge Real Estate Company that was formed under the laws of the Commonwealth of Virginia. The center consists of 14.37 acres, with approximately 127,801 square feet. As of October 31, 2004, there were 25 tenants with an occupancy rate of 78%.

On June 23, 2004, Coursey Commons Shopping Center located in East Baton Rouge Parish, Louisiana, was acquired by Coursey Commons Shopping Center, LLC, Coursey Creek, LLC, and Cobble Creek, LLC, all newly-formed and wholly-owned subsidiaries of Blue Ridge Real Estate Company that were formed under the laws of the State of Louisiana. The center consists of 9.43 acres, with approximately 67,755 square feet. As of October 31, 2004, there were 15 tenants with an occupancy rate of 83%.

Blue Ridge owns 18,689 acres of land which are predominately located in the Pocono Mountains. The majority of this property is leased to various hunting clubs. Blue Ridge also owns several cottages in the area that are leased to private individuals. Blue Ridge owns nine residential investment properties located in our various resort communities.

Blue Ridge owns and leases to Jack Frost Mountain Company a sewage treatment facility to serve the resort housing at Jack Frost Mountain.

Blue Ridge also owns The Sports Complex at Jack Frost Mountain, which consists of a swimming pool, fitness trail, tennis courts and accompanying buildings.

Blue Ridge also owns The Stretch, an exclusive member-only fishing club located along a two mile stretch of the Tunkhannock Creek.

Blue Ridge’s Corporate Office Building is located on Route 940 and Mosey Wood Road.

Northeast Land Company owns 101 acres of land located in the Pocono Mountains. Northeast Land Company owns two residential investment properties located in our various resort communities.

Big Boulder Corporation

The physical properties owned by Big Boulder consist of approximately 925 acres located in the Pocono Mountains. The properties include the Big Boulder Ski Area, a sewage treatment facility, the Mountain’s Edge Restaurant and the Big Boulder Lake Club.

Ski Facilities

The Big Boulder Ski Area’s physical properties were leased to Lake Mountain Company on June 1, 1983, and are located in Kidder Township, Carbon County, Pennsylvania. Big Boulder Ski Area commenced operations in 1947. The Big Boulder Ski Area contains 14 slopes and trails, including a snowboard terrain park, snow tubing hill, five double chairlifts, two triple chairlifts, and various buildings, including a base lodge that provides food service, a cocktail lounge, a ski shop and a ski rental service. The total lift capacity per hour is 9,600 skiers. These lifts are in good condition and are operated as needed during the ski season. These facilities are situated on approximately 90 acres owned by Big Boulder.

Real Estate Management Operation

A sewage treatment facility was constructed by Big Boulder Corporation to serve the resort housing within the Big Boulder tract. The facility has the capacity of treating 225,000 gallons per day. Big Boulder Corporation constructed the Mountain’s Edge Restaurant which consists of 8,800 square feet and is located on the east shore of Big Boulder Lake, Kidder Township, Carbon County, Pennsylvania. The facility, which is leased to a private operator, commenced operations in May 1986. The restaurant has dining capacity for 100 patrons.

Big Boulder also owns the Big Boulder Lake Club, which includes a 175-acre lake, swimming pool, tennis courts, boat docks and accompanying buildings.

ITEM 3. LEGAL PROCEEDINGS

We are presently a party to certain lawsuits arising in the ordinary course of our business. We believe that none of our current legal proceedings will be material to our business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to security holders for a vote during the fourth quarter of the fiscal year ended October 31, 2004.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information regarding the market price of and dividends on our common stock is incorporated by reference to the section entitled “Stock and Dividend Information” in our 2004 Annual Report to Shareholders (included in Exhibit 13.1 to this Annual Report on Form 10-K).

Recent Sales of Unregistered Securities

During the fiscal year ended October 31, 2004, we granted stock options to purchase 32,000 shares of our common stock, at a weighted average price of $17.75 per share, to our employees, officers and directors. We filed a registration statement on Form S-8 on September 1, 2004 with the Securities and Exchange Commission to register the shares of our common stock underlying the options. All of such option grants were granted at the then current fair value of our common stock.

We did not employ an underwriter in connection with the issuance of the securities described above. We believe that the issuance of the foregoing securities was exempt from registration under Section 4(2) of the Securities Act as transactions not involving any public offering and such securities having been acquired for investment and not with a view to distribution. All recipients had adequate access to information about us.

ITEM 6. SELECTED FINANCIAL DATA

This information is incorporated by reference to the section entitled “Selected Financial Data” in our 2004 Annual Report to Shareholders (included in Exhibit 13.1 to this Annual Report on Form 10-K).

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information is incorporated by reference to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2004 Annual Report to Shareholders (included in Exhibit 13.1 to this Annual Report on Form 10-K). This information should be read together with our Combined Financial Statements and related footnotes (included in Exhibit 13.1 to this Annual Report on Form 10-K) and the discussion of risk factors below.

RISK FACTORS

Our business faces significant risks. Some of the following risks relate principally to our business and the industry and statutory and regulatory environment in which we operate. Other risks relate principally to the securities markets and ownership of our stock. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

Risks Related to Our Business and Our Industry

Our business is highly seasonal and unfavorable weather conditions can adversely affect our business.

Ski resort operations are highly seasonal. A majority of our revenues are realized during the ski season from late November through the end of March. A significant portion of our ski operations segment revenues and approximately 34% of annual skier visits were generated during the Christmas and Presidents’ Day vacation weeks in the fiscal year ended October 31, 2004.

A high degree of seasonality in our revenues increases the impact of certain events on our operating results. Adverse weather conditions, access route closures, equipment failures, and other developments of even moderate or limited duration occurring during our peak business periods could reduce our revenues. Adverse weather conditions can also increase power and other operating costs associated with snowmaking or could render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. Furthermore, unfavorable weather conditions, regardless of actual skiing conditions, can result in decreased skier visits and the early ski season snow conditions and skier perception of early ski season snow conditions influence the momentum and success of the overall ski season. There is no way for us to predict future weather patterns or the impact that weather patterns may have on the results of operations or visitation.

We depend on a seasonal workforce.

Our mountain and lodging operations are largely dependent on a seasonal workforce. We recruit to fill staffing needs each season. In addition, we manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place. While we do not currently foresee the need to increase seasonal wages to attract employees, we cannot guarantee that such an increase will not be necessary in the future. Increased seasonal wages or an inadequate workforce could have an adverse impact on our results of operations; however, we are unable to predict with any certainty whether such situations will arise or the potential impact on results of operations.

Changes in regional and national economic conditions could adversely affect our results of operations.

The skiing and real estate development industries are cyclical in nature and are particularly vulnerable to shifts in regional and national economic conditions. Skiing and vacation unit rental and ownership are discretionary recreational activities entailing relatively high costs of participation, and any decline in the regional or national economies where we operate could adversely impact our skier visits, real estate sales and revenues. Accordingly, our financial condition, particularly in light of our highly leveraged condition, could be adversely affected by any weakening in the regional or national economy.

We operate in a highly competitive industry which makes maintaining our customer base a difficult task.

The skiing industry is highly competitive and capital intensive. Our competitors include major ski resorts throughout the United States, Canada and Europe as well as other worldwide recreation resorts, including warm weather resorts and various alternative leisure activities. Our competitive position depends on a number of factors, such as our proximity to population centers, the availability and cost of transportation to and within a resort, natural snowfall, the quality and coverage of snowmaking operations, resort size, the attractiveness of terrain, lift ticket prices, prevailing weather conditions, the appeal of related services, the quality and the availability of lodging facilities, and resort reputation. In addition, some of our competitors have greater competitive positions and relative ability to withstand adverse developments. There ca n be no assurance that our competitors will not be successful in capturing a portion of our present or potential customer base.

We are subject to litigation in the ordinary course of business.

We are, from time to time, subject to various legal proceedings and claims, either asserted or unasserted. Any such claims, whether with or without merit, could be time-consuming and expensive to defend and could divert management’s attention and resources. While management believes we have adequate insurance coverage and accrued loss contingencies for all known matters, we cannot assure that the outcome of all current or future litigation will not have a material adverse effect on us.

Our business is subject to heavy environmental and land use regulation.

We are subject to a wide variety of federal, state and local laws and regulations relating to land use and development and to environmental compliance and permitting obligations, including those related to the use, storage, discharge, emission and disposal of hazardous materials. Any failure to comply with these laws could result in capital or operating expenditures or the imposition of severe penalties or restrictions on our operations that could adversely affect our present and future resort operations and real estate development. In addition, these laws and regulations could change in a

manner that materially and adversely affects our ability to conduct our business or to implement desired expansions and improvements to our facilities.

Implementation of existing and future legislation, rulings, standards and interpretations from the FASB or other regulatory bodies could affect the presentation of our financial statements and related disclosures.

Future regulatory requirements could significantly change our current accounting practices and disclosures. Such changes in the presentation of our financial statements and related disclosures could change your interpretation or perception of our financial position and results of operations.

A disruption in our water supply would impact our snowmaking capabilities and impact our operations.

Our operations are heavily dependent upon our ability, under applicable federal, state and local laws, regulations, permits, and licenses or contractual arrangements, to have access to adequate supplies of water with which to make snow and otherwise conduct our operations. There can be no assurance that applicable laws and regulations will not change in a manner that could have an adverse effect on our operations, or that important permits, licenses or agreements will not be cancelled or will be renewed on terms as favorable as the current terms. Any failure to have access to adequate water supplies to support our current operations and anticipated expansion would have a material adverse effect on our financial condition and result of operations.

Terrorist acts upon the United States and acts of war (actual or threatened) could have a material adverse effect on us.

The terrorist acts carried out against the United States on September 11, 2001 have had an adverse effect on the global travel and leisure industry. The war with Iraq and its aftermath also had materially adverse effects. Additional terrorist acts against the United States and the threat of or the actual act of war by or upon the United States could result in further degradation of discretionary travel, upon which our operations are highly dependent. Such degradation could have a material adverse impact on our results of operations.

If we are unable to retain our key executive personnel and hire additional personnel as required, our business and prospects for growth could suffer.

We believe that our operations and future development are dependent upon the continued services of our key executive personnel. Moreover, we believe our future success will depend in large part upon our ability to attract, retain and motivate highly skilled management employees. If one or more members of our management team or other key personnel become unable or unwilling to continue in their present positions and if additional key personnel cannot be hired as needed, our business and prospects for growth could be materially adversely affected.

Competition and market conditions relating to our real estate management operations could adversely affect our operating results.

We face competition from similar retail centers that are near our retail properties with respect to the renewal of leases and re-letting of space as leases expire. Any new competitive properties that are developed close to our existing properties also may impact our ability to lease space to creditworthy tenants. Increased competition for tenants may require us to make capital improvements to properties that we would not have otherwise planned to make. Any unbudgeted capital improvements could

adversely affect our results of operations. Also, to the extent we are unable to renew leases or re-let space as leases expire, it would result in decreased cash flow from tenants and adversely affect our results of operations.

Our retail properties are subject to adverse market conditions such as population trends and changing demographics, income, sales and property tax laws, availability and costs of financing, construction costs and weather conditions that may increase energy costs, any of which could adversely affect our results of operations. If the sales of stores operating at our properties were to decline significantly due to economic conditions, the risk that our tenants will be unable to fulfill the terms of their leases or will enter into bankruptcy may increase. Economic and market conditions have a substantial impact on the performance of our anchor and other tenants and may impact the ability of our tenants to make lease payments and to renew their leases. If, as a result of such tenant difficulties, our properties do not generate sufficient income to meet our operating expenses , including debt service, our results of operations would be adversely affected.

The cyclical nature of the forest products industry could adversely affect our timbering operations.

Our results of operations are affected by the cyclical nature of the forest products industry. Historical prices for logs and wood products have been volatile, and we, like other participants in the forest products industry, have limited direct influence over the time and extent of price changes for logs and wood products. The demand for logs and wood products is affected primarily by the level of new residential construction activity and, to a lesser extent, repair and remodeling activity and other industrial uses. The demand for logs is also affected by the demand for wood chips in the pulp and paper markets. These activities are, in turn, subject to fluctuations due to, among other factors:

•

changes in domestic and international economic conditions;

•

interest rates;

•

population growth and changing demographics; and

•

seasonal weather cycles (e.g., dry summers, wet winters).

Decreases in the level of residential construction activity generally reduce demand for logs and wood products. This results in lower revenues, profits and cash flows in our timbering operations segment. In addition, industry-wide increases in the supply of logs and wood products during favorable price environments can also lead to downward pressure on prices. Timber owners generally increase production volumes for logs and wood products during favorable price environments. Such increased production, however, when coupled with even modest declines in demand for these products in general, could lead to oversupply and lower prices.

Our summer recreation operations are subject to adverse weather conditions and other factors that can adversely affect our business.

Our summer recreation operations involve outdoor activities such as paintball, festivals, boating, swimming and tennis. Because most of our summer attractions involve outdoor activities, attendance is adversely affected by bad weather. Bad weather and forecasts of bad or mixed weather conditions can reduce the number of people who come to visit our summer recreation centers, which negatively affects our revenues. Our summer operation centers compete with water parks and amusement parks and with other types of recreational facilities and forms of entertainment, including movies, sports attractions and vacation travel. Our summer recreation operations are also subject to

factors that affect the recreation and leisure industries generally, such as general economic conditions and changes in consumer spending habits.

Our future growth and real estate development requires additional capital whose availability is not assured.

We intend to make significant investments in our resorts and rental properties to maintain our competitive position. We spent approximately $18,689,878 for the fiscal year ended October 31, 2004, $2,661,513 and $3,149,214 for the fiscal years ended October 31, 2003 and 2002. The capital expenditures for the fiscal year ended October 31, 2004 were primary attributed to the section 1031 tax deferred exchange of the Dreshertown Shopping Center and the subsequent purchase of the Oxbridge Square and Coursey Commons shopping centers. The capital expenditures for the fiscal years ended October 31, 2003 and 2002 were primarily related to our ski operations. We expect to continue making substantial resort capital expenditures and investments in real estate development. We have not yet finalized a budget for the fiscal year 2005; however, at this time, we antici pate capital expenditures will be approximately $1,000,000 for our ski operations and in excess of $5,000,000 for real estate development. Based on the status of several specific real estate projects, we will continue to invest significant amounts in real estate over the next several years. We could finance future expenditures from any of the following sources:

cash flow from operations;

bank borrowings;

public offerings of debt or equity;

private placements of debt or equity;

non-recourse, sale leaseback or other financing; or

some combination of the above.

We might not be able to obtain financing for future expenditures on favorable terms or at all.

Future changes in the real estate market could affect the value of our investments.

We have extensive real estate holdings near our mountain resorts and elsewhere in the United States. The value of our real property and the revenue from related development activities may be adversely affected by a number of factors, including:

national and local economic climate;

local real estate conditions (such as an oversupply of space or a reduction in demand for real estate in an area);

attractiveness of the properties to prospective purchasers and tenants;

competition from other available property or space;

our ability to obtain adequate insurance;

unexpected construction costs or delays;

government regulations and changes in real estate, zoning, land use, environmental or tax laws;

interest rate levels and the availability of financing; and

potential liabilities under environmental and other laws.

We are subject to risks with respect to the development of a golf course at Jack Frost Mountain prior to having firm contracts from builders to purchase any of the residential lots in the surrounding golf course community.

We have completed the design of a golf course and plan to enter into a firm contract for the construction of a golf course at Jack Frost Mountain. While we currently have interest from two nationally-recognized home builders for the development of a surrounding community, we do not have any firm offers from any of the interested builders. If, at the completion of the golf course, we do not have firm contracts with home builders, we may consider developing a portion of the residential community on our own, and possibly in conjunction with the sale of some lots to other builders. There are risks associated with developing a residential community, including potential changes in the real estate market, delays in construction due to adverse weather conditions, changes in the economy and changes in interest rates, which we may be subject to if we develop the golf course prior to ha ving firm contracts with home builders and which could have a material adverse effect on us and our results of operations.

We may be unable to timely comply with the requirements of the Sarbanes-Oxley Act relating to the assessment by us and our independent registered public accounting firm of the effectiveness of our internal controls over financial reporting, which could adversely affect our business.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission, or SEC, adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports on Form 10-K. In addition, the public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. We expect that this requirement will first apply to our annual report on Form 10-K for our fiscal year ending October 31, 2005. If we are unable to conclude that we have effective internal controls over financial reporting or, if our independent auditors are unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporti ng as of October 31, 2005 and future year ends as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities.

We are a small company with limited resources. While we plan to expand our staff, we may encounter substantial difficulty attracting qualified personnel with requisite experience due to the high level of competition for experienced financial professionals. In addition, because our corporate offices are outside a metropolitan area, we may have added difficulty finding qualified professionals to join us. Furthermore, we will have to improve internal controls as they relate to the matters described in the next risk factor. Given the status of our efforts, coupled with the fact that guidance from regulatory authorities in the area of internal controls continues to evolve, substantial uncertainty exists regarding our ability to comply with applicable deadlines.

We have been advised of three material weaknesses as well as two reportable conditions in our financial controls relating to the accuracy and timeliness of our financial reporting.

In connection with the audit of our financial statements for the fiscal year ended October 31, 2004, our auditors communicated to the audit committee of our board of directors two reportable conditions involving our internal financial and disclosure controls. Reportable conditions involve matters coming to the attention of our accountants relating to significant deficiencies in the design or

operation of internal controls that, in their judgment, could adversely affect our ability to initiate, record, process and report financial data consistent with the assertions of management in the financial statements. The reportable conditions related to inadequate controls over processing ski revenue and failing to perform physical inventories over the ski inventory at regular intervals.

The auditors also noted three reportable conditions that they considered to be material weaknesses in our internal controls. A material weakness is defined as a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. The material weaknesses noted by the auditors include their belief that our financial statement closing process does not meet current regulations and standards. These material weaknesses and reportable conditions and the measures we are commencing to remediate the deficiencies are discussed in detail in this rep ort under Item 9A., “Controls and Procedures.” Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Disclosure of material weaknesses could reduce the market’s confidence in our financial statements and affect our stock price.

Risks Related to Our Common Stock

The exercise of outstanding options may dilute your ownership of our common stock.

As of January 25, 2005, options to acquire 63,000 shares of our common stock were outstanding, exercisable at per share prices ranging from $6.75 to $17.75, with a weighted average exercise price of $10.52 and a weighted average remaining contractual life of 4.3 years.

We do not expect to pay dividends on our common stock.

Although we have previously declared and paid dividends on our common stock in the past, we do not anticipate declaring or paying any dividends in the foreseeable future. We plan to retain any future earnings to finance the continued expansion and development of our business. As a result, our dividend policy could depress the market price for our common stock.

We are effectively controlled by Kimco Realty Services, Inc., and other shareholders have little ability to influence our business.

As of January 25, 2005, Kimco Realty Services, Inc., a wholly-owned subsidiary of Kimco Realty Corporation, owned at least 1,012,579 shares, or approximately 52% of our outstanding voting stock. Kimco Realty Services is able to exercise significant control over all matters requiring shareholder approval, including the election of directors and approvals of significant corporate action such as mergers and other business combination transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control over us unless it is supported by Kimco Realty Services. Accordingly, your ability to influence us through voting your shares is very limited.

Michael J. Flynn, the Chairman of our board of directors, is also President, Chief Operating Officer and Vice Chairman of the board of directors of Kimco Realty Corporation. In addition, Patrick M. Flynn, who serves as one of our directors and is our President and Chief Executive Officer, is the Director of Real Estate at Kimco Realty Corporation. Finally, Milton Cooper, who serves as one of

our directors, also serves as Chief Executive Officer and Chairman of the board of directors of Kimco Realty Corporation.

Our common stock is thinly traded. Our stock price may fluctuate more than the stock market as a whole.

As a result of the thin trading market for our stock, its market price may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies. Of the 1,949,130 shares of our common stock outstanding as of January 25, 2005, approximately 48% are beneficially owned by persons other than Kimco Realty Services, our controlling shareholder. Without a larger float, our common stock will be less liquid than the stock of companies with broader public ownership, and, as a result, the trading prices for our common stock may be more volatile. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger.

We will continue to incur increased costs as a result of being a public company subject to the Sarbanes-Oxley Act of 2002 and our management faces challenges in implementing those requirements.

As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, the Commission, has required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of the Sarbanes-Oxley Act and related rules adopted by the Commission, we have created additional board committees and are adopting comprehensive new policies regarding internal controls and disclosure controls and procedures. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur, particularly those relating to implementation of new requirements relating to assessment of internal controls, or the timing of such costs.

Our shareholders may perceive a conflict of interest because we do not currently maintain an independent audit committee.

Our audit committee is made up of three individuals: Eldon D. Dietterick, Patrick M. Flynn and Michael J. Flynn. Mr. Dietterick is our Executive Vice-President and Treasurer. Messrs. Patrick Flynn and Michael Flynn serve as members of our board of directors and are also employed by Kimco Realty Corporation, the parent company of Kimco Realty Services, Inc. Although we are exempt from regulations mandating an independent audit committee, our shareholders may perceive a conflict of interest because of our lack of an independent audit committee.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements, supplementary data and related documents included in this Annual Report on Form 10-K are listed in Item 15(a), Part IV, of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

In connection with the audit of our financial statements for the fiscal year ended October 31, 2004, our auditors identified and reported to the audit committee of our board of directors three material weaknesses and two other matters involving internal control deficiencies considered to be reportable conditions under standards established by the Public Company Accounting Oversight Board (PCAOB). Reportable conditions involve matters coming to the attention of our accountants relating to significant deficiencies in the design or operation of internal controls that, in their judgment, could adversely affect our ability to initiate, record, process and report financial data consistent with the assertions of management in the financial statements. A material weakness is defined as a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

The three material weaknesses identified by our auditors were:

(1) Our financial statement closing process does not satisfy current timing and accuracy regulations and standards relating to reporting financial information. In connection with their audit, our auditors cited certain errors which required additional adjusting journal entries to correct. Our auditors believe that the aggregate of all adjusting journal entries that we recorded were material to the financial statements taken as a whole. The errors identified by our auditors resulted primarily from inadequate reconciliation of certain accounts, insufficient review of accrual and reserve accounts in light of current circumstances, and incorrect application of generally accepted accounting principles related to accounting for income taxes and accounting for real estate development activities.

During Fiscal 2004, we entered into several 1031 tax deferred property exchanges. Some of the errors cited by our auditors resulted from intricate interpretations regarding several of the 1031 tax deferred exchanges for commercial properties. Additionally, errors related to inadequate reconciliation of certain accounts primarily resulted from a timing difference in the posting of mortgage payments made in the month prior to the due date. This is the accounting method employed by the management company of our shopping centers. We are currently working with the management company to reconcile these accounts in accordance with generally accepted accounting principles. We are also actively looking to expand our accounting department to include an individual with a financial background in real estate.

(2) Our system for tracking and reporting costs incurred in connection with land development does not satisfy the requirements of Statement of Financial Accounting Standards No. 67,

Accounting for Costs and Initial Rental Operations of Real Estate Projects, (SFAS 67). More specifically, our auditors believe that we need to develop a system where costs incurred in connection with land development are allocated to sub-divisions, which will enable us to effectively match costs associated with the sale of individual residential units correctly and ensure that management can effectively assess the carrying value of capitalized costs for impairment, should such a condition exist.

We implemented project management software to help us track land development costs on the three levels required under SFAS 67 in response to the recommendations of our auditors. Some reclassifications of previous real estate projects are ongoing.

(3) The accounting department is understaffed.

We are actively looking to expand our accounting department to include an individual with a financial background in real estate.

The reportable conditions related to inadequate controls over processing ski revenue and failing to perform physical inventories over the ski inventory at regular intervals.

The material weaknesses and reportable conditions identified above, if unaddressed, could result in errors in our financial statements.

Management concurred with our auditor’s observations relating to controls over processing ski revenue and performing physical inventories. We have evaluated these areas and are in the process of implementing appropriate internal control improvements.

Our management, with the participation of our President and Executive Vice President/Treasurer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation and the material weaknesses described above, the President and Executive Vice President/Treasurer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not adequate to ensure that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and n o evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We will continue to evaluate the material weaknesses and reportable conditions and will take all necessary action to correct the internal control deficiencies identified. We will also further develop and enhance our internal control policies, procedures, systems and staff to allow us to mitigate the risk that material accounting errors might go undetected and be included in our financial statements. Unless the material weaknesses described above are remedied, there can be no assurance that management will be able to assert that our internal control over financial reporting is effective in the management report required to be included in the annual report on Form 10-K for the year ended

October 31, 2005, pursuant to the rules adopted by the SEC under Section 404 of the Sarbanes-Oxley Act of 2002, when those rules take effect.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

The information required by this item concerning directors is incorporated by reference to our proxy statement to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K or an amendment to this Annual Report on Form 10-K/A.

The information required by this item concerning executive officers is set forth in Part I, Item 1 of this Annual Report on Form 10-K.

Code of Ethics

We have adopted a Code of Ethics that applies to, among others, our principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions. The Code of Ethics is attached hereto as Exhibit 14.1.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our proxy statement to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K or an amendment to this Annual Report on Form 10-K/A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following financial statements of ours, supplementary data and related documents are incorporated by reference to our 2004 Annual Report to Shareholders (included in Exhibit 13.1 to this Annual Report on Form 10-K):

Report of Independent Auditors on Combined Financial Statements, dated January 10, 2005.

Combined Statements of Operations and Earnings Retained in the Business for each of the years ended October 31, 2004, 2003 and 2002.

Combined Balance Sheets as of October 31, 2004 and 2003.

Combined Statements of Cash Flows for each of the years ended October 31, 2004, 2003 and 2002.

Notes to Combined Financial Statements.

Quarterly Financial Information (unaudited).

(a)(2) Financial Statement Schedules

The following is a list of financial statement schedules filed as part of this Annual Report on Form 10-K. The report of Independent Auditors for the financial statement schedule appears on Page 25 of this Form 10-K. All other schedules omitted herein are so omitted because either (1) they are not applicable, (2) the required information is shown in the financial statements, or (3) conditions are present which permit their omission, as set forth in the instructions pertaining to the content of financial statements:

Schedules: III. Real Estate and Accumulated Depreciation

(a)(3) Exhibits, Including Those Incorporated by Reference

The following is a list of Exhibits filed as part of this Annual Report on Form 10-K. Where so indicated by a parenthetical, Exhibits that were previously filed are incorporated by reference. For Exhibits incorporated by reference, the location of the Exhibit in the previous filing is also indicated in parentheses.

Exhibit Number	Description
3.1	Restated Articles of Incorporation of Blue Ridge Real Estate Company
3.2	Restated Articles of Incorporation of Big Boulder Corporation
3.3	Bylaws of Blue Ridge Real Estate Company, as amended through August 12, 1997 (filed January 5, 2005 as Exhibit 3.3 to Form S-1 (File No. 333-121855) and incorporated herein by reference)
3.4	Bylaws of Big Boulder Corporation, as amended through August 12, 1997 (filed January 5, 2005 as Exhibit 3.4 to Form S-1 (File No. 333-121855) and incorporated herein by reference)
4.1	Revised Specimen Unit Certificate Evidencing Shares of Registrants’ Common Stock (filed August 28, 1990 as an Exhibit to Form 10-K and incorporated herein by reference)
4.2	Security Combination Agreement between Blue Ridge Real Estate Company and Big Boulder Corporation (filed September 23, 1967 as Exhibit b-3 to Form 10 and incorporated herein by reference)
10.1	Standby Securities Purchase Agreement, dated as of January 4, 2005, by and among Blue Ridge Real Estate Company, Big Boulder Corporation and Kimco Realty Services, Inc. (filed January 5, 2005 as Exhibit 10.1 to Form 8-K and incorporated herein by reference)
10.2	Construction Line of Credit Mortgage Note, Manufacturers and Traders Trust Company (filed as Exhibit 10.2 to Form S-1 (File No. 333-121855) and incorporated herein by reference)
10.3	First Mortgage, NorthMarq Capital (formerly Principal Mutual), Building leased to Wal-Mart (filed August 26, 1991 as Exhibit 10.1.6 to Form 10-K and incorporated herein by reference)
10.4	LIBOR Term Note, Manufacturer and Traders Trust Company (filed January 29, 2003 as Exhibit 99.13 to Form 10-K and incorporated herein by reference)
10.5	Mortgage, Manufacturer and Traders Trust Company, 187 Midlake Condominiums, Lake Harmony, Carbon County (filed February 13, 2004 as Exhibit 10.6 to Form 10-K and incorporated herein by reference)
10.6	Mortgage, Manufacturer and Traders Trust Company, 240 Midlake Condominiums, Lake Harmony, Carbon County (filed February 13, 2004 as Exhibit 10.8 to Form 10-K and incorporated herein by reference)
10.7	Mortgage, Manufacturer and Traders Trust Company, 366 Laurelwoods, Lake Harmony, Carbon County (filed February 13, 2004 as Exhibit 10.9 to Form 10-K and incorporated herein by reference)
10.8	Mortgage, Manufacturer and Traders Trust Company, 373 Laurelwoods, Lake Harmony, Carbon County (filed February 13, 2004 as Exhibit 10.10 to Form 10-K and incorporated herein by reference)

10.9	Mortgage, Manufacturer and Traders Trust Company, 374 Laurelwoods, Lake Harmony, Carbon County (filed February 13, 2004 as Exhibit 10.11 to Form 10-K and incorporated herein by reference)
10.10	Mortgage, Manufacturer and Traders Trust Company, 251 Snow Ridge Village, White Haven, Carbon County (filed February 13, 2004 as Exhibit 10.15 to Form 10-K and incorporated herein by reference)
10.11	Mortgage, Manufacturer and Traders Trust Company, 241 Snow Ridge Village, White Haven, Carbon County
10.12	Mortgage, Manufacturer and Traders Trust Company, 155 Midlake Condominiums, Lake Harmony, Carbon County
10.13	Mortgage, Manufacturer and Traders Trust Company, 63 Blue Heron Village, Lake Harmony, Carbon County
10.14	Mortgage, Manufacturer and Traders Trust Company, 513 Laurelwoods, Lake Harmony, Carbon County
10.15	Assumption and Release Agreement, Oxbridge Square Shopping Center, Richmond, Virginia
10.16	Certificate of Assumptor, Oxbridge Square Shopping Center, Richmond, Virginia
10.17	Mortgage, JP Morgan Chase Bank, Coursey Commons Shopping Center, Baton Rouge, Louisiana
10.18	Site Development Mortgage Note, Manufacturers and Traders Trust, construction loan for Laurelwoods Infrastructure.
10.19	Demand Note, Manufacturers and Traders Trust for working capital in lieu of Standby Securities Purchase commitment from Kimco Realty Services, Inc.
10.20	Acquisition of Building leased to Wal-Mart (filed August 26, 1991 as Exhibit 10.2.4 to Form 10-K and incorporated herein by reference)
10.21	Lease Agreement with Wal-Mart in Laurens, South Carolina (filed August 29, 1995 as Exhibit 10.3.1 to Form 10-K and incorporated herein by reference)
10.22	Lease Agreement with Wal-Mart Real Estate Business Trust, dated May 30, 2003 (filed as Exhibit 10.12 to Form S-1 (File No. 333-121855) and incorporated herein by reference)
10.23	Lease Agreement with Ukrop’s Supermarkets, Inc., dated November 2, 1979, as amended (filed as Exhibit 10.13 to Form S-1 (File No. 333-121855) and incorporated herein by reference)
10.24*	Form of Amended and Restated Stock Option Agreement (filed January 5, 2005 as Exhibit 10.2 to Form 8-K and incorporated herein by reference)
10.25*	Schedule of Optionees and Material Terms of Amended and Restated Stock Option Agreements (filed January 5, 2005 as Exhibit 10.3 to Form 8-K and incorporated herein by reference)

13.1	Portions of the Companies’ Fiscal 2004 Annual Report to Shareholders incorporated herein by reference
14.1	Code of Ethics
21.1	List of all subsidiaries of the Registrants
23.1	Consent of Parente Randolph
31.1	Certification of principal executive officer of the Companies, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of principal financial officer of the Companies, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of principal executive officer of the Companies, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of principal financial officer of the Companies, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Management or compensatory contract required to be filed pursuant to Item 15(c) of the requirements for Form 10-K reports

Copies of Exhibits are available to Shareholders by contacting Christine A. Liebold, Secretary, Blakeslee, PA 18610. A charge of $.25 per page to cover the Registrants’ expenses will be made.

(b) Reports on Form 8-K

We filed the following Reports on Form 8-K or Form 8-K/A during the last quarter of the fiscal year covered by this report:

1. August 6, 2004 — Item 7 — Financial Statements and Pro Forma Financial Information relating to the Acquisition of Oxbridge Square Shopping Center in Richmond, Virginia.

2. October 6, 2004 — Item 9.01 — Financial Statements and Pro Forma Financial Information relating to the Acquisition of Coursey Commons Shopping Center in Baton Rouge, Louisiana.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

BLUE RIDGE REAL ESTATE COMPANY

BIG BOULDER CORPORATION

By:/s/ Patrick M. Flynn

By: /s/ Eldon D. Dietterick

Patrick M. Flynn

Eldon D. Dietterick

President and Chief

Executive Vice-President and

Executive Officer

Treasurer

Dated: February 11, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrants and in the capacities and on the dates indicated.

Each person in so signing also makes, constitutes and appoints Patrick M. Flynn, President, his true and lawful attorney-in-fact, in his name, place and stead to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.

Signature

Title

Date

/s/ Michael J. Flynn

February 11, 2005

Michael J. Flynn

Chairman of the Board

/s/ Patrick M. Flynn

February 11, 2005

Patrick M. Flynn

President, Chief Executive

Officer and Director

(principal executive officer)

/s/ Eldon D. Dietterick

February 11, 2005

Eldon D. Dietterick

Executive Vice-President and Treasurer

(principal financial and accounting officer)

/s/ Milton Cooper

February 11, 2005

Milton Cooper

Director

/s/ Wolfgang Traber

February 11, 2005

Wolfgang Traber

Director

Report of Independent Registered Public Accounting Firm

On Financial Statement Schedules

To the Shareholders of

Blue Ridge Real Estate Company and

Big Boulder Corporation:

We have audited the combined financial statements of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the “Companies”) as of October 31, 2004 and 2003, and for each of the three years in the period ended October 31, 2004, and have issued our report thereon dated January 27, 2005; such financial statements and report are included in your October 31, 2004 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the combined financial statement schedules of the Companies listed in Item 15. These financial statement schedules are the responsibility of the Companies’ management. Our responsibility is to express an opinion based on our audit. In our opinion, such combined financial statement schedules, when considered in relation to the basic combined financial statements taken as a whole, prese nt fairly in all material respects the information set forth therein.

/s/ Parente Randolph, PC

Wilkes-Barre, Pennsylvania

January 10, 2005, except for

Note 5 and Note 6 paragraph (b), as

to which the date is January 27, 2005

Combined Schedule III

REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 2004

COLUMN A	COLUMN B	COLUMN C	COLUMN D
		Initial Cost to company	Cost Capitalized Subsequent to Acquisition
Description	Encumbrances	Land	Buildings and Improvements	Improvements
Land located in N.E. PA including various improvements		1,867,766	49,915	5,575,561
Corporate Building			282,918	187,989
Building Leased to Others, Eastern PA Exchanged Asset – Shopping Center, Richmond, VA	4,053,000	1,829,327	7,317,310	0
Shopping Center, Baton Rouge, LA	7,700,000	2,208,165	8,861,839	0
Laurens, SC	1,600,000	276,000	1,914,470	0
Other			3,848,616	0
Total	13,353,000	6,184,258	22,275,068	5,763,550

	Column E			Column F
	Gross Amount at which carried at close of Period (1) (2)
	Land	Building Improvements	Total	Accumulated Depreciation
Land located in N.E. PA including various improvements	2,576,275	5,296,111	7,872,386	4,383,944
Corporate Building		496,092	496,092	326,059
Building Leased to Others Eastern PA Exchanged Asset – Shopping Center, Richmond, VA	1,829,327	7,317,310	9,146,637	93,806
Shopping Center, Baton Rouge, LA	2,208,165	8,861,839	11,070,004	66,211
Laurens, SC	276,000	1,914,470	2,190,470	888,100
Other	0	3,848,616	3,848,616	1,485,496
Total	6,889,767	27,734,438	34,624,205	7,243,616

	Column G	Column C	Column D
	Date of Construction	Date Acquired	Life on which Depreciation in latest income Statement is computed
Land located in NE PA including various improvements	Various	Various	5 to 30 Yrs
Corporate Building		1982	10 to 30 Yrs
Buildings leased to others Exchanged Assets Shopping Centers	N/A	Various	5 to 30 Yrs
Laurens, SC	N/A	Various	5 to 30 Yrs
Other	N/A	Various	5 to 30 Yrs

(1) Activity for the fiscal years ended October 31, 2004, October 31, 2003, and October 31, 2002 is as follows:

	10/31/04	10/31/03	10/31/02
Balance at beginning of year	19,388,043	17,975,418	17,890,456
Additions during year:
Improvements	21,538,268	1,693,507	86,115
(Reclassify)	0	0	0
	40,926,311	19,668,925	17,976,571
Deductions during year:
Cost of Real Estate sold	6,302,106	280,882	1,153
Balance at end of year	34,624,205	19,388,043	17,975,418

(2) The aggregate cost for Federal Income Tax purposes at October 31, 2004 is $21,499,656.

(3) Activity for the fiscal years ended October 31, 2004, October 31, 2003, and October 31, 2002 is as follows:

	10/31/04	10/31/03	10/31/02

Balance at beginning of year	9,011,570	8,640,154	8,191,729
Reductions during year:
(Reclassification)	0	0	(13,651)
Current year depreciation	1,505,787	504,807	462,077
Less retirements	(3,273,741)	(133,391)	0
Balance at end of year	7,243,616	9,011,570	8,640,154

EX-3 2 brreartofinc.htm BLUE RIDGE REAL ESTATE COMPANY RESTATED ARTICLES OF INCORPORATION Converted by EDGARwiz

RESTATED ARTICLES OF INCORPORATION

BLUE RIDGE REAL ESTATE COMPANY

Blue Ridge Real Estate Company (the “Corporation”), a corporation existing under the Pennsylvania Business Corporation Law of 1988, as amended (the “BCL”), in compliance with Section 1915 of the BCL, does hereby certify as follows:

The original Articles of Incorporation of the Corporation (the “Initial Articles”) were filed with the Department of State of the Commonwealth of Pennsylvania (the “Department of State”) on August 8, 1911 under the name Blue Ridge Real Estate Corporation.

II.

Amendments to the Initial Articles were filed with the Department of State on the September 9, 1943, September 29, 1955, August 1, 1960, September 23, 1966, September 15, 1967, January 26, 1968, November 13, 1968, September 24, 1976, June 15, 1982, October 15, 1987 and August 15, 1987.

III.

The Corporation was incorporated under the Act of April 29, 1874, entitled “An act to provide for the incorporation and regulations of certain corporations,” as supplemented.

IV.

These Restated Articles of Incorporation shall be effective upon their filing with the Department of State of the Commonwealth of Pennsylvania.

In accordance with the authority contained in Section 1914(c)(4) of the BCL, the Board of Directors of the Corporation, by unanimous consent dated February 10^th, 2005, duly adopted a resolution proposing and declaring advisable the following Restated Articles of Incorporation of the Corporation.

VI.

The Articles of Incorporation of the Corporation, as amended, are hereby restated in their entirety to read as follows:

FIRST:

Corporate Name. The name of the corporation is Blue Ridge Real Estate Company (the “Corporation”).

SECOND:

Registered Office. The address of the registered office of the Corporation in the Commonwealth of Pennsylvania is Moseywood Road at PA Route 940, Star Route, White Haven, Kidder Township, Carbon County, Pennsylvania 18661.

THIRD:

Corporate Purpose. The purpose of the Corporation shall be to own, buy, sell, lease, manage and deal in real estate and real property or any interest therein; to survey, subdivide, plot, improve and develop lands for purposes of retention, sale or lease; to buy, erect,

construct and maintain houses, buildings, structures for retention, sale or lease; to engage generally in the real estate business and such activities as are incident thereto; to furnish non-professional services incident to the handling of injury and damage claims; to engage in the business of contracting and engineering and of providing contracting and engineering services for others; to operate and manage hotels, resorts, recreational areas, houses, buildings and structures, and appurtenant and incidental facilities.

FOURTH:

Corporate Existence. The term of existence of the Corporation shall be perpetual.

FIFTH:

Capital Stock. The authorized capital stock of the Corporation shall consist of 3,000,000 shares of common stock, without par value.

SIXTH:

Directors. The number of directors of the Corporation shall be as provided in the Bylaws of the Corporation.

Section 1. Directors and Officers as Fiduciaries. A director or officer of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his or her duties as a director or officer, including his or her duties as a member of any committee of the Board of Directors upon which he or she may serve, in good faith, in a manner he or she reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his or her duties, a director or officer shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by one or more officers or employees of the Corporation whom the director or officer reasonably believes to be reliable and competent with respect to the matters presented, counsel, public accountants or other persons as to matters that the director or officer reasonably believes to be within the professional or expert competence of such person or a committee of the Board of Directors upon which the director or officer does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director or officer reasonably believes to merit confidence. A director or officer shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause his or her reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or officer of the Corporation or any failure to take any action shall be presumed to be in the best interests of the Corporation.

Section 2. Personal Liability of Directors. A director of the Corporation shall not be personally liable, as such, for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take any action, unless the director has breached or failed to perform the duties of his or her office under these Restated Articles of Incorporation, the Bylaws of the Corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

Section 3. Personal Liability of Officers. An officer of the Corporation shall not be personally liable, as such, to the Corporation or its shareholders for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take any action, unless the officer has breached or failed to perform the duties of his or her office under these Restated Articles of Incorporation, the Bylaws of the Corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

Section 4. Interpretation of Article 6. The provisions of Sections 2 and 3 of this Article 6 shall not apply to the responsibility or liability of a director or officer, as such, pursuant to any criminal statute or for the payment of taxes pursuant to local, state or federal law. The provisions of this Article 6 have been adopted pursuant to the authority of sections 204A(10) and 801 of the Pennsylvania Business Corporation Law, shall be deemed to be a contract with each director or officer of the Corporation who serves as such at any time while this Article is in effect, and such provisions are cumulative of and shall be in addition to and independent of any and all other limitations on the liabilities of directors or officers of the Corporation, as such, or rights of indemnification by the Corporation to which a director or office r of the Corporation may be entitled, whether such limitations or rights arise under or are created by any statute, rule of law, Bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Each person who serves as a director or officer of the Corporation while this Article 6 is in effect shall be deemed to be doing so in reliance on the provisions of this Article. No amendment to or repeal of this Article 6, nor the adoption of any provision of these Restated Articles of Incorporation inconsistent with this Article 6, shall apply to or have any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment, repeal or adoption of an inconsistent provision. In any action, suit or proceeding involving the application of the provisions of this Article 6, the party or parties challenging the right of a director or officer to the benefi ts of this Article 6 shall have the burden of proof.

SEVENTH:

Control Transactions. Subchapter E of Chapter 25 of the Business Corporation Law of 1988, as amended, as codified at 15 Pa. C.S. Sections 2541-2548, shall not be applicable to the Corporation.

IN WITNESS WHEREOF, these Restated Articles of Incorporation have been signed by the Chief Executive Officer of the Corporation this 10^th day of February, 2005.

BLUE RIDGE REAL ESTATE COMPANY

By: /s/ Patrick M. Flynn

Patrick M. Flynn

President and Chief Executive Officer

EX-3 3 bbartofinc.htm BIG BOULDER CORPORATION RESTATED ARTICLES OF INCORPORATION Converted by EDGARwiz

RESTATED ARTICLES OF INCORPORATION

BIG BOULDER CORPORATION

Big Boulder Corporation (the “Corporation”), a corporation existing under the Pennsylvania Business Corporation Law of 1988, as amended (the “BCL”), in compliance with Section 1915 of the BCL, does hereby certify as follows:

The original Articles of Incorporation of the Corporation (the “Initial Articles”) were filed with the Department of State of the Commonwealth of Pennsylvania (the “Department of State”) on May 31, 1949 under the name Lake Harmony Development Company.

II.

Amendments to the Initial Articles were filed with the Department of State on September 29, 1955, September 30, 1959, August 26, 1966, January 26, 1968, November 13, 1968, September 16, 1975, June 15, 1982, October 15, 1987 and August 15, 1997.

III.

The Corporation was incorporated under Article VIII of the Act of the General Assembly of the Commonwealth of Pennsylvania, known as the "Business Corporation Law," approved May 5, 1933.

IV.

These Restated Articles of Incorporation shall be effective upon their filing with the Department of State of the Commonwealth of Pennsylvania.

VI.

The Articles of Incorporation of the Corporation, as amended, are hereby restated in their entirety to read as follows:

FIRST:

Corporate Name. The name of the corporation is Big Boulder Corporation (the “Corporation”).

SECOND:

THIRD:

Corporate Purpose. The purpose of the Corporation is to purchase, take, acquire, hold, improve, develop, manage, maintain, sell, convey, lease as lessor or lessee, assign, mortgage, encumber, exchange, deal and trade in real property or any estate or interest therein of

every name, kind and nature, as principal, and not as agent or broker; and, without limiting in any way the generality of the foregoing, to operate hotels, resorts, recreational areas and such appurtenant and incidental facilities as may be necessary, desirable or appropriate for the accommodation of the public.

FOURTH:

Corporate Existence. The term of existence of the Corporation shall be perpetual.

FIFTH:

Capital Stock. The authorized capital stock of the Corporation shall consist of 3,000,000 shares of common stock, without par value.

SIXTH:

Directors. The Board of Directors of the Corporation shall have the power to make, alter, amend and repeal the Bylaws of the Corporation, subject to the power of the shareholders of the Corporation to change or repeal such Bylaws.

Section 1. Directors and Officers as Fiduciaries. A director or officer of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his or her duties as a director or officer, including his or her duties as a member of any committee of the Board of Directors upon which he or she may serve, in good faith, in a manner he or she reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his or her duties, a director or officer shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by one or more officers or employees of the Corpo ration whom the director or officer reasonably believes to be reliable and competent with respect to the matters presented, counsel, public accountants or other persons as to matters that the director or officer reasonably believes to be within the professional or expert competence of such person or a committee of the Board of Directors upon which the director or officer does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director or officer reasonably believes to merit confidence. A director or officer shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause his or her reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or officer of the Corporation or any failure to take any action shall be presumed to be in the best interests of the Corporation.

damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take any action, unless the officer has breached or failed to perform the duties of his or her office under these Restated Articles of Incorporation, the Bylaws of the Corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

Section 4. Interpretation of Article 6. The provisions of Sections 2 and 3 of this Article 6 shall not apply to the responsibility or liability of a director or officer, as such, pursuant to any criminal statute or for the payment of taxes pursuant to local, state or federal law. The provisions of this Article 6 have been adopted pursuant to the authority of sections 204A(10) and 801 of the Pennsylvania Business Corporation Law, shall be deemed to be a contract with each director or officer of the Corporation who serves as such at any time while this Article is in effect, and such provisions are cumulative of and shall be in addition to and independent of any and all other limitations on the liabilities of directors or officers of the Corporation, as such, or rights of indemnification by the Corporation to which a director or officer of t he Corporation may be entitled, whether such limitations or rights arise under or are created by any statute, rule of law, Bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Each person who serves as a director or officer of the Corporation while this Article 6 is in effect shall be deemed to be doing so in reliance on the provisions of this Article. No amendment to or repeal of this Article 6, nor the adoption of any provision of these Restated Articles of Incorporation inconsistent with this Article 6, shall apply to or have any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment, repeal or adoption of an inconsistent provision. In any action, suit or proceeding involving the application of the provisions of this Article 6, the party or parties challenging the right of a director or officer to the benefits of this Article 6 shall have the burden of proof.

SEVENTH:

Control Transactions. Subchapter E of Chapter 25 of the Business Corporation Law of 1988, as amended, as codified at 15 Pa. C.S. Sections 2541-2548, shall not be applicable to the Corporation.

IN WITNESS WHEREOF, these Restated Articles of Incorporation have been signed by the Chief Executive Officer of the Corporation this 10^th day of February, 2005.

BIG BOULDER CORPORATION

By: /s/ Patrick M. Flynn

Patrick M. Flynn

President and Chief Executive Officer

EX-10 4 exh1011srv241.htm M & T BANK MORTGAGE, SNOW RIDGE 241 M&TBank

M&TBank

Manufacturers and Traders Trust Company

MORTGAGE NOTE

(Actual)

Pennsylvania

December 9, 2004

$180,000.00

BORROWER (Name): BLUE RIDGE REAL ESTATE

(Organizational Structure): Corporation

(State Law organized under): Pennsylvania

(Address of residence/chief executive office): Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0707

LENDER: Manufacturers and Traders Trust Company, a New York banking company, with offices located at One Fountain Plaza, Buffalo, New York 14203 Attn: M&T Real Estate, Inc.

Definitions. The following terms shall have the indicated meanings in this Note:

"Escrow" shall mean the escrow required under the Mortgage for the payment of taxes and/or other charges.

"First Payment Date" shall mean the 1st day of February, 2005.

"Maturity Date" shall mean January 1, 2008.

"Mortgage" shall mean a mortgage dated on or about the date of this Note executed by Borrower, as the same may be amended, modified or replaced from time to time.

"Period of Amortization" is 10 years. This is the approximate number of years needed to result in the Principal Sum being fully paid if amortized over this period (which may be longer than the period from the date of this Note to the Maturity Date).

"Principal Sum" shall mean One Hundred Ninety-Two Thousand Dollars ($192,000.00).

Promise to Pay. For value received, and intending to be legally bound, the undersigned Borrower promises to pay to the order of the Lender at its office identified above in lawful money of the United States and in immediately available funds, the Principal Sum plus interest on the unpaid portion of the Principal Sum, all amounts, if any, required for the Escrow, and all Expenses (defined below).

Interest. The unpaid Principal Sum shall accrue interest at a per annum rate per to:

( x )

5.17

for the first year of the loan, and thereafter, the interest will be reset at a rate negotiated between the Borrower and the Lender, and absent any agreement, interest will accrue at the adjustable rate equal to the Lender's prime rate of interest

( )

______

percentage points above the rate in effect as the rate announced by Lender as its prime rate of interest on the first day of the calendar month containing such day.

( )

______

percentage points above LIBOR for a ( ) one month interest period, ( ) two month interest period, ( ) three month interest period or ( ) six month interest period ("LIBOR Rate"). If no interest period is specified, a one month interest period shall be used. The definition of LIBOR, adjustments to the LIBOR Rate and other provisions relative thereto are contained on Rider B attached hereto and made a part of this Note by this reference.

( )

see Rider C attached hereto and made a part of this Note.

If no rate is specified, interest shall accrue at the Maximum Legal Rate defined below, fixed as of the date of disbursement. Interest will be calculated on the basis of a 360-day year consisting of twelve (12) months with the actual number of days of each month (28, 29, 30 or 31).

Maximum Legal Rate. It is the intent of the Lender and Borrower that in no event shall such interest be payable at a rate in excess of the maximum rate permitted by applicable law (the "Maximum Legal Rate"). Solely to the extent necessary to prevent interest under this Note from exceeding the Maximum Legal Rate, any amount that would be treated as excessive under a final judicial interpretation of applicable law shall be deemed to have been a mistake and automatically canceled and if received by the Lender shall be refunded to Borrower.

Default Rate. After maturity (whether due to the Maturity Date, by acceleration or otherwise), the interest rate on the unpaid Principal Sum shall be increased to three (3) percentage points per year above the otherwise applicable rate per year (the "Default Rate"). Any judgment entered hereon or otherwise in connection with any suit to collect amounts due hereunder shall bear interest at such Default Rate. No failure to impose or delay in imposing the Default Rate shall be construed as a waiver by the Lender of its right to collect, and Borrower's obligation to pay, interest at the Default Rate effective as of the date of maturity (whether due to the Maturity Date, by acceleration or otherwise).

Repayment of Principal and Interest. Borrower shall pay the Principal Sum and interest owing pursuant to this Note to the Lender in installments as follows:

(1)

one installment of interest payable on the date of this Note equal in amount to the interest which will accrue during the period beginning on the date of this Note and ending on the last calendar day of the same month and year;

(2)

consecutive level monthly installments consisting of both principal and interest, each installment being

in the amount of $

1,930.55

, shall become due and payable on the first day of each month commencing on the First Payment Date. If Borrower elects a variable interest rate and there is a change in such interest rate, the remaining consecutive level monthly installments consisting of both principal and interest may be adjusted to reflect such change in the interest rate and absent manifest error, the Lender's determination of the amount of such level monthly installment of principal and interest shall be conclusive; and

One final installment of principal, interest, premiums and Expenses to become due on the Maturity Date and to be equal to the total of the outstanding Principal Sum and all accrued and unpaid interest, Expenses, premiums and all other amounts owing pursuant to this Note and the Mortgage and remaining unpaid. If the Period of Amortization is longer than the period of time from the date of this Note to the Maturity Date, there will be a balloon payment of principal due on the Maturity Date. Absent manifest error, the Lender's determination of the final installment shall be conclusive.

Late Charge. If Borrower fails to pay the whole or any installment of principal or interest owing pursuant to this Note or Escrow payment owing pursuant to the Mortgage within ten (10) days of its due date, Borrower shall immediately pay to the Lender a late charge equal to six percent (6%) of the delinquent amount.

Application of Payments. Payment made with respect to this Note may be applied in any order in the sole discretion of the Lender, but prior to maturity (whether due to the Maturity Date, by acceleration or otherwise), each payment pursuant to this Note shall be applied first to accrued and unpaid interest, next to Principal, next to the Escrow, next to late charges, and finally to Expenses.

Prepayment. Borrower shall have the option of paying the Principal Sum to the Lender in advance of the Maturity Date, in whole or in part, at any time and from time to time upon written notice received by the Lender at least thirty (30) days prior to making such payment; provided, however, that together with such prepayment, Borrower shall pay to the Lender a premium as set forth on Rider A, if any, attached to and made a part of this Note. Upon making any prepayment of the Principal Sum in whole, Borrower shall pay to the Lender all interest and Expenses owing pursuant to this Note and the Mortgage and remaining unpaid. Any partial payment of the Principal Sum shall be applied in inverse order of maturity. In the event the maturity of this Note is accelerated, any tender of payment of the amount necessary to satisfy the entire indebtedness made after maturity shall be expressly deemed a volunta ry prepayment. In such a case, to the extent permitted by law, the Lender shall be entitled to the amount necessary to satisfy the entire indebtedness, plus the appropriate prepayment premium calculated in accordance with Rider A. No prepayment premium shall apply if the principal amount of this Note is $50,000 or less and is secured by a mortgage on Pennsylvania real property containing two or less residential units or on which two or fewer residential units are to be built (including obligations on a residential condominium unit).

Business Purpose. Borrower warrants that the indebtedness evidenced by this Note is for a business purpose.

Events of Default; Acceleration. This Note is secured by the Mortgage and is entitled to the benefits thereof. An Event of Default under the Mortgage is an Event of Default under this Note. The maturity of this Note shall be accelerated and all amounts under this Note shall become immediately due and payable without any notice, demand, presentment or protest of any kind (each of which is waived by Borrower) (a) automatically, if Borrower or Mortgagor commences any bankruptcy or insolvency proceeding, if voluntary, and upon the lapse of 45 days without dismissal if involuntary; (b) at the sole option of the Lender, upon or at any time or from time to time after the occurrence or existence of an Event of Default and the passage of any applicable grace period; and (c) upon the Maturity Date. After maturity (whether due to the Maturity Date, by acceleration or otherwise), interest on the outstanding Principal Sum shall continue to accrue and be payable at the applicable rate and the Lender's acceptance of any partial payment shall not affect that all amounts under this Note are due and payable in full.

Expenses. Borrower shall pay to the Lender on demand each cost and expense (including, but not limited to, the reasonable fees and disbursements of counsel to the Lender, whether internal or external and whether retained for advice, litigation or any other purpose) incurred by the Lender or its agents either directly or indirectly in connection with this Note including, without limitation, endeavoring to (1) collect any amount owing pursuant to this Note or negotiate or document a workout or restructuring; (2) enforce or realize upon any guaranty, endorsement or other assurance, any collateral or other security, or any subordination, directly or indirectly securing or otherwise directly or indirectly applicable in any such amount; or (3) preserve or exercise any right or remedy of the Lender pursuant to this Note (the "Expenses").

Right of Setoff. Upon maturity (whether due to the Maturity Date, by acceleration or otherwise) or the occurrence of an Event of Default, the Lender shall have the right to set off against the amounts owing under this Note any property held in a deposit or other account with the Lender or any of its affiliates or otherwise owing by the Lender or any of its affiliates in any capacity to Borrower or Mortgagor. Such set-off shall be deemed to have been exercised immediately at the time the Lender or such affiliate elect to do so.

Miscellaneous. This Note contains the entire agreement between the Lender and Borrower with respect to the loan it evidences and supersedes every course of dealing, other conduct, oral agreement and representation previously made by the Lender with respect thereto. All rights and remedies of the Lender under applicable law, the Mortgage, this Note or any document in connection with the transaction contemplated hereby or amendment thereof are cumulative and not exclusive. No single, partial or delayed exercise by the Lender of any right or remedy shall preclude the subsequent exercise by the Lender at anytime of any right or remedy of the Lender without notice. No waiver or amendment of any provision of this Note shall be effective unless made specifically in writing by the Lender. No course of dealing or other conduct, no oral agreement or representation made by the Lender, and no usage of trade , shall operate as a waiver of any right or remedy of the Lender. Borrower agrees that in any legal proceeding, a copy of this Note kept in the Lender's course of business may be admitted into evidence as an original. This Note is a binding obligation enforceable against Borrower and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns. If a court deems any provision of this Note invalid, the remainder of the Note shall remain in effect. Section headings are for convenience only. Singular number includes plural and neuter gender includes masculine and feminine as appropriate.

Notices.

Any demand or notice hereunder or under any applicable law pertaining hereto shall be in writing and duly given if delivered to Borrower (at its address on the Lender's records) or to the Lender (at the address on page one and separately to the Lender officer responsible for Borrower's relationship with the Lender). Such notice or demand shall be deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an official depository maintained by the United States Post Office for the collection of mail or one (1) business day after delivery to a nationally recognized overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this or any other agreement between Borrower and the Lende r.

Joint and Several. If there is more than one Borrower, each of them shall be jointly and severally liable for all amounts and obligations which become due under this Note and the term "Borrower" shall include each as well as all of them.

Governing Law; Jurisdiction. This Note has been delivered to and accepted by the Lender and will be deemed to be made in the Commonwealth of Pennsylvania. This Note will be interpreted in accordance with the laws of the Commonwealth of Pennsylvania excluding its conflict of laws rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE COMMONWEALTH OF PENNSYLVANIA IN A COUNTY OR JUDICIAL DISTRICT WHERE THE LENDER MAINTAINS A BRANCH AND CONSENTS THAT THE LENDER MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER'S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT THE LENDER FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY OTHER C OUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Lender and Borrower. Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Note.

Waiver of Jury Trial. BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE LENDER MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. BORROWER ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

Power to Confess Judgment. BORROWER HEREBY EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD, AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER, TO APPEAR FOR BORROWER AND, WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, AGAINST BORROWER IN FAVOR OF THE LENDER OR ANY HOLDER HEREOF FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED INTEREST AND ALL OTHER AMOUNTS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF THE GREATER OF TEN PERCENT (10%) OF SUCH PRINCIPAL AND INTEREST OR $1,000 ADDED AS A REASONABLE ATTORNEY'S FEE, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. INTEREST ON A NY SUCH JUDGMENT SHALL ACCRUE AT THE DEFAULT RATE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LENDER SHALL ELECT UNTIL SUCH TIME AS THE LENDER SHALL HAVE RECEIVED PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS.

Replacement Note. This Note is given in replacement of and in substitution for, but not in payment of, a note dated ____,
_____________ 19____/20___, in the original principal amount of $issued by Borrower (or_{_____________________})to the Lender (or its predecessor in interest), as the same may have been amended from time to time.

Preauthorized Transfers from Deposit Account. If a deposit number is provided in the following blank, Borrower hereby authorizes the Lender to debit Borrower's deposit account # _______________________ with the Lender automatically for the full amount of each payment which becomes due under this Note.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this Note, including the Confession of Judgment, Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by counsel as necessary or appropriate.

BLUE RIDGE REAL ESTATE COMPANY

TAX ID/SS #

24-0854342

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA

)

: SS.

COUNTY OF CARBON

)

On the 9th day of December, in the year 2004, before me, the undersigned, a Notary Public in and for said Commonwealth, personally appeared ELDON D. DIETTERICK, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

/s/ Eric D. Hanna

Notary Public

COMMONWEAI:I'H OF PENNSYLVANIA

Notarial Seal Eric D. Hanna. Notary Public

Tobyhanna Twp., Monroe County

My Commission Expires Jan. 31, 2005

Member, Pennsylvania Association of Notaries

M&T Bank

Manufacturers and Traders Trust Company

RIDER A TO
MORTGAGE NOTE
(Yield Maintenance)

Rider A to Mortgage Note dated

December 9, 2004

in the Original Principal Amount of $

180,000.00

and Executed by

Blue Ridge Real Estate Company

Prepayment Premium. During the term of this Note, Borrower shall have the option of paying the Principal Sum to the Lender in advance of the Maturity Date, in whole or in part, at any time and from time to time upon written notice received by the Lender at least thirty (30) days prior to making such prepayment; provided, however, that together with such prepayment, Borrower shall pay to the Lender as consideration of the privilege of making such prepayment, an amount equal to the present value of the difference between (i) the amount of interest that would have accrued on the Principal sum during the remaining term of the Note, at the interest rate set forth in Note in effect on the date of prepayment and (ii) the amount of interest that would have accrued on the Principal Sum during the remaining term of the Note at the Current Market Rate.

Upon making any prepayment of the Principal Sum in whole, Borrower shall pay to the Lender all interest and Expense owing pursuant to this Note and remaining unpaid. Each partial prepayment of the Principal Sum shall be applied in inverse order of maturity . In the event the Maturity Date of this Note is accelerated following an Event of Default, any tender of payment of the amount necessary to satisfy the entire indebtedness made after such Event of Default shall be expressly deemed a voluntary prepayment. In such a case, to the extent permitted by law, the Lender shall be entitled to the amount necessary to satisfy the entire indebtedness, plus the appropriate prepayment premium calculated in accordance with this Rider.

"Current Market Rate" shall mean the most recent yield on United States Treasury Obligations adjusted to a constant maturity having a term most nearly corresponding to the term remaining from the date of prepayment to the Maturity Date, in effect two (2) business days prior to the prepayment date as published by the Board of Governors of the Federal Reserve system in the Federal reserve Statistical Release H.15 (519), or by such other quoting service, index or commonly available source utilized by Manufacturers and Traders Trust Company.

"Present Value" calculations shall use the Current Market Rate as the discount rate and shall be calculated as if each installment of the Principal Sum had been made during the remaining term of the Note.

BLUE RIDGE REAL ESTATE COMPANY

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

EX-10 5 exh1012ml155.htm M & T BANK MORTGAGE, MIDLAKE 155 M&TBank

M&TBank

Manufacturers and Traders Trust Company

MORTGAGE NOTE

(Actual)

Pennsylvania

December 9, 2004

$160,000.00

BORROWER (Name): BLUE RIDGE REAL ESTATE

(Organizational Structure): Corporation

(State Law organized under): Pennsylvania

(Address of residence/chief executive office): Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0707

LENDER: Manufacturers and Traders Trust Company, a New York banking company, with offices located at One Fountain Plaza, Buffalo, New York 14203 Attn: M&T Real Estate, Inc.

Definitions. The following terms shall have the indicated meanings in this Note:

"Escrow" shall mean the escrow required under the Mortgage for the payment of taxes and/or other charges.

"First Payment Date" shall mean the 1st day of February, 2005.

"Maturity Date" shall mean January 1, 2008.

"Mortgage" shall mean a mortgage dated on or about the date of this Note executed by Borrower, as the same may be amended, modified or replaced from time to time.

"Principal Sum" shall mean One Hundred Ninety-Two Thousand Dollars ($192,000.00).

Interest. The unpaid Principal Sum shall accrue interest at a per annum rate per to:

( x )

5.17

( )

______

percentage points above the rate in effect as the rate announced by Lender as its prime rate of interest on the first day of the calendar month containing such day.

( )

______

( )

see Rider C attached hereto and made a part of this Note.

Repayment of Principal and Interest. Borrower shall pay the Principal Sum and interest owing pursuant to this Note to the Lender in installments as follows:

(1)

(2)

consecutive level monthly installments consisting of both principal and interest, each installment being

in the amount of $

1,716.04

Business Purpose. Borrower warrants that the indebtedness evidenced by this Note is for a business purpose.

Notices.

BLUE RIDGE REAL ESTATE COMPANY

TAX ID/SS #

24-0854342

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA

)

: SS.

COUNTY OF CARBON

)

/s/ Eric D. Hanna

Notary Public

COMMONWEAI:I'H OF PENNSYLVANIA

Notarial Seal Eric D. Hanna. Notary Public

Tobyhanna Twp., Monroe County

My Commission Expires Jan. 31, 2005

Member, Pennsylvania Association of Notaries

M&T Bank

Manufacturers and Traders Trust Company

RIDER A TO
MORTGAGE NOTE
(Yield Maintenance)

Rider A to Mortgage Note dated

December 9, 2004

in the Original Principal Amount of $

160,000.00

and Executed by

Blue Ridge Real Estate Company

BLUE RIDGE REAL ESTATE COMPANY

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

EX-10 6 exh1013bh63.htm M & T BANK MORTGAGE, BLUE HERON 63 M&TBank

M&TBank

Manufacturers and Traders Trust Company

MORTGAGE NOTE

(Actual)

Pennsylvania

December 9, 2004

$132,000.00

BORROWER (Name): BLUE RIDGE REAL ESTATE

(Organizational Structure): Corporation

(State Law organized under): Pennsylvania

(Address of residence/chief executive office): Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0707

LENDER: Manufacturers and Traders Trust Company, a New York banking company, with offices located at One Fountain Plaza, Buffalo, New York 14203 Attn: M&T Real Estate, Inc.

Definitions. The following terms shall have the indicated meanings in this Note:

"Escrow" shall mean the escrow required under the Mortgage for the payment of taxes and/or other charges.

"First Payment Date" shall mean the 1st day of February, 2005.

"Maturity Date" shall mean January 1, 2008.

"Mortgage" shall mean a mortgage dated on or about the date of this Note executed by Borrower, as the same may be amended, modified or replaced from time to time.

"Principal Sum" shall mean One Hundred Ninety-Two Thousand Dollars ($192,000.00).

Interest. The unpaid Principal Sum shall accrue interest at a per annum rate per to:

( x )

5.17

( )

______

percentage points above the rate in effect as the rate announced by Lender as its prime rate of interest on the first day of the calendar month containing such day.

( )

______

( )

see Rider C attached hereto and made a part of this Note.

Repayment of Principal and Interest. Borrower shall pay the Principal Sum and interest owing pursuant to this Note to the Lender in installments as follows:

(1)

(2)

consecutive level monthly installments consisting of both principal and interest, each installment being

in the amount of $

1,415.73

Business Purpose. Borrower warrants that the indebtedness evidenced by this Note is for a business purpose.

Notices.

BLUE RIDGE REAL ESTATE COMPANY

TAX ID/SS #

24-0854342

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA

)

: SS.

COUNTY OF CARBON

)

/s/ Eric D. Hanna

Notary Public

COMMONWEAI:I'H OF PENNSYLVANIA

Notarial Seal Eric D. Hanna. Notary Public

Tobyhanna Twp., Monroe County

My Commission Expires Jan. 31, 2005

Member, Pennsylvania Association of Notaries

M&T Bank

Manufacturers and Traders Trust Company

RIDER A TO
MORTGAGE NOTE
(Yield Maintenance)

Rider A to Mortgage Note dated

December 9, 2004

in the Original Principal Amount of $

132,000.00

and Executed by

Blue Ridge Real Estate Company

BLUE RIDGE REAL ESTATE COMPANY

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

EX-10 7 exh1014lw513.htm M & T BANK MORTGAGE, LAURELWOODS 513 Converted by EDGARwiz

M&TBank

Manufacturers and Traders Trust Company

MORTGAGE NOTE

(Actual)

Pennsylvania

December 9, 2004

$192,000.00

BORROWER (Name): BLUE RIDGE REAL ESTATE

(Organizational Structure): Corporation

(State Law organized under): Pennsylvania

(Address of residence/chief executive office): Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0707

LENDER: Manufacturers and Traders Trust Company, a New York banking company, with offices located at One Fountain Plaza, Buffalo, New York 14203 Attn: M&T Real Estate, Inc.

Definitions. The following terms shall have the indicated meanings in this Note:

"Escrow" shall mean the escrow required under the Mortgage for the payment of taxes and/or other charges.

"First Payment Date" shall mean the 1st day of February, 2005.

"Maturity Date" shall mean January 1, 2008.

"Mortgage" shall mean a mortgage dated on or about the date of this Note executed by Borrower, as the same may be amended, modified or replaced from time to time.

"Principal Sum" shall mean One Hundred Ninety-Two Thousand Dollars ($192,000.00).

Interest. The unpaid Principal Sum shall accrue interest at a per annum rate per to:

( x )

5.17

( )

______

percentage points above the rate in effect as the rate announced by Lender as its prime rate of interest on the first day of the calendar month containing such day.

( )

______

( )

see Rider C attached hereto and made a part of this Note.

Repayment of Principal and Interest. Borrower shall pay the Principal Sum and interest owing pursuant to this Note to the Lender in installments as follows:

(1)

(2)

consecutive level monthly installments consisting of both principal and interest, each installment being

in the amount of $

2,059.25

Business Purpose. Borrower warrants that the indebtedness evidenced by this Note is for a business purpose.

Notices.

BLUE RIDGE REAL ESTATE COMPANY

TAX ID/SS #

24-0854342

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA

)

: SS.

COUNTY OF CARBON

)

/s/ Eric D. Hanna

Notary Public

COMMONWEAI:I'H OF PENNSYLVANIA

Notarial Seal Eric D. Hanna. Notary Public

Tobyhanna Twp., Monroe County

My Commission Expires Jan. 31, 2005

Member, Pennsylvania Association of Notaries

M&T Bank

Manufacturers and Traders Trust Company

RIDER A TO
MORTGAGE NOTE
(Yield Maintenance)

Rider A to Mortgage Note dated

December 9, 2004

in the Original Principal Amount of $

192,000.00

and Executed by

Blue Ridge Real Estate Company

BLUE RIDGE REAL ESTATE COMPANY

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President and Treasurer

EX-10 8 exh1015oxbassumptnandrelease.htm OXBRIDGE SHOPPING CTR ASSUMPTION AND RELEASE Converted by EDGARwiz

This instrument prepared by and when recorded, return to: Kilpatrick Stockton LLP Hearst Tower, Suite 2500 214 North Tryon Street Charlotte, North Carolina 28202 Attn: Jonathan J. Nugent, Esq.

ASSUMPTION AND RELEASE AGREEMENT

THIS ASSUMPTION AND RELEASE AGREEMENT ("Agreement") is made effective as of the 1^stday of June, 2004, by and among OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership (the "Original Borrower"), OXBRIDGE SQUARE SHOPPING CENTER, LLC, a Virginia limited liability company (the "Assumptor") and LASALLE NATIONAL BANK, as Trustee under that certain Pooling and Servicing Agreement ("PSA") dated as of August l, 1998 for the holders of GMAC Commercial Mortgage Securities, Inc. Pass-Through Certificates Series 1998-C2 ("Noteholder").

RECITALS:

Original Borrower executed and delivered to the order of LAUREATE REALTY SERVICES, INC., a South Carolina corporation ("Lender") a certain Promissory Note dated June 2, 1998 (together with all addenda, modifications, amendments, riders, exhibits and supplements thereto, the "Note"), in the stated principal amount of $4,517,500.00 which Note evidences a loan ("Loan") made by Lender to Original Borrower. To secure the repayment of the Note, the Original Borrower, among other things, executed and delivered a Deed of Trust and Security Agreement dated June 2, 1998 (together with all addenda, modifications, amendments, riders, exhibits and supplements thereto, the "Security Instrument"), recorded in the Office of the Circuit Court of Chesterfield County, Virginia on June 2, 1998, in Book 3293 at Page 228, together with an Assignment of Rents dated June 2, 1998, and recorded in the same records at Book 3293, Page 278, that grants a lien on certain property described on Exhibit A attached hereto and incorporated herein by this reference and more particularly described in the Security Instrument (the "Premises"). The Original Borrower is liable for the payment and performance of all of the Original Borrower's obligations under the Note, the Security Instrument (together with all addenda, modifications, amendments, riders, exhibits and supplements, thereto) and all other documents evidencing, securing, guaranteeing or otherwise pertaining to the Loan (together with all addenda, modifications, amendments, riders, exhibits and supplements thereto, the "Loan Documents"), including, without limitation, those documents listed on Exhibit B attached to this Agreement and incorporated herein by this reference as though fully set fort h herein. The term New Loan Documents for the purposes of this Agreement shall include the Hazardous Materials Indemnity Agreement, the Guaranty and the Assignment of Management Agreement (each as hereinafter defined).

Each of the Loan Documents has been duly assigned or endorsed to Noteholder.

Noteholder as the holder of the Note and beneficiary under the Security Instrument has been asked to consent to the transfer of the Premises to the Assumptor (the "Transfer") and the assumption by the Assumptor of the obligations of the Original Borrower under the Loan Documents (the "Assumption"). Provided, however, Assumptor shall not assume the Guaranty of Recourse Obligations of Borrower, the Environmental Indemnity Agreement and the Conditional Assignment of Management Agreement and Subordination of Management Fees, each dated June 2, 1998. Assumptor shall execute and deliver to Noteholder

that certain Guaranty, Hazardous Materials Indemnity Agreement and Assignment of Management Agreement dated of even date herewith.

Noteholder has agreed to consent to the Transfer and Assumption subject to the terms and conditions stated below.

Section 3.08 of the PSA authorizes GMAC Commercial Mortgage Corporation, as master servicer ("Master Servicer"), on behalf of the Noteholder, under certain terms and conditions to waive the due on sale clause and facilitate the Transfer and Assumption, and the Master Servicer has elected to do so on the terms and conditions set forth in this Agreement. Master Servicer's execution and delivery of this Agreement is binding upon the Noteholder pursuant to the PSA. Laureate Capital LLC ("Laureate") executes this Agreement on behalf of Master Servicer, as Sub-Servicer.

AGREEMENT:

In consideration of the foregoing and the mutual covenants and promises set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Noteholder, Original Borrower and Assumptor agree as follows:

Incorporation of Recitals.

The foregoing recitals are incorporated herein as a substantive, contractual part of this Agreement.

Assumption of Obligation. The Assumptor agrees to and does hereby assume all of the payment and performance obligations of the Original Borrower set forth in the Note, the Security Instrument and the other Loan Documents, except that Assumptor shall not assume all of the obligations of the Original Borrower set forth in the Guaranty of Recourse Obligations of Borrower, the Environmental Indemnity Agreement and the Conditional Assignment of Management Agreement and Subordination of Management Fees, each dated June 2, 1998, but shall instead execute and deliver to Noteholder that certain Guaranty, Hazardous Materials Indemnity Agreement and Assignment of Management Agreement dated of even date herewith, in accordance with their respective terms and conditions, as the same may be modified by this Agreement, including without limitation, payment of all sums due and payable under the Note. The Assumptor further agrees to abide by and be bound by all of the terms of the Loan Documents, all as though each of the Loan Documents had been made, executed and delivered by the Assumptor. The provisions of the Loan Documents are incorporated herein by this reference, as if fully set forth herein. The Assumptor acknowledges and agrees that any reference to the Borrower in the Loan Documents shall be deemed to refer to the Assumptor. The Assumptor hereby adopts, ratifies and confirms as of the date hereof all of the representations, warranties and covenants of Original Borrower contained in the Loan Documents, in connection with the Loan, as if the Assumptor was the Original Borrower named in the Loan Documents. In addition to the foregoing, Assumptor has executed and delivered to Noteholder that certain Hazardous Materials Indemnity Agreement (the "Hazardous Substances Indemnity").

Original Borrower's Acknowledgments Representations and Warranties. The Original Borrower acknowledges, represents and warrants to Noteholder as of the date of this Agreement noting that the June 1, 2004 payment has not been made that:

(a)

The Note has an unpaid principal balance as of the date of this Agreement, of $4,061,165.23 and prior to default bears interest at the rate of seven and four tenths percent (7.40%) per annum, subject to adjustment as set forth in the Loan Agreement. There is presently a balance of $0.00 in the tax escrow account, a balance of $11,094.75 in the insurance escrow account and a balance of $39,499.38 in the reserves escrow account, maintained by Noteholder in connection with the Loan. Contemporaneously herewith, Original Borrower has transferred and assigned to Assumptor all right, title and interest of Original Borrower in and to such tax, insurance and reserve escrow accounts.

(b)

The Note requires that monthly payments of principal and interest in the amount of $33,090.64 be made on or before the first day of each month, continuing to June 1, 2023, if not sooner accelerated or paid.

(c)

The Security Instrument is a valid first lien on the Premises for the full unpaid principal amount of the Loan and all other amounts as stated in the Loan Documents.

(d)

There are no defenses, offsets or counterclaims to the Note, the Security Instrument or the other Loan Documents.

(e)

There are no defaults by the Original Borrower under the provisions of the Note, the Security Instrument or the other Loan Documents, nor are there any conditions which with the giving of notice or the passage of time or both may constitute a default by the Original Borrower under the provisions of the Note, the Security Instrument or the other Loan Documents.

(f)

All provisions of the Note, the Security Instrument and the other Loan Documents are valid, in full force and effect and enforceable in accordance with their terms.

(g)

There are no subordinate liens of any kind covering or relating to the Premises other than those created or permitted by the Security Agreement and Loan Documents, nor are there any mechanics liens or liens for unpaid taxes or assessments encumbering the Premises, nor has notice of a lien or notice of intent to file a lien been received.

The Original Borrower understands and intends that Noteholder and Assumptor will rely upon the acknowledgments, representations and warranties contained herein.

Assumptor's Representations and Warranties. The Assumptor represents and warrants to Noteholder as of the date of this Agreement that the Assumptor has no knowledge that any of the representations made by the Original Borrower in paragraph 3 above are not true and correct. The Assumptor understands and intends that Noteholder will rely on the representations and warranties contained herein.

Consent to Transfer and Assumption and Noteholder Agreements. Noteholder hereby consents to the Transfer and to the Assumption, subject to the terms and conditions set forth in this Agreement. Noteholder's consent to the Transfer of the Premises to the Assumptor

and Noteholder's consent to the Assumption, are not intended to be and shall not be construed as a consent to any subsequent transfer or assumption which requires the Noteholder's consent pursuant to the terms of the Loan Documents. Noteholder represents and warrants as of the date of this Agreement, that the Noteholder has no actual direct knowledge that there are any existing monetary Events of Default under the Loan Documents. However, Noteholder is not waiving and does not hereby waive any existing defaults if any in fact exist and nothing herein is intended to be nor shall it be construed to be a waiver of any existing defaults, material or immaterial, which may in fact exist.The parties to this Agreement hereby acknowledge and agree that a breach of the acknowledgements, representations and warranties made by any of the parties shall not in any way constitu te a defense or give rise to any defense or right of offset, abatement, diminution or rescission as between Noteholder and any other party. As used in this paragraph, "actual knowledge" means the actual state of mind of the person or persons directly responsible for the processing of the Noteholder's consent to the Transfer and does not include any implied, constructive or imputed knowledge.

Assumption by the Assumptor. Assumptor has executed and delivered to Noteholder that certain Guaranty dated of even date herewith (the "Guaranty") and that certain Hazardous Materials Indemnity Agreement dated of even date herewith. Notwithstanding the foregoing, Assumptor's liability under the Guaranty and Hazardous Materials Indemnity Agreement shall be limited to those matters that relate to, or are based upon events occurring in the period commencing on or after the date hereof.

Release of Original Borrower. In reliance on the Original Borrower's and the Assumptor's acknowledgments, representations and warranties in this Agreement and in consideration for releases contained in Paragraph 12 of this Agreement, Noteholder releases the Original Borrower from its obligations under the Loan Documents, provided that the Original Borrower is not released from any liability pursuant to this Agreement, or the provisions of the Environmental Materials Indemnity Agreement dated June 2, 1998, from Borrower for the Original Lender's benefit for any liability that relates to, or is based upon events occurring in, the period prior to the date hereof regardless of when any environmental hazard or other condition giving rise to any such liability thereunder is discovered. If any material element of the representations and warranties contained herein as the same relate to the Original Borrower is false as of the date of this Agreement or in the event the Original Borrower takes or causes any other party hereto (other than Noteholder) to take any actions which are in contradiction with the provisions of Paragraph 12 of this Agreement, then the release set forth in this Paragraph 7 shall be deemed canceled effective as of the date of this Agreement and the Original Borrower shall remain obligated under the Loan Documents as though there had been no such release.

No Impairment of Lien. Nothing set forth herein shall affect the priority or extent of the lien of the Security Instrument or any of the other Loan Documents, nor, except as expressly set forth herein, release or change the liability of any party who may now be or after the date of this Agreement may become liable, primarily or secondarily, under the Loan Documents. Except as expressly modified hereby, the Note, the Security Instrument, the Loan Agreement and the other Loan Documents remain unchanged, are hereby ratified and reaffirmed in all respects and shall remain in full force and effect and this Agreement shall have no effect on the priority or validity of the liens, operation and effect of the Security Instrument and the other

Loan Documents, all of which are incorporated herein by this reference. Nothing herein shall be construed to constitute a novation of the Loan or of any of the Loan Documents.

Costs. The Assumptor agrees to pay all fees and costs (including reasonable attorneys' fees) incurred by Noteholder in connection with Noteholder's consent to and approval of the Transfer of the Premises and the assumption fee equal to 1.0% of the outstanding principal balance of the Loan or $4,061,165.23 which is required to be paid by the Noteholder in consideration of the consent to the Transfer and to the Assumption.

10.

Financial Information. The Assumptor represents and warrants to Noteholder that all financial information and information regarding the management capability of the Assumptor provided to Noteholder was true and correct as of the date provided to Noteholder and remains materially true and correct as of the date of this Agreement.

11.

Addresses. Assumptor's address for notice hereunder and under the Loan Documents is:

Oxbridge Square Shopping Center, LLC c/o Kimco Realty Corporation
3333 New Hyde Park Road
New Hyde Park, New York 11042 Attention: Legal Department
Facsimile: 516-869-7256

with a copy to:

Blue Ridge Real Estate Company Post Office Box 707
Blakeslee, Pennsylvania 18610 Attn: Patrick Flynn, President Facsimile: 570.443.4709

12.

Complete Release. Assumptor and Original Borrower hereby jointly and severally, unconditionally and irrevocably release and forever discharge Lender, Noteholder, Laureate and Master Servicer, and their respective successors, assigns, agents, directors, officers, employees, and attorneys, and each current or substitute trustee, if any, under the Security Instrument (collectively, the "Indemnitees") from all Claims, as defined below. Original Borrower agrees to indemnify Indemnitees, and defend and hold them harmless from any and all claims, losses, causes of action, costs and expenses of every kind or character incurred by or asserted against Indemnitees in connection with the Claims, the Transfer or the breach by Original Borrower of the Loan Documents, as amended herein, but only to the extent that such claims, losses, causes of a ction, costs and expenses arise out of or are in any way connected with or result from the acts, actions or omissions of Original Borrower. Assumptor agrees to indemnify Indemnitees, and defend and hold them harmless from any and all claims, losses, causes of action, costs and expenses of every kind or character incurred by or asserted against Indemnitees in connection with the Claims, the Transfer or the breach by Assumptor of the Loan Documents, as amended herein, but only to the extent that such claims, losses, causes of action,

costs and expenses arise out of or are in any way connected with or result from the acts, actions or omissions of Assumptor.

As used in this Agreement, the term "Claims" shall mean any and all possible claims, demands, actions, fees, costs, expenses and liabilities whatsoever, known or unknown, at law or in equity, originating in whole or in part, on or before the date of this Agreement, which the Original Borrower or any of its partners, limited partners, members, officers, directors, shareholders, agents or employees, may now or hereafter have against the Indemnitees, and irrespective of whether any such Claims arise out of contract, tort, violation of laws, or regulations, or otherwise, arising out of or relating to the Loan or any of the Loan Documents, including, without limitation, any contracting for, charging, taking, reserving, collecting or receiving interest in excess of the highest 1 awful r ate applicable t hereto and any loss, cost or damage, of any kind or character, a rising out of or in any way connected with or in any way resulting from the acts, actions or omissions of Indemnitees, including any requirement that the Loan Documents be modified as a condition to the transactions contemplated by this Agreement, any charging, collecting or contracting for prepayment premiums, transfer fees, or assumption fees, any breach of fiduciary commitment, undue influence, duress, economic coercion, violation of any federal or state securities or Blue Sky laws or regulations, conflict of interest, bad faith, malpractice, violations of the Racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental or emotional distress, tortuous interference with contractual relations, tortuous interference with corporate governance or prospective business advance, breach of contract, deceptive trade practices, libel, slander, conspiracy or any claim for wrongfully accelerating the Note or wrongfully attempting to foreclose on any collateral relating to the Note but in each case only to the extent permitted by applicable law. Original Borrower and Assumptor agree that Noteholder has no fiduciary or similar obligations to any of such parties and that their relationship is strictly that of creditor and debtor. This release is accepted by Noteholder pursuant to this Agreement and shall not be construed as an admission of liability on the part of any party hereto. Original Borrower and Assumptor hereby represent and warrant that they are the current legal and beneficial owners of all Claims, if any, released hereby and have not assigned, pledged or contracted to assign or pledge any such Claims to any other person.

13.

Usury. It is expressly stipulated and agreed to be the intent of all of the parties hereto at all times to comply with the applicable law governing the maximum rate or amount of interest payable on or in connection with the Note and the Loan (or applicable United States federal law to the extent that it permits Noteholder to contract for, charge, take, reserve or receive a greater amount of interest payable on or in connection with the Note and the Loan than under applicable law). If the applicable law is ever judicially interpreted so as to render usurious any amount called for under the Note or under the Security Instrument, this Agreement or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Loan, or if Original Borrower or Assumptor having paid any interest in excess of that permitted by law, then it is the express intent of all of the parties that all excess amounts theretofore collected by Noteholder or Lender be credited to the then outstanding principal balance of the Note (or, if the Note has been or would thereby be paid in full, any surplus refunded to Original Borrower or Assumptor), and the provisions of the Note, this Agreement, the Security Instrument and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new

documents, so as to comply with such applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate the maturity of the Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Noteholder does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender or Noteholder for the use, forbearance or detention of the indebtedness evidenced by the Note or other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread through the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the applicable usury ceiling. Notwithstanding a ny provision contained in the Note, the Security Instrument, this Agreement or in any of the other Loan Documents, as amended herein, that permits the compounding of interest, including, without limitation, any provision by which any of the accrued interest is added to the principal amount of the Note, the total amount of interest that Original Borrower or Assumptor is obligated to pay and Noteholder is entitled to receive with respect to the Loan shall not exceed the amount calculated on a simple (i.e., non-compounded) interest basis at the maximum rate allowed by applicable law on principal amounts actually advanced to or for the account of Original Borrower or Assumptor, including all current and prior advances and any advances made pursuant to the Security Instrument, this Agreement or the other Loan Documents, as amended herein (including, but not limited to, the payment of taxes, insurance premiums and the like). The provisions of the Note and the other Loan Documents limiting the amount of interest wh ich may be contracted for, charged or received on the indebtedness evidenced thereby and dealing with the rights and duties of the parties with respect to the charging or receiving of interest in excess of the maximum rate, are hereby incorporated in this Agreement by reference as though fully set forth herein. To the extent permitted by law, the Original Borrower and the Assumptor hereby waive and release all claims and defenses based upon usury in connection with the execution and delivery of the Note and the other Loan Documents and the borrowing of the funds represented by the Loan.

14. Miscellaneous.

(a)

This Agreement shall be construed according to and governed by the laws of the jurisdiction(s) which are specified by the Security Instrument. In the event the Security Instrument does not specifically state what jurisdictions laws govern, this Agreement shall be construed according to and governed by the laws in which the Premises is located without regard to its conflicts of law principles.

(b)

If any provision of this Agreement is adjudicated to be invalid, illegal or unenforceable, in whole or in part, it will be deemed omitted to that extent and all other provisions of this Agreement will remain in full force and effect.

(c)

No change or modification of this Agreement shall be valid unless the same is in writing and signed by all parties hereto.

(d)

The captions contained in this Agreement are for convenience of reference only and in no event define, describe or limit the scope or intent of this Agreement or any of the provisions or terms hereof.

(e)

This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and permitted assigns.

(f)

This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart.

(g) THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

(h)

THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS AS SET FORTH IN SECTION 12 HEREOF.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]

ORIGINAL BORROWER:

OXBRIDGE SQUARE LIMITED PARTNERSHIP

By: /s/ James N. Plotkin (SEAL)

Name: James N. Plotkin

Title: General Partner

[SIGNATURES CONTINUE ON THE NEXT PAGE]

[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]

NOTEHOLDER:

LASALLE NATIONAL BANK AS TRUSTEE FOR THE HOLDERS OF GMAC COMMERCIAL MORTGAGE SECURITIES, INC. MORTGAGE PASS-THROUGH CERTIFICATES SERIES 1998-C2

By:

GMAC Commercial Mortgage Corporation as Master Servicer

By: Laureate Capital LLC as Sub Servicer

By: /s/ Mark A. Hill

Name: Mark A. Hill

Title: Senior Vice President

[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]

ORIGINAL BORROWER:

OXBRIDGE SQUARE LIMITED PARTNERSHIP

By: /s/ James N. Plotkin

(SEAL)

Name: James N. Plotkin

Title: General Partner

[SIGNATURES CONTINUE ON THE NEXT PAGE]

~~CITY~~/COMMONWEALTH OF VIRGINIA

~~CITY~~/COUNTY OF HENRICO

I, the undersigned, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N. Plotkin, whose name as General Partner of Oxbridge Square Limited Partnership, a VIRGINIA limited partnership, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Oxbridge Square Limited Partnership.

GIVEN under my hand and seal this 1ST day of JUNE, 2004.

[NOTARY SEAL]

/s/ Janet K. Henry

NOTARY PUBLIC

My Commission expires: 2-28-07

~~CITY~~/COMMONWEALTH OF VIRGINIA

~~CITY~~/COUNTY OF HENRICO

I, the undersigned, a Notary Public in and for the jurisdiction aforesaid, do hereby certify James N. Plotkin, whose name as General Partner of Oxbridge Square Limited Partnership, a VIRGINIA limited partnership, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Oxbridge Square Limited Partnership.

GIVEN under my hand and seal this 1ST day of JUNE, 2004.

[NOTARY SEAL]

/s/ Janet K. Henry

NOTARY PUBLIC

My Commission expires: 2-28-07

STATE OF NORTH CAROLINA

COUNTY OF MECKLENBURG

I, the undersigned, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Mark A. Hill, whose name as Senior Vice President of Laureate Capital as Sole Servicer for GMAC Commercial Mortgage Corporation as Master Servicer for LaSalle National Bank as Trustee for the Holders of GMAC Commercial Mortgage Securities, Inc. Mortgage Pass-Through Certificates Series 1998-C2 is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of LaSalle National Bank.

GIVEN under my hand and seal this 1ST day of JUNE, 2004. ,

[NOTARY SEAL]

/s/ Catherine E. Fogelman

NOTARY PUBLIC

My Commission expires: 7/13/04

EXHIBIT A - LEGAL DESCRIPTION OF THE PREMISES

(Legal Description) BOOK 3293 PAGE 287

ALL that certain lot, piece or parcel of real estate together with improvements thereon and appurtenances thereto belonging, lying and being in Midlothian District, Chesterfield County, Virginia, containing in the aggregate 14.3691 acres, more or less, and more particularly described as follows:

Commencing at a monument found where the east line of Courthouse Road meets the south line of Hull Street Road; thence continuing along the south line of Hull street Road N67°23' 11"E a distance of 163.07 feet to a rod found, the point of beginning; Thence along the south line of Hull Street Road N67°9'51"E a distance of 102.51 feet to a rod set;

Thence N71°17'45"E a distance of 133.26 feet to a rod set;
Thence N67°49'41"E a distance of 341.03 feet to a rod set;
Thence S80°12'49"E a distance of 45.33 feet to a rod set on the west line of Oxbridge Road as relocated;

Thence continuing along the west line of Oxbridge Road as relocated S22°11'39"E a distance of 324.39 feet to a R.R. spike found;

Thence along a curve to the right having a radius of 300.00 feet, a chord bearing of S08°44'27"W, a chord of 308.44 feet and a length of 323.95 feet to a rod found;

Thence along a curve to the left having a radius of 430.00, feet., a chord bearing of S26°00'39"W, a chord of 203.17 feet and a length of 205.11 feet to a rod found;

Thence departing the west line of Oxbridge Road as relocated S67°48'21"W a distance of 578.47 feet to a rod found;

Thence N83°23'11"W a distance of 153.35 feet to a rod found; Thence S07°31'21"W a distance of 96.98 feet to a R.R. spike found;

Thence S28°42'43"W a distance of 81.36 feet to a rod set on the east line of Courthouse Road;

Thence continuing along the east line of Courthouse Road
N57°10^'31"W, a distance of 49.34 feet to a rod set;
Thence N06°36'07" a distance of 451.48 feet to a rod set;
Thence N83°22'38"W a distance of 5.64 feet to a rod set;
Thence N09°20'59"E a distance of 10.81 feet to a monument found;

Thence N05⁰35^'20"E a distance of 162.96 feet to a monument found;

Thence N07°59'01"W a distance of 16-95 feet to a rod set;

BOOK 3293 PAGE 288

Thence departing the east line of Courthouse Road N67°48'21"E a distance of 237.75 feet to a rod found;

Thence N19°06'09"W a distance of 210.00 feet to the point of beginning, containing 625,917 square feet or 14.3691 acres.

Being the same real estate leased to Oxbridge Square Limited Partnership, a Virginia limited partnership, by Memorandum of Lease from Aetna Life Insurance Company, dated October 20, 1981, recorded October 30, 1981, in the Clerk's office, Circuit Court, Chesterfield County, Virginia, in Deed Book 1567, page 645.

AND ALSO BEING the same real estate conveyed to Aetna Life Insurance Company a Connecticut corporation, by deed from Oxbridge Square Limited Partnership, a Virginia limited partnership, dated October 20, 1981, recorded October 20, 1981, in the Clerk's office, Circuit Court, Chesterfield County, Virginia, in Deed Book 1567, page 640.

VIRGINIA:

IN THE CLERK'S. OFFICE OF THE CIRCUIT COURT OF CHESTERFIELD COUNTY, THE 2 DAY OF JUN 1998. THIS DEED WAS PRESENTED
AND WITH THE CERTIFICATE .... , ADMI TTED TO

RECORD AT 14:25 O'CLOCK THE TAX IMPOSED BY SECTION 58.1-802 IN THE AMOUNT OF

$.00HAS BEEN PAID.

TESTE: JUDY L. WORTHINGTON, CLERK

EXHIBIT B LOAN DOCUMENTS

Promissory Note dated June 2, 1998 made by the Original Borrower and payable to the Lender, in the stated principal amount of $4,517,500.00 (together with all addenda, modifications, amendments, riders, exhibits and supplements thereto, the "Note").

Deed of Trust and Security Agreement dated June 2, 1998 made by the Original Borrower to Trustee for the benefit of the Lender (together with all addenda, modifications, amendments, riders, exhibits and supplements thereto, the “Security Instrument") recorded in the Office of the Circuit Court of Chesterfield County, Virginia on June 2, 1998, in Book 3293 at Page 228.

Assignment of Leases and Rents dated June 2, 1998 made by the Original Borrower for the benefit of the Lender (together will all addenda, modifications, amendments, riders, exhibits and supplements thereto, the "Assignment of Leases and Rents"), recorded in the Office of the Circuit Court of Chesterfield County, Virginia on June 2, 1998, in Book 3293 at Page 278.

EXHIBIT B-1

PROMISSORY NOTE

$4,517,500.00

June 2 1998

FOR VALUE RECEIVED OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, as maker, having its principal place of business at 7113 Staples Mill Road, P.O. Box 9462, Richmond, Virginia 23226, Attn: James N. Plotkin ("Borrower"), hereby unconditionally promises to pay to the order of LAUREATE REALTY SERVICES, INC., a South Carolina corporation, having an address at 227 West Trade Street, Suit \0, Charlotte, North Carolina 28202, Attn: Julie Johnson ("Lender"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of Four Million Five Hundred Seventeen Thousand Five Hundred and No/100 Dollars ($4,517,500.00), in lawful money of the Unitec~''St~t9,_\ America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (defined below), and to be paid in installments as provided herein.

CERTAIN DEFINED TERMS

As used herein the following terms shall have the meanings set forth below:

(a)

"Applicable Interest Rate" shall mean an interest rate equal to 7.40% per annum.

(b)

"Constant Monthly Payment" shall mean a payment equal to $33,090.64.

(c)

"Loan" shall mean the loan evidenced by this Note.

(d)

"Loan Documents" shall mean this Note, the Security Instrument, and any other documents or instruments which now or shall hereafter wholly or partially secure or guarantee payment of this Note or which have otherwise been executed by Borrower and/or any other person in connection with the Loan.

(e)

"Lockout Period Expiration Date" shall mean the tenth (10th) anniversary of (i) the date hereof, if this Note is dated as of the first day of a calendar month; or (ii) otherwise, the first day of the next succeeding calendar month after the date hereof.

"Maturity Date" shall mean June 1, 2023.

(g)

"Monthly Payment Date" shall mean the first day of each calendar month prior to the Maturity Date commencing on (i) the first day of the next succeeding calendar month after the date hereof if this Note is dated as of the first day of a month; or (ii) the first day of the second succeeding calendar month after the date hereof if this Note is dated as of a date other than the first day of a month.

(h)

"Security Instrument" shall mean the Deed of Trust and Security Agreement dated the date hereof in the principal sum of Four Million Five Hundred Seventeen Thousand Five Hundred and No/100 Dollars ($4,517,500.00) given by Borrower to (or for the benefit of) Lender covering the leasehold estate of Borrower in certain premises located in Chesterfield County, State of Virginia, and other property, as more particularly described therein (collectively, the "Property").

PAYMENT TERMS

(a)

If this Note is dated as of a date other than the first day of a calendar month, a payment shall be due from Borrower to Lender on the date hereof on account of all interest scheduled to accrue on the principal sum from and after the date hereof through and including the last day of the current calendar month. The Constant Monthly Payment shall be due from Borrower to Lender on each Monthly Payment Date, with each Constant Monthly Payment to be applied as follows: (i) first, to the payment of interest which has accrued during the preceding calendar month computed at the Applicable Interest Rate, and (ii) the balance toward the reduction of the principal sum. The balance of the principal sum and all interest thereon shall be due and payable on the Maturity Date. Interest on the principal sum of this Note shall be calculated on the basis of a 360-_day y ear based on twelve (12) thirty (30) day months except that interest due and payable for a period o^f less than a full month shall be calculated by multiplying the actual number of days elapsed in such period by a daily rate based on said 360-day year.

(b)

Unless payments are made in the required amount in immediately available funds at the place where this Note is payable, remittances in payment of all or any part of the Debt (defined below) shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where this 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.

DEFAULT AND ACCELERATION

(a)

The whole of the principal sum of this Note, (b) interest, default interest, late charges and other sums, as provided in this Note, the Security Instrument or the other Loan Documents, (c) all other monies agreed or provided to be paid by Borrower in this Note, the Security Instrument or the other Loan Documents, (d) all sums advanced pursuant to the Security Instrument to protect and preserve the Property (defined below) and the lien and the security interest created thereby, and (e) all sums advanced and costs and expenses incurred by Lender in connection with the Debt (defined below) 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 (all the sums referred to in (a) through (e) above shall c ollectively be referred to as the "Debt") shall become immediately due and payable at the option of Lender if any payment required in this Note prior to the Maturity Date is not paid prior to the expiration of any applicable notice and grace periods, herein or under the terms of the Security Instrument or any of the other Loan Documents (collectively, an "Event of Default"). For the purposes of this Note, provided Borrower is paying a specific amount due under the Loan Documents by direct electronic transfer, Borrower shall be entitled to receive five (5) days written notice of non-payment default as it concerns that specific payment.

DEFAULT INTEREST

Borrower does hereby agree that upon the occurrence of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at a rate (the "Default Rate") equal to (i) the greater of (a) the Applicable Interest Rate plus three percent (3%) and (b) the Prime Rate (as hereinafter defined) plus four percent (4%) or (ii) the maximum interest rate that Borrower may by law pay, whichever is lower. If the Event of Default is a monetary default, the Default Rate shall be computed from the occurrence of the Event of Default until the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full. If the Event of Default is a non-monetary default, the Default Rate shall be computed from the date of receipt of notice of said Event of Default until the earlier of the date upon which the Event of Default is cured or the date

upon which the Debt is paid in full. Interest calculated at the Default Rate shall be added to the Debt, and shall be deemed secured by the Security Instrument. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default.

The "Prime Rate" shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the Prime Rate. If more than one Prime Rate is published in The Wall Street Journal for a day, the average of the Prime Rates shall be used, and such average shall be rounded up to the nearest one-quarter of one percent (.25%). If The Wall Street Journal ceases to publish the "Prime Rate", the Lender shall select an equivalent publication that publishes such "Prime Rate", and if such prime rates are no longer generally published or are limited, regulated or administered by a governmental or quasi-governm ental body, then Lender shall select a comparable interest rate index.

5. PREPAYMENT

Borrower shall not have the right or privilege to prepay all or any portion of the unpaid principal balance of this Note until the Lockout Period Expiration Date. From and after the Lockout Period Expiration Date, provided no Event of Default exists, the principal balance of this Note may be prepaid, in whole but not in part, upon: (i) not less than 30 days and not more than 60 days prior written notice (the "Prepayment Notice") to Lender specifying the scheduled payment date on which prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued and unpaid interest on the outstanding principal balance of this Note to and including the Prepayment Date together with a payment of all interest which would have accrued on the principal balance of this Note to and including the first day of the calendar month immediately following the Prepayment Date, if suc h prepayment occurs on a date which is not the first day of a calendar month (the "Shortfall Interest Payment"); (iii) payment of all other sums then due under this Note, the Security Instrument and the other Loan Documents and (iv) if the Prepayment Date occurs prior to the date which is six (6) months prior to the Maturity Date, payment of a prepayment consideration (the "Prepayment Consideration") in an amount equal to the greater of: (A) one (1%) percent of the principal amount of this Note being prepaid; or (B) the present value of a series of payments each equal to thePayment Differential (hereinafter defined) and payable on each Monthly Payment Date over the remaining original term of this Note and on the Maturity Date discounted at the Reinvestment Yield (hereinafter defined) for the number of months remaining from the Prepayment Date to each such Monthly Payment Date and the Maturity Date. The term "Reinvestment Yield" as used herein shall be equal to the le sser of (a) the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the Debt, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is 14 days prior to the Prepayment Date set forth in the Prepayment Notice (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. The term "Payment Differential" as used herein shall be equal to (x) the Applicable Interest Rate minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the principal sum outstanding on such Prepayment Date after application of the Constant Monthly Payment (if any) due on such Prepayment Date, provided that the Payment Differential shall in no event be less than zero. In no event, however, shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury obligations or otherwise. Lender shall notify Borrower of the amount, and the basis of determination, of the required Prepayment Consideration. If a Prepayment Notice is given by Borrower to Lender pursuant to this Article 5, the principal balance of this Note and the other sums required under this Article shall be due and payable on the Prepayment Date.

Lender shall not be obligated to accept any prepayment of the principal balance of this Note unless it is accompanied by all sums due in connection therewith. Notwithstanding anything contained

herein to the contrary, provided no Event of Default exists, no Prepayment Consideration shall be due in connection with a complete or partial prepayment resulting from the application of insurance proceeds or condemnation awards pursuant to Sections 3.2 and 3.5 of the Security Instrument. In the event of any permitted partial prepayment of the principal balance of this Note, the amount of principal prepaid (but not including any Prepayment Consideration or interest) shall be applied to the principal last due under this Note and shall not release Borrower from the obligation to pay the Constant Monthly Payments next becoming due under this Note and the Constant Monthly Payment shall not be adjusted or recalculated as a result of such partial prepayment.

If a Default Prepayment (defined herein) occurs prior to the date which is six (6) months prior to the Maturity Date, Borrower shall pay to Lender the entire Debt, including, without limitation, the Prepayment Consideration.

For purposes of this Note, the term "Default Prepayment" shall mean a prepayment of the principal amount of this Note made during the continuance of any Event of Default or after an acceleration of the Maturity Date under any circumstances, including, without limitation, a prepayment occurring in connection with reinstatement of the Security Instrument provided by statute under foreclosure proceedings or exercise of a power of sale, any statutory right of redemption exercised by Borrower or any other party having a statutory right to redeem or prevent foreclosure, any sale in foreclosure or under exercise of a power of sale or other

Notwithstanding any provision of this Article S to the contrary, Lender may require Borrower, in lieu of a prepayment as contemplated in the first paragraph of this Article S, to deliver to Lender the Defeasance Collateral (hereinafter defined) in the manner contemplated herein. After Lender's receipt of the Prepayment Notice, Lender shall,' if it so elects, advise Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be required^, ⁱn which event Borrower shall be entitled to a release of the Property (hereinafter defined) from the lien of the Security Instrument and any liens created by the other Loan Documents upon satisfaction of the following:

Lender shall have received written confirmation from the rating agencies that have rated the REMIC "real estate mortgage investment conduit" (defined in Section 860D of the Internal Revenue Code of 1986, as amended from time to time or any successor statute (the "Code"))

("REMIC") related to the Securities (as defined in the Security Instrument) that such substitution of Defeasance Collateral will not result in a downgrade, withdrawal or qualification of the ratings then assigned to any of the Securities: provided, however, that in the event that Lender or its agent is unable to obtain such confirmation, the Lender or its agent shall so advise Borrower and Borrower will then be subject to the other provisions of this Article S set forth above;

II.

all accrued and unpaid interest and all other sums due under this Note, the Security Instrument and other Loan Documents up to the date of the delivery of the Defeasance Collateral (the "Release Date"), including, without limitation, all costs and expenses incurred by Lender or its agents in connection with such release (including, without limitation, the review of the proposed Defeasance Collateral and the preparation of the Defeasance Security Agreement (as hereinafter defined) and the related documentation), shall be fully paid by Borrower on or before the Release Date; and

III. Borrower shall have delivered to Lender on or before the Release Date:

(a)

a pledge and security agreement, in form and substance satisfactory to Lender in its sole discretion, creating a first priority security interest in favor of Lender in the Defeasance Collateral (the

"Defeasance Security Agreement"), which shall provide, among other things, that any excess received by Lender from the Defeasance Collateral over the amount payable by Borrower hereunder shall be refunded to Borrower promptly following each Monthly Payment Date and the Maturity Date;

(b)

direct, non-callable obligations of the United States of America that provide for payments prior, but as close as possible, to all successive Monthly Payment Dates occurring after the Release Date and the Maturity Date, with each such payment being equal to or greater than the amount of the corresponding Constant Monthly Payment required to be paid under this Note for the balance of the term hereof and the amount required to be paid on the Maturity Date (the "Defeasance Collateral"), each of which shall be duly endorsed by the holder thereof as directed by Lender or accompanied by a written instrument of transfer in form and substance wholly satisfactory to Lender (including, without limitation, such instruments as may be required by the depository institution holding such securities or the issuer thereof, as the case may be, to effectuate book-entry transfer s and pledges through the book-entry facilities of such institution) in order to perfect upon the delivery of the Defeasance Security Agreement the first priority security interest therein in favor of the Lender in conformity with all applicable state and federal laws governing the granting of such security interests. The Defeasance Collateral may be purchased by Lender on Borrower's behalf, in which case Borrower shall deposit with Lender on the Release Date a sum sufficient to purchase the Defeasance Collateral;

(c)

a certificate by Borrower's independent public accountant certifying that all of the requirements set forth in this Clause III have been fully satisfied;

(d)

an opinion of counsel acceptable toL dated as of the Release Date, in form reasonably satisfactory to Lender stating, among other things, that the Defeasance Collateral has been duly and validly assigned and delivered to Lender and Lender has a valid, perfected, first priority lien and security interest in the Defeasance Collateral; and

(e)

such other certificates, documents or instruments as Lender may reasonably require.

Upon compliance with the foregoing requirements relating to the delivery of the Defeasance Collateral, the Property shall be released from the lien of the Security Instrument and the other Loan Documents and the Defeasance Collateral shall constitute collateral which shall secure this Note and the Debt. Lender will, at Borrower's expense, execute and deliver any agreements reasonably requested by Borrower to release the lien of the Security Instrument from the Property. Upon the delivery of the Defeasance Collateral to Lender in accordance with this Article, Borrower shall have no further right to prepay this Note pursuant to the other provisions of this Article 5 or otherwise nor, without limiting or terminating the survival of certain obligations of Borrower which arose prior to the date of substitution of the Defeasance Collateral, shall Borrower have any further li ability to Lender for performance of any obligations secured by the Defeasance Collateral and, from that day forward, Borrower shall be released from such obligations.

Lender shall have the right in connection with the exercise of its rights under this Article 5 to require delivery of the Defeasance Collateral in lieu of a cash prepayment, to require an entity designated by Lender to acquire the Defeasance Collateral and to assume that portion of the obligations of Borrower which is secured by such Defeasance Collateral, in which event Borrower shall thereafter be released from such obligations.

6. SECURITY

This Note is secured by the Security Instrument and the other Loan Documents. The Security Instrument intended to be duly recorded in the public records of the county where the Property is located.

All of the terms, covenants and conditions contained in the Security Instrument and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein.

SAVINGS CLAUSE

This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender 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 Note, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. 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.

LATE CHARGE

If any sum payable under this Note is not paid prior to the fifth (5th) day after the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing the delinquent payment and to compensate Lender for the loss of the use of the delinquent payment and the amount shall be secured by the Security Instrument and the other Loan Documents.

NO ORAL CHANGE

This Note 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.

10.

JOINT AND SEVERAL LIABILITY

If Borrower consists of more than one person or party, the obligations and liabilities of each person or party shall be joint and several.

11. WAIVERS

Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest and non-payment and all other notices of any land. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument or the other Loan Documents made by agreement between Lender or any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other person or entity who may become liable for the payment of ail or any part of the Debt, under this Note, the Security Instrument or

the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Security Instrument or the other Loan Documents. In addition, 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. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership, and the term "Borrower," as used herein, shall include any alternate or successor partnership, but any predecessor partnership and their partners shall riot thereb y be released from any liability. If Borrower is a corporation or limited liability company, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders or members comprising, or the officers and directors or managers relating to, the corporation or limited liability company, and the term "Borrower" as used herein, shall include any alternative or successor corporation or limited liability company, but any predecessor corporation or limited liability company shall not be relieved of liability hereunder. (Nothing in the foregoing sentence shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in a partnership, corporation or limited liability company which may be set forth in the Security Instrument or any other Loan Document.)

12. TRANSFER

Upon the transfer of this Note, Borrower hereby waiving notice of any such transfer, Lender may deliver all the collateral mortgaged, granted, pledged or assigned pursuant to the Security Instrument and the other Loan Documents, or any part thereof, ."to the transferee who shall thereupon become vested with all the rights herein or under applicable law given to Lender with respect thereto, and Lender shall thereafter forever be relieved and fully discharged from any liability or responsibility in the matter; but Lender shall retain all rights hereby given to it with respect to any liabilities and the collateral not so transferred.

13.

WAIVER OF TRIAL BY JURY

BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE APPLICATION FOR THE LOAN, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

14. EXCULPATION

(a)

Except as otherwise provided herein, in the Security Instrument or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note or the Security Instrument by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Note, the Security Instrument, the other Loan Documents, and the interest in the Property, the Rents (as defined in the Security Instrument) and any other collateral given to Lender created by this Note, the Security Instrument and the other Loan Documents; provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower on ly to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender. Lender, by accepting this Note and the Security Instrument, agrees that it shall not, except as otherwise provided in

Section 10.10 of the Security Instrument, sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding, under or by reason of or under or in connection with this Note, the other Loan Documents or the Security Instrument. The provisions of this Article shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by this Note, the other Loan Documents or the Security Instrument; (ii) Intentionally Deleted; (iii) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under the Security Instrument; (iv) affect the validity or enforceability of any indemnity, guaranty, master lease or similar instrument made in connection with this Note, the Security Instrument, or the other Loan Documents; (v) impair the right of Lender to obtain the appointment of a receiver; (vi) impair the enforcement of the Assignment of Leases and Rents executed in connection herewith; and (vii) impair the right of Lender to enforce the provisions of Sections 10.10, 11.2 and 11.3 of the Security Instrument.

(b)

Notwithstanding the provisions of this Article 14 to the contrary, Borrower shall be personally liable to Lender for the Losses (as defined in the Security Instrument) it incurs due to: (i) fraud or intentional misrepresentation by Borrower, its agents or principals in connection with the execution and the delivery of this Note, the Security Instrument or the other Loan Documents, (ii) Borrower's misapplication or misappropriation of (A) Rents received by Borrower after the occurrence of an Event of Default, (B) tenant security deposits or Rents collected in advance, or (C) insurance proceeds or condemnation awards, or (iii) Borrower's failure to comply with the provisions of Section 5.9 of the Security Instrument.

(c)

In the event the Property or any part thereof shall become an asset in a voluntary bankruptcy or insolvency proceeding, and in connection solely with lender pursuing any and all remedies granted herein 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 Borrower.

(d)

Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with this Note, the Security Instrument and the other Loan Documents.

15. AUTHORITY

Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute and deliver this Note, the Security Instrument and the other Loan Documents and that this Note, the Security Instrument and the other Loan Documents constitute valid and binding obligations of Borrower.

16.

APPLICABLE LAW

This Note shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and the applicable laws of the United States of America.

17.

COUNSEL FEES

In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security therefor, Borrower also agrees to pay all reasonable fees and expenses of Lender, including, without limitation, reasonable attorney's fees for the services of such counsel whether or not suit be brought.

18. NOTICES

All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (defined below) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

If to Borrower:

Oxbridge Square Limited Partnership

7113 Staples Mill Road

P.O. Box 9462

Richmond, Virginia 23226

Attention: James N. Plotkin

Facsimile No. (804) 266-4977

With a copy to:

Cook, Ware & Heyward

P.O. Box 29629

Richmond, Virginia 23242

Attention: Allan M. Heyward, Jr., Esq.

Facsimile No. (804) 762-9608

If to Lender:

Laureate Realty Services, Inc.

227 West Trade Street, Suite 400

Charlotte, North Carolina 28202

Attention: Julie Johnson

Facsimile No. (704) 332-4313

With a copy to:

Kennedy Covington Lobdell & Hickman, L.L.P.

NationsBank Corporate Center

100 North Tryon Street

Charlotte, North Carolina 28202

Attention: Jonathan J. Nugent, Esq.

Facsimile No_ (704) 331-7598

or addressed as such party may from time to time designate by written notice to the other parties.

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

"Business Day" shall mean a day upon which commercial banks are not authorized or required by law to close in New York, New York.

19. MISCELLANEOUS

(a)

Wherever pursuant to this Note (i) Lender exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to Lender, or (iii) 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 made in a commercially reasonable manner, except as may be otherwise expressly and specifically provided herein.

(b)

Whenever used, the singular shall include the plural, the plural shall include the singular, and the words "Lender" and "Borrower" shall include their respective successors, assigns, heirs, executors and administrators.

[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written.

OXBRIDGE SQUARE LIMITED PARTNERSHIP,

a Virginia limited partnership

By: /s/ James N. Plotkin

Name:

James N. Plotkin

Title:

General Partner

By:

Ronald M. Plotkin Title:

General Partner

By: /s/ James N. Plotkin

Name: James N. Plotkin

Title: Attorney-in-Fact for

Ronald M. Plotkin

STATE/COMMONWEALTH OF VIRGINIA

CITY/COUNTY OF HENRICO, to wit:

I, the undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N. Plotkin, whose name as Attorney in Fact for Ronald M. Plotkin, who is a General Partner of OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of OXBRIDGE SQUARE LIMITED PARTNERSHIP

GIVEN under my hand and seal this 28^th day of May1998.

[SEAL]

/s/_______________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

STATE/COMMONWEALTH OF VIRGINIA

CITY/COUNTY OF HENRICO, to wit:

I, the undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N. Plotkin, whose name as a General Partner of OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of OXBRIDGE SQUARE LIMITED PARTNERSHIP

GIVEN under my hand and seal this 28^th day of May 1998.

/s/_______________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

EXHIBIT B-2

BOOK 3293 PAGE 228

OXBRIDGE SQUARE LIMITED PARTNERSHIP, as Grantor

(Borrower)

and

AETNA LIFE INSURANCE COMPANY, (Ground Lessor)

David Howard an individual, as trustee

(Trustee)

for the benefit of

LAUREATE REALTY SERVICES, INC., as Grantee

(Lender)

DEED OF TRUST AND

SECURITY AGREEMENT

Dated:

June 2, 1998

County:

Chesterfield County, Virginia

UPON RECORDATION RETURN TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

Nations Bank Corporate Center

100 North Tryon Street, Suite 4200

Charlotte, North Carolina 28202

Attention: Jonathan J. Nugent

BOOK 3293 PAGE 229

TABLE OF CONTENTS

Page

1. - GRANTS OF SECURITY

1.1

PROPERTY GRANTED

1.2

ASSIGNMENT OF RENTS

1.3

SECURITY AGREEMENT

1.4

PLEDGE OF MONIES

2. - DEBT AND OBLIGATIONS SECURED

2.1 DEBT AND OBLIGATIONS SECURED

3. - BORROWER COVENANTS

3.1

PAYMENT OF DEBT

3.2

INSURANCE

3.3

PAYMENT OF TAXES. ETC.

3.4

RESERVES

3.5

CONDEMNATION

3.6

LEASES AND RENTS

3.7

MAINTENANCE OF PROPERTY

3.8

WASTE

3.9

COMPLIANCE WITH LAWS

3.10

BOOKS AND RECORDS

3.11

PAYMENT FOR LABOR AND

3.12

INTENTIONALLY DELETED

3.13

PERFORMANCE OF OTHER AGREEMENTS

3.14

CHANGE OF NAME. IDENTITY OR STRUCTURE

3.15

EXISTENCE

3.16

GROUND LEASE

4. - SPECIAL COVENANTS

4.1

PROPERTY USE

4.2

SINGLE PURPOSE ENTITY

4.3

RESTORATION

4.4

LOCK BOX ACCOUNT

5. - REPRESENTATIONS AND WARRANTIES

5.1

WARRANTY OF TITLE

5.2

AUTHORITY

5.3

LEGAL STATUS AND AUTHORITY

5.4

VALIDITY OF DOCUMENTS

5.5

LITIGATION

5.6

STATUS OF PROPERTY

5.7

NO FOREIGN PERSON

5.8

SEPARATE TAX LOT

5.9

ERISA COMPLIANCE

5.10

LEASES

5.11

FINANCIAL CONDIITON

5.12

BUSINE5S PURPOSES

5.13

TAXES

BOOK 3293 PAGE 234

5.14

MAILING ADDRESS

5.15

NO CHANGE IN FACTS OR CIRCUMSTANCES

5.16

DISCLOSURE

5.17

THIRD PARTY REPRESENTATIONS

5.18

ILLEGAL ACITIVITY

6. - OBLIGATIONS AND RELIANCES

6.1

RELATIONSHIP OF BORROWER AND LENDER

6.2

NO LENDER OBLIGATIONS

7. - FURTHER ASSURANCES

7.1

RECORDING OF SECURITY INSTRUMENT, ETC.

7.2

FURTHER ACTS. ETC.

7.3

CHANGES IN TAX DEBT. CREDIT AND DOCUMENTARY STAMP LAWS

7.4

ESTOPPEL CERTIFICATES

7.5

REPLACEMENT DOCUMENTS

.21

8. -DUE ON SALE/ENCUMBRANCE

8.1

LENDER RELIANCE.

8.2

NO SALE/ENCUMBRANCE

8.3

SALE/ENCUMBRANCE DEFINED

8.4

LENDER'S RIGHTS.

9. - DEFAULT

9.1

EVENTS OF DEFAULT

10. - RIGHTS AND REMEDIES

10.1 REMEDIES

10.2 APPLICATION OF PROCEEDS

10.3 RIGHT TO CURE DEFAULTS

10.4 ACTIONS AND PROCEEDINGS

10.5 RECOVERY OF SUMS REQUIRED TO BE PAID

10.6 EXAMINATION OF BOOKS AND RECORDS

10.7 OTHER RIGHTS. ETC.

10.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY

10.9 VIOLATION OF LAWS

10.10 RECOURSE AND CHOICE OF REMEDIES

10.11 RIGHT OF ENTRY

10.12 DEFAULT INTEREST AND LATE CHARGES

11. - INDEMNIFICATION

11.1 GENERAL INDEMNIFICATION.

11.2 MORTGAGE AND/OR INTANGIBLE TAX .

11.3 ERISA INDEMNIFICATION

11.4 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND EXPENSES

12. - WAIVERS

12.1 WAIVER OF COUNTERCLAIM

12.2 MARSHALLING AND OTHER MATTERS

12.3 WAIVER OF NOTICE

12.4 DISCRETION OF LENDER

12.5 SURVIVAL

12.6 WAIVER OF TRIAL BY JURY

BOOK 3293 PAGE 231

13, - EXCULPATION

13.1 EXCULPATION

13.2 RESERVATION OF CERTAIN RIGHTS

13.3 EXCEPTIONS TO EXCULPATION

13.4 VOLUNTARY BANKRUPTCY/INSOLVENCY

13.5 BANKRUPTCY CLAIMS

14. - NOTICES

14.1 NOTICES

15. - APPLICABLE LAW

15.1 CHOICE OF LAW

15.2 USURY LAWS

15.3 PROVISIONS -SUBJECT TO APPLICABLE LAW

16. - SECONDARY MARKET

16.1 TRANSFER OF LOAN .

17. - COSTS

17.1 PERFORMANCE AT BORROWER'S EXPENSE

17.2 ATTORNEY'S FEES FOR ENFORCEMENT

18. - DEFINITIONS

18.1 GENERAL DEFINITIONS

19. - MISCELLANEOUS PROVISIONS

19.1 NO ORAL CHANGE

19.2 LIABILITY

19.3 INAPPLICABLE PROVISIONS

19.4 HEADINGS ETC.

19.5 DUPLICATE ORIGINALS: COUNTERPARTS

19.6 NUMBER AND GENDER

19.7 SUBROGATION

19.8 ENTIRE AGREEMENT

20 - STATE SPECIFIC PROVISIONS

20.1 ACCELERATION: REMEDIES

20.2 STATUTORY PROVISIONS

20.3 WAIVER OF TRIAL BY JURY

21. - SUBORDINATION OF FEE SIMPLE

21.1 SUBORDINATION OF FEE SIMPLE

21.2 SUBORDINATION OF GROUND LEASE

iii

BOOK 3293 PAGE 232

THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security Instrument"} is made as of the 2d day of June, 1998, by OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, having its principal place of business at 7113 Staples Mill Road, P.O. Box 9462, Richmond, Virginia a 23228, as grantor ("Borrower') to David A. Howard, having an office at 4701 Cox Road Suite 108 Glen Allen, VA 23060, as trustee ("Trustee") for the benefit of LAUREATE REALTY SERVICES, INC., a South Carolina corporation, having an address at 227 West Trade Street, Suite 400, Charlotte, North Carolina 28202, Attn: LeAnn Beam, as grantee ("Lender'), AETNA LIFE INSURANCE COMPANY (Ground Lessor)

RECITALS:

WHEREAS, Borrower by its promissory note of even date herewith given to Lender is indebted to Lender in the principal sum of FOUR MILLION FIVE HUNDRED SEVENTEEN THOUSAND FIVE HUNDRED and No/100 DOLLARS ($4,517,500.00) in lawful money of the United States of America (the note together with all extensions, renewals, modifications, substitutions and amendments thereof shall collectively be referred to as the "Note'), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note; and

WHEREAS, Borrower is the ground lessee under that certain Lease entered into on the 20th day of October, 1981 by and between Borrower and Aetna Life Insurance Company ("Ground Lessor"), a copy of which is attached hereto as Exhibit D ("Ground Lease"); and

WHEREAS, pursuant to the terms and provisions of that certain Ground Lessor Estoppel and Subordination Agreement executed as of the date hereof, Ground Lessor has consented to the treatment of this Security Instrument as a "Subsequent First Mortgage" (as defined in Section 17.2 of the Ground Lease); and

WHEREAS, Borrower desires to secure the payment and performance of the Obligations (as defined in Article 2).

1. - GRANTS OF SECURITY

1.1

PROPERTY GRANTED. Borrower, for and in consideration of the sum of Ten Dollars ($10.00) an other valuable consideration in hand paid, the receipt of which hereby is acknowledged, and the further consideration, uses, purposes and trusts herein set forth and declared, has granted bargained, transferred, assigned, set-over and consigned and by these presents does grant, bargain, transfer, assign, set-over and convey and by these presents does unto Trustee, and unto his or its successors in the trust hereby created and his or its assigns, forever, all of the Borrower's right, title and interest in and to the following (collectively, the "Property"): (a) the real property described in Exhibit A attached hereto and made a part hereof (the "Land "); (b) all additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the Land and the development of t he 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; the buildings; structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "Improvements"); (d) all casements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, sir 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 e 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 e c enter 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 furnishings, machinery, equipment, fixtures (including, but not limited to, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other

BOOK 3293 PAGE 233

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 Coon 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 loc ated (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, whether before or after the filing by or against Borrower of any petition for relief under 11 U.S.C. § 101 et seq., as the same may be amended from time to time (the "Bankruptcy Code') (the "Leases"} and all riot, title and interest 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 whether paid or accruing before or after the filing by or against Borrower of any petition for relief und er the Bankruptcy Code (the "Rents") and all proceeds from the sale or other disposition of the Leases and the riot 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 o r 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 of any defau lt hereunder, 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; and (n) any and all other rights of Borrower in and to the items set forth in Subsections (a) through (m) above.

CONDITIONS TO GRANT

TO HAVE AND TO HOLD the Ground Lease and any renewals therein provided for, and the above granted and described Property unto Trustee, as trustee for the benefit of Lender and its successors and assigns for and during the rest, residue and remainder of the term of years yet to come and unexpired in the Ground Lease and the renewals therein provided for subject, nevertheless, to the rents, covenants, conditions and provisions of the Ground Lease, and Borrower does hereby bind itself its successors and assigns, to WARRANT AND FOREVER DEFEND the title to the property, to Lender against every person whomsoever lawfully claiming or to claim the same or any part thereof.

IN TRUST WITH THE POWER OF SALE, to secure payment to Lender of the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument;

BOOK 3293 PAGE 234

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 3.6 Lender grants to Borrower a revocable license to collect and receive the Rents, which license shall be automatically revoked upon the occurrence of an Event of Default (as hereinafter defined) and the expiration of any applicable grace or cure period. Borrower shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums.

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.

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 sums deposited in the Escrow Fund (as defined in Section 3.4), the Deferred Maintenance Deposit (as defined on Exhibit B attached hereto and made a part hereof), the Reserve as defined on Exhibit B), Net Proceeds as defined in Section 4.3), the Lock-Box Account (as defined in Section 4.4), the Ground Lease Reserve (as defined in Section 3.16) and condemnation awards or payments described in Section 3.5 (collectively, "Deposits'), as additional security for the Obligations (as hereinafter defined) until expended or applied as provided in this Security Instrument.

2. - DEBT AND OBLIGATIONS SECURED

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 (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, default interest, late charges, prepayment premiums 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 performance of each obligation of Bo rrower r contained this Security Instrument, the Note and any other documents or instruments which now or shall hereafter wholly or partially secure or guarantee payment of the Note or which have otherwise been executed or are hereafter executed by Borrower and/or any other person or entity in connection with the loan (the "Loan') evidenced by the Note (the Note this Security Instrument and such other documents and instruments being hereinafter referred to collectively as the "Loan Documents') and in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part thereof (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 below as the "Obligations." All the covenants, conditions and agreements contained in the Note and the other 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.

3. - BORROWER COVENANTS

Borrower covenants and agrees that:

3.1

PAYMENT OF DEBT. Borrower will pay the Debt at the time and in the manner provided in the Note, this Security Instrument and the other Loan Documents.

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3.2

INSURANCE.

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

(i)

comprehensive all risk insurance on the Improvements and the Personal Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each case (A) in an amount equal to not less than the greater of (a) ninety percent (90%) of the full insurable value thereof, or (b) 100% of the "Full Replacement Cost," which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property waiving all co-insurance provisions; (C) for a deductible of not greater than $10,000; and (D) containing an "Ordinance or Law providing Coverage" or "Enforcement" endorsement if any of the Improvements or the use o f the Property shall at any time constitute legal non-conforming structures or uses. If any portion of the improvements is currently or at any time in the future located in a federally designated "special flood hazard area", Borrower shall obtain flood hazard insurance in an amount equal to the lesser of (a) the outstanding principal balance of the Note or (b) the maximum amount of such insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended or such greater amount as Lender shall require. In addition, in the event the Property is located in an area with a high degree of seismic activity, Borrower shall obtain earthquake insurance in amounts and in form and substance satisfactory to Lender;

(ii)

commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined single limit (including "umbrella" coverage in place) of not less than $3,000,000 or, if any of the Improvements contain elevators, $5,000,000; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; and (4) blanket contractual liability for all written and oral contracts, to the extent the same is available;

(iii)

business income insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in Subsection 3.2(a)(i); and (C) in an amount equal to 100% of the projected gross income from the Property for a period of twelve (12) months. The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve (12) month period. All insurance proceeds payable to Lender pursuant to this Subsection shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under the Note; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment p rovided for in the Note except to the extent such amounts are actually paid out of the proceeds of such business income insurance;

(iv)

at all times during which structural construction, repairs or alterations are being made with respect to the Improvements (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Subsection 3.2(a)(i) written in a so-called builder's risk completed value form on a non-reporting basis;

(v)

if applicable, workers' compensation, subject to the statutory limits of the state in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000 per accident and per disease per employee, and $1,000,000 aggregate coverage for

BOOK 3293 PAGE 236

disease in respect of any work or operations on or about the Property, or in connection with the Property or its operation;

(vi)

if applicable, comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender;

(vii)

if applicable, motor vehicle liability coverage for all owned and non-owned vehicles, including rented and leased vehicles containing minimum limits reasonably acceptable to Lender, and

(viii)

for Public Warehousing Properties Only: environmental insurance in amounts as shall be reasonably required by Lender;

(ix)

such other insurance and in such amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located.

(b)

All insurance provided for in Subsection 3.2(a) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), and shall be subject to the approval of Lender as to insurance companies, amounts, forms, deductibles, loss payees and insureds. The insurance companies must have a rating of "A" or better for claims paying ability assigned by Moody's Investors Service, Inc. and Standard & Poor' s Rating Group or a general policy rating of A or better and a financial class of VIII or better assigned by A.M. Best Company, Inc. Each such insurer shall be referred to herein as a "Qualified Insurer". Not less than (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Subsection 3.2, certified copies of the Policies marked "premium paid" or accompanied by evidence satisfact ory to Lender of payment of the premiums due thereunder (the "Insurance Premiums'), shall be delivered by Borrower to Lender, provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by the original Policies when issued.

(c)

Borrower shall not obtain (i) any umbrella or blanket liability or casualty Policy unless, in each case, such Policy is approved in advance in writing by Lender and Lender's interest is included therein as provided in this Security Instrument and such Policy is issued by a Qualified Insurer, or (ii) separate insurance concurrent in form or contributing in the event of loss with that required in Subsection 3.2(a) to be furnished by, or which may be reasonably required to be furnished by, Borrower. In the event Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower shall notify Lender of the same and shall cause certified copies of each Policy to be delivered as required in Subsection 3.2(b). Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise pro vide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Subsection 3.2(a).

(d)

All Policies of insurance provided for or contemplated by Subsection 3.2(a), except for the Policy referenced in Subsection 3.2(a)(v), shall name Lender and Borrower as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, flood and earthquake insurance, shall contain a so-called New York standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender.

(e)

Borrower shall furnish to Lender, on or before thirty (30) days after the close of each of Borrower's fiscal years, a statement certified by. Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender.

(f)

If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, without notice to Borrower to

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take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest in accordance with Section 10.3 hereof.

(g)

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 4.3 of this Security Instrument, except in instances where Lender has failed or elected not to disburse Net Proceeds to Borrower under such Section 4.3 (provided that such exception shall not apply if the failure to disburse is attributable to Borrower's failure to comply with the conditions set forth in Clauses (A), (D) or (I) of Subsection 4.3(b)(i) or in Subsection 4.3(b)(ii) or any other conditions set forth in Section 4.3 wh ich Borrower has the practical ability to satisfy). Lender may, but shall not be obligated to make proof of loss if not made promptly by Borrower.

(h)

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

3.3

PAYMENT OF TAXES. ETC.

Borrower shall promptly 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'), and all charges for utility services provided to the Property prior to the time same become delinquent. Borrower will deliver to Lender, promptly upon Lender's request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited -with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent.

3.4

RESERVES. (a) Borrower shall pay to Lender on the first day of each calendar month (a) one-twelfth of an amount which would be sufficient to pay the Taxes payable, or estimated by Lender to be payable, during the next ensuing twelve (12) months and (b) one-twelfth of an amount which would be sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the Policies upon the expiration thereof (the amounts in {a} and (b) above shall be called the "Escrow Fund"). Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Taxes and Insurance Premiums of which it has obtained knowledge and authorizes Lender or its agent to obtain the bills for Taxes and Other Charges directly from the appropriate taxing authority. The Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note shall be ad ded together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections 3.2 and 3.3 hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections 3.2 and 3.3 hereof, Lender shall, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth in (a)

and (b) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall estimate as sufficient to make up the deficiency. The Escrow Fund shall not

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constitute a trust fund and may be commingled with other monies held by Lender. No earnings or interest on the Escrow Fund shall be payable to Borrower.

(b)

Borrower shall comply with the Replacement and Leasing Reserve Requirements set forth on Exhibit "B" attached hereto and made a part hereof.

3.5

CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings, and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its p ayment 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 lied 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. If the If the property or any portion thereof is takenby a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of Section 4.3 of this Security Instrument, except in instances where Lender has failed or elected not to disburse Net Proceeds to Borrower under such Section 4.3 (provided that such exception shall not apply if the failure to disburse is attributable to Borrower's failure to comply with the conditions set forth in Clauses (A), ()) or (I} of Subsection 4.3(b)(i) or in Subsection 4.3(b)(ii) or any other conditions set forth in Section 4.3 which Borrower has the practical ability to satisfy). If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the award or payment, or a portion thereof sufficient to pay the Debt.

In the event that this Section 3.5 or the performance by Borrower of any obligation imposed by this Section 3.5, or by Section 4.3 shall conflict or interfere with, or burden Borrower's obligations pursuant to the Ground Lease, or Ground Lessor's exercise of any rights thereunder with respect to condemnation matters, Borrower's obligations and Lender's riots under the Loan Documents shall be controlled by the provisions of the Ground Lease and the provisions hereof deemed modified so as to eliminate any conflict.

3.6

LEASES AND RENTS. (a) Except as otherwise consented to by Lender, all Leases shall be written on the standard form of lease which shall have been approved by Lender. Upon request, Borrower shall furnish Lender with executed copies of all. Leases. No material changes may he made to the Lender-approved standard lease without the prior written consent of Lender, which approval shall not be unreasonably withheld or delayed. In addition, all renewals of Leases and all proposed leases shall be arms-length transactions with bona fide, independent third party tenants. All proposed leases and renewals of existing Leases, other than Minor Leases (hereinafter defined), shall be subject to the prior approval of Lender and its counsel, at Borrower's expense, which approval shall not be unreasonably withheld or delayed if the proposed Lease or renewal Lease i1 is on the Lender-approved form, subject only to commercially reasona ble variations therefrom, and (ii) is negotiated in an arms-length transaction with an independent third party tenant. All Leases entered into after the date hereof shall provide that they are subordinate to this Security Instrument and that the lessee agrees to attom to Lender. 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, for Leases other than Minor Leases, promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder, (iii) shall enforce all of the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed short of termination thereof; Borrower may terminate, however, Minor Leases as the result of a default by lessee thereunder, (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor's interest in the Leases or the Rents;

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(vi) shall not alter, modify or change the terms of the Leases without the prior written consent of Lender, or cancel or terminate the Leases or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Land or of any interest therein so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, lessees thereunder; (vii) shall not alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to the Leases (the “Lease Guaranty”) or cancel or terminate such Lease Guaranty without the prior written consent of Lender, and (viii) shall not consent to any assignment of or subletting under the Leases not in accordance with their terms, without the prior written consent of Lender.

(b)

Notwithstanding the provisions of Subsection 3.6(a) above, renewals of existing commercial Leases and proposed leases for commercial space covering less than ten percent (10%) of the total rentable space for the Property ("Minor Leases') shall not be subject to the prior approval of Lender provided that (i) the renewal Lease or proposed lease shall have a lease term not to exceed ten (10) years including options to renew, (ii) the renewal Lease or proposed lease shall be an arms-length transaction with a bona fide, independent third party tenant. Borrower shall deliver to Lender copies of all Leases which are entered into pursuant to the preceding sentence together with Borrower's certification that it has satisfied all of the conditions of the preceding sentence within thirty (30) days after the execution of the Lease. Notwithstanding anything contained herein to the contrary, if Lender fails within ten (10) business days after receipt of a request for approval or consent pursuant to this Section 3.6 to respond to Borrower's request, the requested response shall be deemed to have been given and all requirements of this Section 3.6 shall be deemed to have been complied with in full. Notwithstanding the foregoing, the deemed acceptance by Lender of Borrower's request for approval or consent shall only apply when the request of Borrower specifically references the applicable time limit for response by Lender.

(c) Notwithstanding any other provision of this Section 3.6 to the contrary, Borrower shall not be required to obtain Lender's consent to offer commercially reasonable incentives or concessions in connection with any proposed lease or renewal as Borrower shall deem appropriate or necessary to obtain a desirable tenant mix, retain a desirable tenant or to compete for a desirable tenant.

(d)

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 at such commercial or savings bank or banks as may 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 any Event of Default which has not been cured within any applicable grace period, 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.

3.7

MAINTENANCE OF PROPERTY. Borrower shall cause the Property to be maintained in a good and safe condition and repair. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property and tenant improvements made in connection with a Lease which has been entered into by Borrower in accordance with the terms hereof) without the consent of Lender. Subject to the provisions of Subsection 3.2(g) and Section 3.5, 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 3.5 hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Borrower 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. 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. For the purposes of this Section 3.7 the term "materially altered" shall mean such alteration of the Property as to significantly change the current structural arrangement of the Improvements or such alteration as to significantly alter the facade of the Improvements on the Property. If Borrower makes a request of Lender for consent or approval to a material alteration, Lender shall, upon receipt of final alteration

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plans and a budget for said alteration, have thirty (30) days to respond to Borrower. Lender fails to respond to Borrower within thirty (30) days, the consent and approval of Lender shall be deemed to have been provided. Notwithstanding the foregoing, the thirty (30) day response time limit shall only apply if the request of Borrower specifically references the applicable time limit.

3.8

WASTE. Borrower shall not commit or suffer any waste of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way materially impair the value of the Property or the security of this Security Instrument.

3.9

COMPLIANCE WITH LAWS. Borrower shall (i) promptly comply with all existing and future federal, state an local laws, orders, ordinances, governmental rules and regulations or court orders affecting the Property, or the use thereof including, but not limited to, the Americans with Disabilities Act (`ADA") (collectively, the "Applicable Laws"}, (ii) from time to time, upon Lender's request, provide Lender with evidence satisfactory to Lender that the Property complies with all Applicable Laws or is exempt from compliance with Applicable Laws, (iii) .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, and (iv) take appropriate measures to prevent and will not engage in or knowingly permit any illegal activities at the Property.

3.10

BOOKS AND RECORDS (a) Borrower shall keep adequate books and records of account in accordance with methods of accounting reasonably acceptable to Lender and furnish to Lender:

(i)

quarterly operating statements of the Property, prepared and certified by Borrower in the form attached to the Ground Lease as Schedule C and Schedule F;

(ii).

certified rent rolls for the last month of each fiscal quarter signed and dated by Borrower in the form attached to the Ground Lease as Schedule D, detailing the names of all tenants of the Improvements, the portion of Improvements occupied by each tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, and any other information as is reasonably required by Lender, within thirty (30) days after the end of each fiscal quarter,

(iii)

an annual financial statement of the Property to be prepared by Borrower in the form required pursuant to Section 3.1 of the Ground Lease, within ninety (90) days after the close of each fiscal year of Borrower and if available, an operating statements prepared by an independent certified public accountant within thirty (30) days of the date the same are made available to Borrower;

3.11

PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay when due all bills an costs for labor, materials, and specifically a fabricated materials incurred in connection with the Property and 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).

3.12

INTENTIONALLY DELETED.

3.13

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

3.14

CHANGE OF NAME, IDENTITY OR STRUCTURE. Borrower will not change Borrower's name, identity (including its trade name or names) or if not an individual, Borrower’s

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partnership structure without notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the ease of a change in Borrower's structure without first obtaining the prior written consent of Lender. Borrower will execute and deliver to Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Lender, Borrower shall execute a certificate in form satisfactory to Lender listing the trade names under which Borrower intends to operate the Property, and representing and warranting that Borrower does business under no other trade name with respect to the Property.

3.15

EXISTENCE Borrower will continuously maintain its existence and its rights to do business in the state where the Property is located together with its franchises and trade names.

3.16

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 security of the Premises 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 anyway release or discharge the Ground Lessor of or from any of the material covenants and conditions to be performed or observed by Ground Lessor. Borrower hereby expressly covenants with Lender not to cancel, surrender, amend, modify or alter in any way the terms of the Ground Lease. Borrower hereby assigns to Lender, as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Security Instrument, all of the rights, privileges and prerogatives of Borrower, as tenant under the Ground Lease, to surrender the leasehold estate created by the Ground Lease or to terminate, cancel modify, change, supplement, alter or amend the Ground Lease, and any such surrender of the leasehold esta te created by the Ground Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Ground Lease without the prior consent of Lender shall be void and of no force and effect. Notwithstanding the foregoing, Borrower will not be required to obtain the prior consent of Lender for amendments or modifications of the Ground Lease which benefit Borrower without imposing any additional obligations on Borrower.

(c)

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 (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 3.16. 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.

(d)

If Borrower fails to perform any obligations under the Ground Lease and fails to rectify such failure within applicable grace/cure periods, Lender shall have the right but not the obligation, to

perform such obligations of Borrower. All costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) so incurred, shall be treated as an advance secured by this Security Instrument, shall bear interest thereon at the Default Interest Rate from the date of payment by Lender until paid in full and shall be paid by Borrower to Lender during the continuance of a default within five (5) days after demand. No performance by Lender of any obligations of Borrower shall constitute a waiver of any 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 3.16(d), 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, sublesse es and other occupants under the Leases, Lender and any person designated by Lender shall have, and are

BOOK 3293 PAGE 242

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.

(e)

To the extent permitted by law, the price payable by Borrower or any other person or entity, in the exercise of any right of redemption following foreclosure of the Property shall include all rents paid and other sums advanced by Lender, together with interest thereon at the Default Interest Rate, as ground lessee under the Ground Lease, on behalf of Borrower on account of the Property.

(f)

Unless Lender shall otherwise consent, the fee title and the leasehold estate in the Property 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 a third party, by purchase or otherwise.

(g)

Upon acquisition by Borrower of the fee title or any other estate, title or interest in the Property which acquisition causes a merger of the leasehold interest of Borrower with said estate and a re-reduction of the leasehold estate, 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 fee title or 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 (g) shall not apply if Lender acquires title to the Property unless Lender shall so elect.

(h)

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 reliance thereon.

(i)

Intentionally Deleted.

(j)

Each space lease hereafter made and, unless contrary to the terms of the existing lease, each renewal of any existing space lease shall provide that, (i) in the event of the termination of the Ground Lease, the space lease shall not terminate or be terminable by the lessee; (ii) in the event of any action for the foreclosure of this Security Instrument, the space lease shall not terminate or be terminable by the space tenant by reason of the termination of the Ground Lease unless the space tenant is specifically named and joined in any such action and unless a judgment is obtained therein against the space tenant; and (iii) in the event that the Ground Lease is terminated as aforesaid, the space tenant under the space lease shall attorn to the lessee under the Ground Lease or to the purchaser at the sale of the Property on such foreclosure, as the case may be. The provisions of this Section 3.16(j) shall not be in terpreted to require a space tenant lease to be anything but subordinate to the Ground Lease.

(k)

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 any default other than a default predicated solely upon the existence or commencement of the bankruptcy proceedings or any act or failure to act by Borrower solely by reason thereof (hereinafter an "Unrelated 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 any Unrelated 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.

BOOK 3293 PAGE 243

(l)

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.

(m)

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 nonperformance 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 subsection (m), 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.

(n)

If any action, proceeding, motion or notice shall be commenced or filed in respect of Borrower or, after the occurrence and during the continuance of any Unrelated Default, the Property in connection with any case under the Bankruptcy Code, Lender shall have the option, to the exclusion of Borrower, exercisable upon notice from Lender to Borrower, to conduct and control any such litigation with counsel of Lender's choice. Lender may proceed in its own name or in the name of Borrower in connection with any such litigation, and Borrower agrees to execute any and all powers, authorizations, consents and other documents required by Lender in connection therewith. Borrower shall pay to Lender all costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) paid or incurred by Lender in connection with the prosecution or conduct of any such proceedings within five (5) days after notic e from Lender setting forth such costs and expenses in reasonable detail. Any such costs or expenses not paid by Borrower as aforesaid shall be secured by the lien of this Mortgage, shall be added to the principal amount of the Debt and shall bear interest at the Default Interest Rate. Borrower shall not after the occurrence and during the continuance of any Unrelated Default, commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Ground Lease in any such ease under the Bankruptcy Code without the prior written consent of Lender.

(o)

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.

(p)

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.

BOOK 3293 PAGE 244

(q)

Effective upon n the entry of an order for relief in respect of Borrower under the Bankruptcy Code, Borrower hereby as'and transfers to Lender a non-exclusive right to apply to the Bankruptcy Code under Section 365(d) r4)) of the Bankruptcy Code for an order extending the period during which the Ground Lease may be rejected or assumed.

(r)

Borrower represents and warrants that (i) Borrower shall not subject its interest in the Property to the lien of any mortgage now or hereafter to be placed an the fee title to the Premises; (ii) based upon Borrower's understanding of the terms and provisions of the Ground Lease, if there shall be a condemnation or taking in lieu of a condemnation of the fee title to the Premises, subject to amounts which are applied to Restoration, Borrower is entitled under the Ground Lease to receive such portion of the award for such condemnation or taking in lieu of condemnation as equals the value of Borrower's estate under the Ground Lease and improvements made by Borrower and if there shall be a casualty under a Ground Lease, either there is an obligation to use *insurance proceeds for a full restoration or Borrower is entitled to receive such portion of such proceeds as equals the value of improvements made by Borrower; (i ii) Borrower is authorized to assign its interest in any condemnation award which Borrower is entitled to receive pursuant to the Ground Lease; (iv) Intentionally Deleted; (v) Borrower has the right to subject its interest under the Ground Lease to the interests in favor of Lender provided in the Loan Documents; (vi) subject to the terms of the Ground Lease, Borrower has the right to sublease or otherwise encumber, subject to matters disclosed pursuant to clause (iv) above without restriction, all or any part of the Property without the consent of Ground Lessor, (vii) based upon the terms and provisions of the Ground Lessor Estoppel and Subordination Agreement provided to Lender by Ground Lessor and dated the date hereof if any default by Borrower shall occur under the Ground Lease, Lender is entitled to receive fifteen (15) days notice in the event of a non-monetary default and five (5) days notice in the event of a monetary default to cure any such default which is susceptible of cure by Lender, and so lon g as Lender has cured said default within said cure period, Ground Lessor may not terminate the Ground Lease; (viii) provided that no monetary default remains uncured beyond any applicable notice and grace periods to which Borrower and Lender are entitled, the Ground Lease may not be terminated by Ground Lessor by reason of any default by Borrower which is not susceptible of cure by Lender; (ix) Intentionally Deleted; (x) based upon the terms and provisions of the Ground Lessor Estoppel and Subordination Agreement provided to Lender by Ground Lessor and dated the date hereof the Ground Lease re quires the Ground Lessor to endeavor to give copies of all notices of default which are given under the Ground Lease to Borrower contemporaneously to Lender, (xi) the Ground Lease represents the entire agreement between the parties thereto and is in full force and effect and has not been modified or supplemented; (xii) the Ground Lease cannot be canceled solely by Ground Lessor and requires Borrower's consent for all modifications; (xiii) all rents (including additional rents and other charges) reserved for in the Ground Lease and payable prior to the date hereof have been paid; (xiv) 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; and (xv) 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.

(s)

As additional security for the Loan, Borrower hereby establishes a ground lease payment reserve (the "Ground Lease Reserve") in the amount of $9,375.00 which amount shall, at the election of Lender, be used far the payment of rent owing by Borrower to Ground Lessor upon default

by Borrower of said rent payment. Interest arising on the Ground Lease Reserve amount shall accrue for the life of the loan and provided no event of default shall have occurred shall be repaid to Borrower upon full payment of the Debt.

4. - SPECIAL COVENANTS

Borrower covenants and agrees that:

4.1

PROPERTY USE. The Property shall be used only as a first class shopping center in conformity with first class standards of operation for such centers located in the Richmond Virginia metropolitan area.

BOOK 3293 PAGE 245

4.2

SINGLE PURPOSE ENTITY. It has not and shall not: (a) engage in any business or activity other than the ownership, operation an maintenance of the Property, and activities incidental thereto;(b) acquire or own any material assets other than (i) the, and (ii) such incidental Personal Property as may be necessary for the operation of the Property; (e merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent; (d) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's partners hip agreement, articles or certificate of incorporation , articles of organization, operating agreement, or similar organizational documents, as the case may be, as same may be further amended or supplemented, if such amendment, modification, termination or failure to comply would adversely affect the ability of Borrower to perform its obligations hereunder, under the Note or under the other Loan Documents; e) own any subsidiary or make any investment in, any person or entity without the consent of Lender, (f) commingle its assets with the assets of any of its general partners, affiliates, (principals or of any other person or entity; (g) incur any debt, secured or unsecured, direct or contingent including guaranteeing any obligation), other than the Debt, except with respect to trade payables and other reasonable indebtedness arising in the ordinary course of its business of owning and operating the Property, provided that such debt is paid when due; (h) fail to maintain its records, books of account and ac counts separate and apart from those of the general partners, principals and affiliates of Borrower, the affiliates of a general partner of Borrower, and any other person or entity; (i) enter into any contract or agreement with any general partner, principal or affiliate of Borrower, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any general partner, managing member, shareholder, principal or affiliate of Borrower. Lender waives any claim that the Agency Agreement between Borrower and Dumbarton Properties, Inc. ("Property Manager'), dated July 25, 1980 concerning management of the Property or any renewal, but not amendment thereof, is subject to evaluation or re-evaluation under this requirement; (j) seek the dissolution or winding up in whole, or in part, of Borrower, (k) maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identif y its individual assets from those of any general partner, managing member, shareholder, principal or affiliate of Borrower, or any general partner managing, member, shareholder, principal or affiliate thereof or any other person; (1) hold itself out to be responsible for the debts of another person; (m) make any loans to any third party; (n) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that Borrower is responsible for the debts of any third party (including any general partner, managing member, shareholder, principal or affiliate of Borrower, or any general partner, managing member, shareholder, principal or affiliate thereof); (o) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in lig ht of its contemplated business operations; or (p) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors.

4.3

RESTORATION. The following provisions shall apply in connection with the Restoration of the Property:

(a)

If the Net Proceeds shall be less than and the costs of completing the Restoration shall be less than $25,000.00 the Net Proceeds will be disbursed b Lender to Borrower upon receipt, provided that all of the conditions set forth in Subsection 4.3(b)(i) are met and Borrower delivers to

Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Security Instrument.

(b)

If the Net Proceeds are equal to or greater than or the costs of completing the Restoration is equal to or greater than $25,000.00 Lender shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Subsection 4.3(b). The term "Net Proceeds" for purposes of this Section 4.3 shall mean: (i) the net amount of all insurance proceeds received by Lender pursuant to Subsections 3.2(a)(i), (iv), (vi) and ('ix) of this Security Instrument as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to,

BOOK 3293 PAGE 246

reasonable counsel fees), if any, in collecting same ("Insurance Proceeds"), or (ii) the net amount of all awards and payments received by Lender with respect to a taking referenced in Section 3.5 of this Security Instrument, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same ("Condemnation Proceeds"), whichever the case may be.

(i)

The Net Proceeds shall be made available to Borrower for the Restoration provided that each of the following conditions are met: (A) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the other Loan Documents; (B) Borrower shall have commenced the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion; (C) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note at the Applicable Interest Rate (as defined in the Note), which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking, whichever the case may be, will be covered out o f (1) the Net Proceeds, (2) the insurance coverage referred to in Subsection 3.2(a)(iii), if applicable, or (3) by other funds of Borrower, (D) Lender shall be satisfied that for the twelve (12) month period succeeding the completion of the Restoration, the ratio of sustainable net operating income for the Property (after deduction for applicable reserves) to debt service payable under the Note shall be at least 1.25 to 1.0 (E) Lender shall be reasonably satisfied that the Restoration will be completed on or before the earliest to occur of (I) twelve (12) months prior to the Maturity Date (as defined in the Note), (2) twelve (12) months after the occurrence of such fire or other casualty or taking, whichever the case may be, 3) the earliest date required for such completion under the terms of any Leases which are required in accordance with the provisions of this Subsection 4.3(b) to remain in effect subsequent to the occurrence of such fire or other casualty or taking, whichever the case may be, and the com pletion of the Restoration or (4) such time as may be required under any applicable zoning laws, ordinances, rules or regulations in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty or to as nearly as possible the condition it was in immediately prior to such taking, as applicable; (F) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations; (G) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable laws, rules and regulations; and (H) such fire or other casualty or taking, as applicable, does not result in the loss of access to the Property or the Improvements.

(ii)

The Net Proceeds shall be held by Lender and? until disbursed in accordance with the provisions of this Subsection 4.3(b), shall constitute additional security for the Obligations. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company insuring the lien of this Security Instrument.

(iii)

All plans and specifications required in connection with the Restoration shall be subject to prior review and approval in all respects by Lender and by an independent consulting engineer selected by Lender (the "Casualty Consultant'), which approval shall not be unreasonably withheld or delayed. Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Casualty Consultant, which approval shall not be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the

BOOK 3293 PAGE 247

Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower.

(iv)

In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as of the Restoration, as certified by the Casualty Consultant, minus the Casualty Retainage. The term "Casualty Retainage" as used in this Subsection 4.3(b) shall mean an amount equal to 10% of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Subsection 4.3(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been co mpleted in accordance with the provisions of this Subsection 4.3(b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence reasonably satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage, provided, however, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, and the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, sub contractor or materialman as may be reasonably requested by Lender or by the title company insuring the lien of this Security Instrument. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman.

(v)

Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month.

(vi)

If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Lender, be sufficient to pay in full the balance of the costs which are estimated by

the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "Net Proceeds Deficiency'') with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Subsection 4.3(b) shall constitute additional security for the Obligations. With respect to Restorations following a casualty in which the Improvements are restored to substantially the same condition as they existed prior to the casualty, the excess, if any, of the Net Proceeds and the remaining balance, f any, of the Net Proceeds Deficiency deposited with Under after the Ca sualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 4.3(b), and the receipt by Lender of evidence reasonably satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Security Instrument or any of the other Loan Documents.

(c)

All Net Proceeds not required (i) to be made available for the Restoration or (u) to be returned to Borrower as excess Net Proceeds pursuant to Subsection 4.3(b)(vi) may, be retained and applied by Lender toward the payment of the DA whether or not then due and payable in such order, priority and proportions as Lender in its discretion shall deem proper or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. Provided no Event of Default exists under the Note, this Security Instrument or the other Loan Documents, in the event of any prepayment of the Debt pursuant to the terms of Sections 3.2 or 3.5 hereof, no Prepayment Consideration (as defined in the-Note) shall be due in connection therewith, but

BOOK 3293 PAGE 248

Borrower shall be responsible for all other amounts due under the Note, this Security Instrument and the other Loan Documents. If Lender shall receive and retain 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.

(d)

Should the application of the provisions of this Section 4.3 conflict or produce a result which is inconsistent with or interferes with the application of the provisions of the Ground Lease covering the same subject matter, the provisions of the Ground Lease shall control and be carried out as written, and the provisions of this Section 4.3 shall be deemed modified and rewritten as necessary to harmonize the provisions hereof with the provisions of the Ground Lease.

4.4

LOCK BOX ACCOUNT. (a) (i) if after the occurrence of an Event of Default all applicable grace or cure periods expire without cure being effected or (ii) if at any time the Debt Service Coverage Ratio for the Property shall fall below 1.0:1.0 for a continuous period of not less than one hundred and eighty (180) days, Lender shall have the right, upon written notice to Borrower to require that, from and after the next succeeding date of payment of an installment of principal and interest under the Note, all Rents with respect to the Property at Lender's discretion, be paid directly to the property manager for the Property (the "Manager") and deposited daily by the Manager in the name designated by Lender directly to a designated lock-box account (the "Lock-Box Account"), opened by Lender at a bank (the 'Lock-Box Bank"), which account shall be within the exclusive control of Lender.

(b)

Upon receipt of notice from Lender as set forth in Subsection (a) above, Borrower shall enter into a lock-box agreement with Lender in a form reasonably satisfactory to Lender, which form shall substantially reflect the provisions of this Section. Promptly following delivery of the notice referred to in (a) Lender and Borrower will negotiate diligently and in good faith a lock-box agreement substantially reflecting the provisions of this Section. Notwithstanding anything to the contrary in contained in this Section, if in Lender's judgment, the Manager's performance in collecting Rents s decline, then upon receipt of written notice from Lender, Borrower shall promptly instruct each tenant under any Lease to make all payments under such Lease, (y) if by wire transfer, to the Lock-Box Account and (z) if by check,

money order or similar manner of payment, by mail to a designated lock-box the "Lock-Box") within the exclusive control of Lender.

(c)

The lock-box agreement referred to in Subsection (b) above shall provide that amounts deposited into the Lock-Box shall be collected and deposited daily by the Manager (or, if required by Lender pursuant to the final sentence of Subsection (b) above, by the Lock-Box Ban) into the Lock-Box Account. Amounts on deposit in the Lock-Box Account on any date of payment of an installment of principal and interest under the Note shall be applied in the following order of priority: q) to pay any Taxes Other Charges or Insurance Premiums then due and payable; (ii) to pay the Property s pro rata share of the Lock-Box Bank's fees; (iii) to pay interest and principal due an such date with respect to the Note; (iv) to replenish all reserves and escrow funds required to be aid by Borrower to Lender under the Note, the Security Instrument and the other Loan Documents; and paid to Borrower.

5. - REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that:

5.1

WARRANTY OF TITLE. Borrower has paid for and has good marketable and indefeasible leasehold title to the Property or the term of years described in the Ground Lease and extending beyond the maturity date of the Note and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and that Borrower possesses an unencumbered leasehold estate in the Land and the Improvements and that it owns the Property, free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument the "Permitted Exceptions"). Borrower shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever.

BOOK 3293 PAGE 249

5.2

AUTHORITY. Borrower (and the undersigned representative of Borrower, if any) has full power, authority an legal right to execute this Security Instrument, and to mortgage, grant bargain, sell, pledge, assign, warrant, transfer and convey the Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on Borrower's part to be performed.

5.3

LEGAL STATUS AND AUTHORITY. Borrower (a) is duly organized, validly existing and in goo standing under the laws of its state of organization or incorporation; (b) is duly qualified to transact business and is in good standing in the State where the Property is located; and (c) has all necessary approvals, governmental and otherwise, and full power and authority to own the Property and carry on its business as now conducted and proposed to be conducted. Borrower now has and shall continue to have the full right, power and authority to operate and lease the Property, to encumber the Property as provided herein and to perform all of the other obligations to be performed by Borrower under the Note, this Security Instrument and the other Loan Documents.

5.4

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

Commercial Code filings relating to the security interest created hereby); and (b) the Note, this Security Instrument and the other Loan Documents constitute the legal, valid and binding obligations of Borrower.

5.5

LITIGATION. There is no action, suit or proceeding, judicial, administrative or otherwise (including any condemnation or similar proceed*), pending or, to the best of Borrower's knowledge, threatened or contemplated against, or affecting, Borrower, a Guarantor, if any, an Indemnitor, if any, or the Property that has not been disclosed to Lender or is not adequately covered by insurance, as determined by Lender in its sole and absolute discretion.

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 3.2 hereof; (b) Borrower has obtained all necessary certificates, licenses and other approvals, governmental and otherwise, necessary for the operation of the Property and the conduct of its business and all required zoning, building code, and use, environmental and other similar permits or approvals, all of which are in full force and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification; (e) the Property and the present a nd contemplated use and occupancy thereof are in full compliance with all Applicable Laws, including, without limitation, zoning ordinances, building codes, land use and environmental laws, laws relating to the disabled (including, but not limited to, the ADA) and other similar laws; (d) the Property is served by all utilities (including, but not limited to, public water and sewer systems) required for the current or contemplated use thereof; (e) all utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service; provided (f) 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; (g) the Property is, to the best of Borrower's knowledge, free from damage caused by fire or other casualty; all costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full; (i) all liquid and solid waste disposal septic and sewer systems

BOOK 3293 PAGE 250

located on the Property are in a good and safe condition and repair and in compliance with all Applicable Laws; and (j) all Improvements lie within the boundary of the Land.

5.7

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

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 are assessed and taxed together with the Property or any portion thereof.

5.9

ERISA COMPLIANCE. As of the date hereof and throughout the term of this Security Instrument, (i) Borrower is not an will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, whichis subject to Title I of ERISA; (ii) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA; (iii) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(32) of ERISA; and (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans. Borrower shall deliver to Lender such certifications or other evidence as requested by Lender from time to time of Borrower's compliance with the foregoing representations and covenants.

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 premises 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; (g) there exist no offsets or defenses to the payment or possession of any portion of the Rents; (h) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision; and (i) no person or entity has any possessory interest in, or right to occupy, the Property except under and pursuant to a Lease.

5.11

FINANCIAL CONDITION. (a) Borrower is solvent, and no bankruptcy, reorganization, insolvency or similar proceeding under any state or federal law with respect to Borrower has been initiated, and (b) it has received reasonably equivalent value for the granting of this Security Instrument.

5.12

BUSINESS PURPOSES. The Loan is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes.

5.13

TAXES. Borrower has filed all federal, state, county, municipal, and city income and other tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. Borrower knows of no basis for any additional assessment in respect of any such taxes and related liabilities for prior years.

5.14

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

5.15

NO CHANGE IN FACTS OR CIRCUMSTANCES. All information submitted in connection with Borrower's application for the loan and Lender's issuance of a commitment for the Loan (collectively, the "Loan Application") and the satisfaction of the conditions thereof, including, but not limited to all financial statements, rent rolls, reports, certificates and other documents, are accurate, complete and correct in all respects. There has been no adverse change, in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading.

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5.16

DISCLOSURE. To Borrower's best knowledge, Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading.

5.17

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

5.18

ILLEGAL ACTIVITY. No portion of the Property has been or will be purchased with proceeds of any illegal activity. Borrower 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 above 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 making the Loan and that Lender would not make the Loan in the absence of such warranties.

6. - OBLIGATIONS AND RELIANCES

6.1

RELATIONSHIP OF BORROWER AND LENDER. The relationship between Borrower and Lender is solely that of debtor an 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 r 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. Borrower is not relying on Lender's expertise business acumen or advice in connection with the Property.

6.2

NO LENDER OBLIGATIONS. (a) Notwithstanding the provisions of Subsections 1.1 (f) and (l) or Section 1.2, 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, 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.

7. - FURTHER ASSURANCES

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 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. Except where prohibited by law, Borrower will pay all taxes, duties, imposts, assessments, filing, registration and recording fees, and any and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Loan Documents and any amendment or supplement thereto.

7.2

FURTHER ACTS. ETC. Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby-mortgaged, granted, bargained, sold, conveyed,

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confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with a11 Applicable Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, 'incl uding without limitation such rights and remedies available to Lender pursuant to this Section 7.2.

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 of indirectly, on the Debt or Lender's interest in the Property, Borrower will pay the tax 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 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.

7.4

ESTOPPEL CERTIFICATES. (a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or any proposed assignee an estoppel certificate in form and content as may be requested by Lender with respect to the status of the Loan and/or the Loan Documents.

(b)

Borrower shall use its best efforts to deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may reasonably require, provided that (i) Borrower shall not be required to honor more than two requests made by Lender in any twelve month period and (ii) in no event shall Borrower be required to obtain estoppel certificates from lessees containing more information than that required to be certified pursuant to the terms of the related Lease.

7.5

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

8. - DUE ON SALE/ENCUMBRANCE

8.1

LENDER RELIANCE. Borrower acknowledges that Lender has examined and relied on the experience of Borrower and its general partners, managing members, principals and (if Borrower is a trust) beneficial owners in owning and- operating properties such as the Property in

BOOK 3293 PAGE 253

agreeing to make the Loan, and will continue to rely on Borrower's ownership of the Property as a means of maintaining the value of the Property as security for payment, and performance of the Obligations. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Borrower default in the payment or the performance of the Obligations, Lender can recover the Debt by a sale of the Property.

8.2

NO SALE/ENCUMBRANCE. Borrower agrees that 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.

8.3

SALE/ENCUMBRANCE DEFINED. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Article 8 shall be deemed to include, but not be limited to, (a) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (b) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (c) if Borrower or any general partner of Borrower is a corporation, the voluntary or involuntary sale, conveyance, transfer or pledge of such corporation's stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise ) or the creation or issuance of new stock by which an aggregate of more than 10% of such corporation's stock shall be vested in a party or parties who are not now stockholders; (d) if Borrower is a

partnership, the transfer or pledge of the partnership interests held by the general partners except that James N. Plotkin may acquire the partnership interests of any other general partner. Notwithstanding the foregoing, the following transfers shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment or transfer within the meaning of this Article 8: (A} by devise or descent or by operation of law upon the death of a partner, member or stockholder of Borrower or any general partner thereof, and B) a sale, transfer or hypothecation of a partnership, shareholder or membership interest in Borrower, whichever the case may be, by the current partner(s), shareholder(s) or member(s), as applicable, to an immediate family member (i.e., parents, spouses, siblings, children or grandchildren) of such partner, shareholder or member to a Principal (or a t rust for the benefit of any such persons) and (C) any transfer of any interest of the limited partners of Borrower resulting in a change in the number, identity or interests of Borrower's limited partners.

8.4

LENDER'S RIGHTS. Lender reserves the right to condition the consent required hereunder upon a modification of the terms hereof and on assumption of the Note, this Security Instrument and the other Loan Documents as so modified by the proposed transferee, payment of a transfer fee of not more than one percent (1%) of the principal balance of the Note and all of Lender's expenses incurred in connection with such transfer, the approval by Lender of the proposed transferee, the proposed transferee's continued compliance with the representations, warranties and covenants set forth in Sections 4.2 and 5.9 hereof, or such other conditions as Lender shall determine in its commercially reasonable discretion to be necessary to ensure the continued enforceability and priority .of the interests of Lender. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereund er in order to declare the Debt immediately due and payable upon Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property without Lender's consent. This provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the property regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property. Notwithstanding the foregoing, Lender shall consent to a one (1) time transfer of the Property and assumption of the Loan by a transferee entity without payment of the (1 %) assumption fee provided the following conditions are met in full; (a) not less than fifty percent (50%) of the ownership interests in the transferee are held by one or more of the current owners of Borrower, (2) James N. P1otlin is, for the life of the Loan, the sole controlling principal of the transferee en tity (3) transferee entity executes such documents as Lender shall reasonably require to effect the transfer of the Property and assumption of the Loan (4) Borrower has provided Lender with all organizational documents required to evidence transferee's authority to effect the transfer of the property and assumption of the Loan, and (5) all costs and expenses incurred by Lender and all costs and expenses otherwise arising, including without

BOOK 3293 PAGE 254

limitation, reasonable attorneys’ fees, shall be borne by Borrower. Lender shall not condition its consent to the transfer permitted according to the preceding sentence upon a modification of the terms of any of the Loan Documents.

9. - DEFAULT

9.1

EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) if any portion of the Debt is not paid prior to the fifth (5th) day after the same is due or if the entire Debt is not paid on or before the Maturity Date; (b) if any of the Taxes or Other Charges is not paid prior to the date the same becomes delinquent except to the extent sums sufficient to pay such Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument; (c) if the Policies are not kept in full force and effect, or if the Policies are not delivered to Lender upon request or Borrower has not delivered evidence of the renewal of the Policies thirty (30) days prior to their expiration as provided in Section 3.2(b); (d) if Borrower violates or does not comply with any of the provisions of Sections 3.6 or 4.2 or Articles 8 or 11; (e) if any representation or warranty of Borrower, Instrument, made herein or in the Environmental Indemnity (defined below) or any

guaranty, or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (f) if (i) Borrower shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, adjustment, liquidation, dissolution or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or Borrower shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Borrower any cas e, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or undischarged for a period of sixty (60) days; or (iii) there shall be commenced against Borrower any case, proceeding or other action seeking issuance of' a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) Borrower shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) Borrower shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (g) if Borrower shall be in default beyond a ny applicable notice or cure period under any other mortgage, deed of trust, deed to secure debt or other security agreement covering any, part of the Property whether it be superior or junior in lien to this Security Instrument; (h) if the Property becomes subject to any mechanic's, materialman's or other lien other than a lien for local real estate taxes and assessments not then delinquent and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of ninety (90) days after Borrower has first received notice thereof; (i) if any federal tax lien is filed against the Property and same is not discharged of record within ninety (90) days after Borrower has first received notice thereof; (j) if within ten (10) business days of Lender's demand therefor Borrower fails to provide Lender with the written certification and evidence referred to in Section 5.9 hereof; (k) if Borrower shall fail to perform any of its obligations under that certain environmental indemnity agreement o f even date herewith (the "Environmental Indemnity") after the expiration of applicable notice and grace periods, if any; (l) if any default beyond any applicable notice or cure period occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace or cure periods, if any; (m) if for more than ten (10) days after notice from Lender, Borrower shall continue to be in default under any other term, covenant or condition of the Note this Security Instrument or the other Loan Documents in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after notice from Lender in the case of any other default, provided that if such default cannot reasonably be cured within such thirty (30) day period and Borrower shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be e xtended for so long as it shall require Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of sixty (60) days (n) Borrower shall fail in the payment of any rent, additional rent or other charge mentioned in or made

BOOK 3293 PAGE 255

payable under the Ground Lease when said rent or other charge is due and payable, or (o) There shall occur any default by Borrower, as lessee under the Ground Lease, in the observance or performance of any term, covenant or condition of the Ground Lease on the part of Borrower, to be observed or performed, and said default is not cured prior to the expiration of any applicable grace period therein provided, or any one or more of the events referred to in the Ground Lease shall occur which would cause the Ground Lease to terminate without notice or action by the Ground Lessor or which would entitle the Ground Lessor to terminate the Ground Lease and the term thereof by giving notice to Borrower, as tenant thereunder, of if the leasehold estate created by the Ground Lease shall be surrendered or the Ground Lease shall be terminated or canceled for any reason or under any circumstances whatsoever, or

any of the terms, covenants or conditions of the Ground Lease shall in any manner be modified, changed, supplemented, altered or amended without the consent of Lender.

10. - RIGHTS AND REMEDIES

10.1 REMEDIES. If, following the occurrence of any Event of Default, Borrower fails to cure such default within the applicable cure period, Borrower agrees that Trustee or 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 Trustee or Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Trustee or Lender: (a) declare the entire unpaid Debt to be immediately due and payable; (b) with or without entry, institute proceedings, judicial or otherwise, for the complete or partial foreclosure of this Security Instrument under any applicable provision of law in which ease the Property or any interest therein may b e sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner, any partial foreclosure to be 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; (c) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof pursuant to power of sale or otherwise, at one or more sales, as an entirety or in one or more parcels; (d) institute an action, suit or proceeding in equity for the specific performance of an covenant, condition or agreement contained herein, in the Note or in the other Loan Documents; (e) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security instrument or the other Loan Documents; (f) apply for the appointment of a receiver, trustee, liquidator or conservator of t he Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of Borrower, any Guarantor, Indemnitor or of any person, firm or other entity liable for the payment of the Debt; (g) enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess Borrower therefrom, without liability for trespass, damages or otherwise and exclude Borrower wholly therefrom, and take possession of all books, records and 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 exercise all rights and powers of Borrower with respect to the Property including, without limitation but subject to the rights of Dumbarton Properties Inc. ("Property Manager") pursuant to the Agency Agreement dated July 15, 1980 by and between Borrower and Property manager (the "Management Agreement"), (1) the righ t to use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (2) the right to make or complete any construction, alterations, additions, renewals, replacements and improvements to or on the Property as Lender deems advisable; (3) 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, (h) 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; (i) 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. In the event the rights of Lender and Property Manager conflict, such rights shall not be exercised b y either party without the approval of both parties which approval will not be unreasonably withheld. Both parties shall use all best good faith efforts to take such actions as are in the best interests and further the economic well being of the Property. Notwithstanding anything contained in this Section 10.1 to the contrary, Lender acknowledges that the Management Agreement shall not be terminated by Lender except following a

BOOK 3293 PAGE 256

sale by foreclosure of the Property, (j) apply the receipts from the Property, any Deposits and interest thereon and/or any unearned Insurance Premiums paid to Lender upon the surrender of any Policies maintained pursuant to Article 3 hereof (it being agreed that Lender shall have the right to surrender such Policies upon the occurrence of an Event of Default), to the payment of the Obligations, in such order,

priority and proportions as Lender shall deem appropriate in its sole discretion; (k) 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: (1) the riot 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 (2) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower in accordance with the provisions hereof at least five days prior to such action, shall constitute commercially reasonable notice to Borrower, or (l) require a Lock-Box Account pursuant to Section 4.4 and apply all sums in the Lock-Box Account to me payment of the Debt, in such order, priority and proportions as Lender shall deem appropriate in its discretion.

In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority. Notwithstanding the provisions of this Section 10.1 to the contrary, if any Event of Default as described in clause (i) or (ii) of Subsection 9.1(f) shall occur, the entire unpaid Debt shall be automatically due and payable, without any further notice, demand or other action by Lender.

10.2

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.

10.3

DEFAULTS. If after the occurrence of any Event of Default, Borrower fails to cure such default within any applicable grace or cure period, 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 10.3, 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 re medying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any such action or proceeding shall bear interest at the Default Rate (as defined in the Note), for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All reasonable 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.

10.4

ACTIONS AND PROCEEDINGS. 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.

10.5

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.

10.6

EXAMINATION OF BOOKS AND RECORDS. Lender, its agents, accountants and attorneys shall have the right upon reasonable notice to examine the records, books, management

B00K 3293 PAGE 257

and other papers of Borrower and its affiliates or of any Guarantor or Indemnitor which reflect upon their financial condition at the Property or at any office regularly maintained by Borrower, its affiliates or any Guarantor or Indemnitor where the books and records are located. Lender and its agents shall have the right 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 or of any Guarantor or Indemnitor pertaining to the income, expenses and operation of the Property during reasonable business hours at any office of Borrower, its affiliates or any Guarantor or Indemnitor where the books and records are located. This Section 10.6 shall apply throughout the term of the Note and without regard to whether an Event of Default has occurr ed or is continuing. Lender shall not exercise any right under this Section 10.6 in such manner as substantially disrupts Borrower's conduct of its business.

10.7

OTHER RIGHTS, ETC. (a) The failure of Lender to insist upon strict performance of any term hereof shall not e deemed to e a waiver of any term of this Security Instrument. Borrower shall not be relieved of Borrower's obligations hereunder by reason of (i) the failure of Lender to comply with any request of Borrower, any Guarantor or any Indemnitor to take any action to foreclose Ls 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)

Trustee or Lender may resort for the payment of the Debt to any other security held by Trustee or Lender in such order and manner as Trustee or 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 Trustee or Lender thereafter to foreclose this Security Instrument. The rights of Trustee and Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Trustee or Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Trustee and 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.

10.8

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

10.9

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

10.10

RECOURSE AND CHOICE OF REMEDIES. Notwithstanding any other provision of this Security Instrument, including but not limited to Article 13 hereof, Lender and other Indemnified Parties (defined in Section 11.1 below) are entitled to enforce the obligations of Borrower, Guarantor and Indemnitor contained in Sections 11.2 and 11.3 without first resorting to or exhausting any security or collateral and without first having recourse to the Note or any of the Property, through foreclosure or acceptance of a deed in lieu of foreclosure or otherwise, and in the event Lender

BOOK 3293 PAGE 258

commences a foreclosure action against the Property, Lender is entitled to pursue a deficiency judgment with respect to such obligations exceptions Borrower, Guarantor and Indemnitor The provisions of Sections 11.2 and 11.3 are exceptions to any non-recourse or exculpation provisions in the Note, this Security Instrument or the other Loan Documents, and Borrower, Guarantor and Indemnitor are fully and personally liable for the obligations pursuant to Sections 11.2 and 11.3. The liability of Borrower, Guarantor and Indemnitor are not limited to the original principal amount of the Note. Notwithstanding the foregoing, nothing herein shall inhibit or prevent Lender from foreclosing pursuant to this Security Instrument or exercising any other rights and remedies pursuant to the Note, this Security Instrument and the other Loan Documents, whether simultaneously with foreclosure proceedings or in any other sequence. A separate action or actions may be brought and prosecuted against Borrower, whether or not action is brought against any other person or entity or whether or not any other person or entity is joined in the action or actions.

10.11

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

10.12

DEFAULT INTEREST AND LATE CHARGES. Borrower acknowledges that, without limitation to any of Lender's rights or remedies set forth in this Security Instrument, Lender has the right following the occurrence of an Event of Default and Borrower's failure to cure such default within the applicable grace/cure period to demand interest on the principal amount of the Note at the Default Rate and late payment charges in accordance with the terms of the Note.

11. - INDEMNIFICATION

11.1

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 the following relate solely to an Indemnified Party's gross negligence or willful miscond uct: (a) 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, any Guarantor or Indemnitor 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; (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) any use, nonuse or condition in, on or about the Property or any part thereof; (d) any failure on the part of Borrower to perform or be in compliance with any of the terms of this Security Instrument; (e) the failure of any person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with the Security Instrument, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the transaction in connection with which this Security Instrument is made; (f) any failure of the Property to be in compliance with any Applicable Laws; (g) the enforcement by any Indemnified Party of the provisions of this Article 11; (h) the payment of any commission, charge or brokerage fee to anyone which may be payable in connection with the funding of the Loan; or (i) 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 11.1 shall become immediately due and payable and shall bear interest at the Default Rate from the date notice of damage is provided to Borrower by Lender until paid. For purposes of this Article 11, the term "Indemnified Par ties" means Lender and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance

created by this Security Instrument is or will have been recorded and persons and entities who may hold or acquire or will have held a full or partial

BOOK 3293 PAGE 259

interest in the Loan, including, but not limited to, custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan.

11.2

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 Documents.

11.3

ERISA 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 (including, without limitation, attorneys' fees and costs incurred in the investigation, defense, and settlement op Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Section 5.9.

11.4

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.

12. - WAIVERS

12.1

WAIVER OF COUTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a mandatory in 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. Nothing contained herein shall be deemed a waiver of Borrower's right to assert any claim. which would constitute a defense, setoff, counterclaim or crossclaim of any nature whatsoever against Lender in a separate proceeding.

12.2

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

12.3

WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Trustee or 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 which Trustee or Lender is required by applicable law to give notice, and Borrower hereby expressly waives the right to receive any notice from Trustee or Lender with respect to any matter for

which this Security Instrument does not specifically and expressly provide for the giving of notice by Trustee or Lender to Borrower.

12.4

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

BOOK 3293 PAGE 260

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 commercially reasonable.

12.5

SURVIVAL. The indemnifications made pursuant to Section 11.3 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 t he 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.

12.6

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

13. - EXCULPATION

13.1

. Except as otherwise provided herein, in the Note or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note or this Security Instrument by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon the Note, this Security Instrument, the other Loan Documents, and the interest in the Property, the Rents and any other collateral given to Lender created by the Note, this Security Instrument and the other Loan Documents; provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral g iven to Lender. Lender, by accepting the Note and this Security Instrument, agrees that it shall not, except as otherwise provided in Section 10.10, sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding, under or by reason of or under or in connection with the Note, the other Loan Documents or this Security Instrument.

13.2

RESERVATION OF CERTAIN RIGHTS. The provisions of Section 13.1 shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by the Note, the other Loan Documents or this Security Instrument; (b) Intentionally Deleted (c) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Security Instrument; (d) affect the validity or enforceability of any indemnity, guaranty, master lease or similar instrument made in connection with the Note, this Security Instrument, or the other Loan Documents; (e) impair the right of Lender to obtain the appointment of a receiver; (f) impair the enforcement of the Assignment of Leases and Rents executed in connection herewith; and (g) impair the right of Lender to enforce the provisions of Sections 10.10, 11.2 and 11.3 of this Security Instrument.

13.3

EXCEPTIONS TO EXCULPATION. Notwithstanding the provisions of this Article to the contrary, Borrower shall be personally liable to Lender for the Losses it incurs due to: (i) fraud or intentional misrepresentation by Borrower, its agents or principals in connection with the execution and the delivery of the Note, this Security Instrument or the other Loan Documents; (ii) Borrower's misapplication or misappropriation of (A) Rents received by Borrower after the occurrence

BOOK 3293 PAGE 261

of an Event of Default, (B) tenant security deposits or Rents collected in advance, or (C) insurance proceeds or condemnation awards; (iii) Borrower's failure to comply with the provisions of Section 5.9 of this Security Instrument.

13.4

VOLUNTARY BANKRUPTCY/INSOLVENCY. In the event the Property or any part thereof shall become an asset in a voluntary bankruptcy or insolvency proceeding, and in connection solely with lender pursuing any and all remedies granted herein 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 Borrower.

13.5

CLAIMS. Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the debtor to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Note, this Security Instrument and the other Loan Documents.

14. - NOTICES

14.1

NOTICES. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (defined below) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

If to Borrower:

Oxbridge Square Limited Partnership
7133 Staples Mill Road
P.O. Box 9462
Richmond, Virginia 23228
Attention: James N. Plotkin
Facsimile No. (804) 266-4977

With a copy to:

Cook, Ware & Heyward
P.O. Box 29629
Richmond, Virginia 23242
Attention: Alan M. Heyward, Jr.
Facsimile No. 804-762-9608

If to Trustee:

4701 Cox Road, Suite 108
Glen Allen, Virginia 23060
Attention: David A. Howard
Facsimile No: (757) 625-8181

If to Lender:

Laureate Realty Services, Inc.
227 West Trade Street, Suite 400
Charlotte, North Carolina 28202
Attention:

LeAnn Beam
Facsimile No. (704) 332-4313

BOOK 3293 PAGE 262

With a copy to:

Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 4200
Charlotte, North Carolina 28202
Attention: Jonathan J. Nugent
Facsimile No. (704) 331-7598

or addressed as such party may from time to time designate by written notice to the other parties.

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

For purposes of this Subsection, `Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York.

15. - APPLICABLE LAW

15.1

CHOICE OF LAW. This Security Instrument shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and the applicable laws of the United States of America.

15.2

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 Iiability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or to pay. If by the terms of this Security Instrument or the Note, Borrower is at any time required or obligated to gay interest on the Debt at a rate in excess of such maximum rate, the rate of 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.

15.3

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.

16. - SECONDARY MARKET

16.1

TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the Note, this Security Instrument an the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities”). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities or any rating agency (a "Rating Agency') rating such Securities (all of the foregoing entities collectively referred to as the "Investor") and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitor and the Property, whether furnished by Borrower, any Guarantor, any Indemnito r or otherwise, as Lender determines necessary or desirable. Borrower, any Guarantor and any

BOOK 3293 PAGE 263

Indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section, provided such cooperation does not require Borrower to incur any material cost or expense. Borrower shall also furnish and Borrower any Guarantor and any Indemnitor consent to Lender furnishing to such Investors or such prospective Investors or Rating Agency any and all available information concerning the Property, the Leases, the financial condition of Borrower, any Guarantor and any Indemnitor as may be requested by Lender, any Investor or any prospective Investor or Rating Agency in connection with any sale, transfer or participation interest.

17. - COSTS

17.1

PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges and confirms that Lender shall be entitled to impose certain administrative processing and/or commitment fees in connection with: (a extensions, renewals, modifications, amendments and terminations of the Loan Documents requested by Borrower, (b) the release or substitution of collateral for the Loan requested by Borrower, and that Lender shall be entitled to reimbursement for its reasonable out-of-pocket costs and expenses associated with its provision of consents, waivers and approvals under the Loan Documents (the occurrence of any of the above shall be caIIed 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, which are required by law, regulation or any, governmental or quasi-governmental authority. Borrower hereby acknowledges and agre es to pay, immediately, upon demand, all such fees, costs and expenses.

17.2

ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower shall pay all reasonable legal fees incurred by Lender in connection with the preparation of the Note, this Security Instrument and the other Loan Documents, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting its interest in the Property or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and is continuing, together with interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses are paid by Borrower.

18. - DEFINITIONS

18.1

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

19. - MISCELLANEOUS PROVISIONS

19.1

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, waver, extension, change, discharge or termination is sought.

BOOK 3293 PAGE 264

19.2

LIABILITY. 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.

19.3

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

19.4

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

19.5

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.

19.6

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

19.7

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 nights, 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 payment and performance of the Obligations.

19.8

ENTIRE AGREEMENT. The Note, this Security Instrument and the other Loan Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the transactions arising in connection with the Debt and supersede all prior written or oral understandings and agreements between Borrower and Lender with respect thereto. Borrower hereby acknowledges that, except as incorporated in writing in the Note, this Security Instrument and the other Loan Documents, there are not, and were not, and no persons are or were authorized by Lender to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Note, this Security Instrument and the other Loan Documents.

20. - STATE SPECIFIC PROVISIONS

20.1

ACCELERATION: REMEDIES.

(a)

If, following the occurrence of an Event of Default, Borrower fails to cure said default within applicable cure or grace periods, if any, Lender, at Lender's option, may declare the Debt to be immediately due and payable without further demand, and may invoke the power of sale and any other remedies permitted by Virginia law or provided in this Security Instrument or in any other Loan Document. Borrower acknowledges that the power of sale granted in this Security Instrument may be exercised by Lender without prior judicial hearing. Borrower has the right to bring an action to assert that an Event of Default does not exist or to raise any other defense Borrower may have to acceleration and sale. Lender shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including attorneys' fees, costs of documentary evidence, abstracts and title reports.

3293 PAGE 265

(b)

If Lender invokes the power of sale, Lender or Trustee shall deliver a copy of a notice of sale to Borrower in the manner prescribed by Virginia law. Trustee shall give public notice of the sale in the manner prescribed by Section 55-59.2 of the Code of Virginia (1950) and shall sell the Property in accordance with Virginia law. Borrower agrees that publication of a notice of sale once (1) per week for four (4) successive weeks in a newspaper having general circulation in the city or county in which the Property is located shall constitute sufficient notice of the sale. Trustee, without demand on Borrower, sell the property at public auction to the highest bidder at the time and place and under the terms designated in the notice of sale in one or more parcels and in such order as Trustee may determine. Trustee may postpone the sale of all or any part of the property by public announcement at the time and place of any previously scheduled sale or by advertising in accordance with Virginia law. Lender or Lender's designee may purchase the Property at any sale.

(c)

Trustee shall deliver to the purchaser at the sale Trustee's deed conveying the property so sold with special warranty of title. The recitals in Trustee's deed shall be prima facie evidence of the trust of the statements made in those recitals. Trustee shall apply the proceeds of the sale in the following order. (a) to all costs and expenses of the sale, including Trustee's fees of one percent (10/6) of the gross sale price, attorneys' fees and costs of title evidence; (b) to the discharge of all taxes, if any, as provided by Virginia law; (c) to the Debt in such order as Lender, in Lender's discretion, directs; and (d) the excess, if any, to the person or persons legally entitled to the excess, including if any, the holders of liens inferior to this Security Instrument in the order of their priority, provided tat Trustee has actual notice of such liens. Trustee shall not be required to take possession of th e Property before the sale or to deliver possession of the property to the purchase at the sale.

20.2

STATUTORY PROVISIONS. The following provisions of Section 55-60, Code of Virginia (1950), as amended, are made applicable to this Security Instrument:

Exemptions waived
Subject to all upon default Renewal or extension permitted Substitution of trustee permitted Any trustee may act

20.3

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

21. - SUBORDINATION OF FEE SIMPLE

21.1

SUBORDINATION OF FEE SIMPLE.

(a)

Ground Lessor executes this Security Instrument solely for the purpose of (i} conveying its fee simple title and reversionary interest in and to the Property as security for the Debt and (ii) subordinating the Ground Lease to this Security Instrument as set forth in Section 21.2. It is expressly understood and agreed by and between the parties hereto, anything herein to the contrary notwithstanding, that any and all of the covenants, undertakings and agreements made in this Security Instrument on the part of the Ground Lessor, while in form purporting to be the covenants, undertakings, and agreements of the Ground Lessor, are nevertheless made and intended not as personal covenants, undertakings and agreements by the Ground Lessor or for the purpose or with the intention of binding the Ground Lessor personally but are made and intended for the purpose of binding only the Ground Lessor's rights and interest in the Property and Ground Lease to the provisions of this Security Instrument; and that no personal liability or personal responsibility is assumed by or shall at any time be asserted or enforceable at law or in any proceeding of any nature seeking specific performance or any

BOOK 3293 PAGE 266

other equitable remedy (other than an equitable remedy enforceable only as to the Property and/or the Ground Lease which is sought in an in rem proceeding in respect thereof), against the Ground Lessor on account of this Security Instrument or on account of any covenant, undertaking or agreement of the Ground Lessor in this Security Instrument contained, either expressed or implied, all such personal liability, if any, being expressly waived and released.

21.2

SUBORDINATION OF GROUND LEASE. Borrower and Ground Lessor agree with Lender and the Trustee that the Ground Lease and all their estates, rights and interests thereunder are and shall be inferior in dignity and subordinate in all respects to this Security Instrument and the lien hereof, and, subject to the prior written consent of Ground Lessor as required by the Ground Lease (Ground Lessor hereby reserving all such rights) to all renewals, modifications, consolidations, replacements and extensions hereof, and to all advances made hereon or hereunder.

[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

BOOK 3293 PAGE 267

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

BORROWER:

OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership

By: /s/ James N. Plotkin

Name: James N. Plotkin
Title: General Partner

By: Ronald M. Plotkin
Title: General Partner

By: /s/ James N. Plotkin
Name: James N. Plotkin
Title: Attorney-in-Fact for Ronald M. Plotkin

BOOK 3293 PAGE 268

IN WITNESS WHEREOF, THIS SECURITY AGREEMENT has been executed as of the day and year first above written.

GROUND LESSOR:

Ground Lessor executes this Security Instrument solely for the purposes set forth in Article 21 hereof.

AETNA LIFE INSURANCE COMPANY, a Connecticut corporation

By: /s/ Peter S. Atwood

Name: Peter S. Atwood
Title: Vice President

BOOK 3293 PAGE 269

ACKNOWLEDGEMENTS

STATE/COMMONWEALTH OF VIRGINIA

~~CITY~~/COUNTY OFHENRICO, to wit:

I, the undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N. Plotkin, whose name as General Partner of OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership (`Borrower"), is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Borrower:

GIVEN under my hand and seal this 27th day of MAY 1998.

/s/_________________________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

STATE/COMMONWEALTH OF VIRGINIA

~~CITY~~/COUNTY OFHENRICO, to wit:

I, the undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N. Plotkin, whose name as attorney-in-fact for Ronald M. Plotkin, a General Partner of OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership ("Borrower"), is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Borrower.

GIVEN under my hand and seal this 27th day of May, 1998.

/s/_________________________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

BOOK 3293 PAGE 270

STATE/COMMONWEALTH OF CONNECTICUT

CITY/COUNTY OF HARTFORD, to wit:

I, then undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that PETER S. ATWOOD, whose name as VICE PRESIDENT for Aetna Life Insurance Company, a Connecticut corporation ("Aetna"), is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Aetna.

GIVEN under my hand and seal this 1st day of June, 1998.

My Commission Expires:

/s/ Margaret Walsh
NOTARY PUBLIC

MARGARET WALSH
NOTARY PUBLIC WITHIN AND FOR
THE STATE OF CONNECTICUT
MY COMMISSION EXPITES FEBRUARY 28, 2002.

BOOK 3293 PAGE 273

EXHIBIT B

REPLACEMENT RESERVE AND LEASING RESERVE REQUIREMENTS

Defined Terms

All capitalized terms used herein and not defined in the Security Instrument shall have the meanings set forth in Section 7 hereof. To the extent any Reserve Deposit is assigned the meaning "none" in the Reserve Letter, the provisions set forth in this Exhibit B specifically relating to the making or application of such Reserve Deposits shall be disregarded. All provisions set forth in this Exhibit B specifically relating to "Leasing Reserve" and 'Teasing Account" and "Leasing Commissions" shall be disregarded.

2. Reserve Deposits.

(a)

Concurrently with the execution of this Security Instrument, Borrower shall deposit with Lender the Deferred Maintenance Deposit. The Deferred Maintenance Deposit shall be applied as provided in Section 4.1 hereof. No interest shall be paid on the Deferred Maintenance Deposit.

(b)

Commencing on the first date that a regularly scheduled payment of principal or interest is due under the Note, and continuing on the first day of each consecutive month thereafter, Borrower shall be required to make a Monthly Deposit.

(c)

Lender shall deposit each Monthly Deposit, as received, in an escrow account (the "Reserve"). Out of each Monthly Deposit, the Monthly Replacement Account Deposit shall be allocated to an account (the "Replacement Account") for the payment of Replacements and the Monthly Leasing Account Deposit shall be allocated to an account (the "Leasing Account") for the payment of Tenant Improvements and Leasing Commissions (as defined below) in conjunction with Leases (as hereinafter defined).

(d)

Lender shall maintain a record of all deposits into and withdrawals from the Reserve and their allocation to the Replacement Account and the Leasing Account. Lender or a designated representative of Lender shall have the sole right to make withdrawals from such account.

(e)

Interest will be credited monthly, to each of the Replacement Account and the Leasing Account based on the NationsBank Insured Business Investment Account rate as of the last day of the month times the ensuing daily outstanding balances in each such account. Borrower shall be required to pay, with respect to the Replacement Account, a one-time set up fee of $250 and either (1) an additional fee of $750 on January 2 of each year after the date hereof, or (2) a $250 fee per draw from said Replacement Account. Borrower shall be required to pay, with respect to the Leasing Account, a one-time set up fee of $250 and either (1) an additional fee of $750 on January 2 of each ear after the date hereof, or (2) a $250 fee per draw from said Leasing Account. Such fee shall be withdrawn from each of the Replacement Account and the Leasing Account by Lender. All interest earned on funds in the Replacement Account and the Leasi ng Account shall be added to and become part of the Reserve, and shall be for the benefit of Borrower, subject to Lender's rights pursuant to the terms of this Security Instrument.

(f)

Notwithstanding anything contained in the Loan Documents to the contrary, Borrower shall not be required to pay a Monthly Replacement Account Deposit in excess of $1,597.52. Borrower shall not be required to make deposits to the Monthly Replacement Account when the amount on deposit therein exceeds $38,340.30.

3. Disbursements.

(a)

Provided no Event of Default exists, Lender shall make disbursements of funds available in the Replacement Account to reimburse Borrower for Replacements.

BOOK 3293 PAGE 274

(b)

Intentionally Deleted.

(c)

Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in this Section 3, disburse to Borrower amounts from the Reserve necessary to reimburse Borrower for the actual costs of any work relating to Replacements or Tenant Improvements (collectively, "Work"). Failure by Lender respond to a to disbursement request or failure by Lender to specify what additional information is requested of Borrower within ten (1) business days after receipt of the disbursement request shall be deemed to be a waiver by Lender of its rights to reject the disbursement request based on non-compliance with this Section 3(c) of Exhibit B. The disbursement request of Borrower must notify Lender of this ten (10) day response time limit before this waiver provision shall apply.

(d)

Each request for disbursement from the Reserve shall be in a form specified or approved by Lender, and shall be accompanied by evidence of the satisfactory completion of the Work, as the case may be, and such bills invoices and other evidence of the incurrence of the related costs and expenses as Lender may reasonably request.

(e)

Borrower shall not make a request for disbursement from the Reserve more frequently than once in any calendar quarter.

(f)

Borrower shall not make a request for disbursement from the Reserve in an amount less than the lesser of (i) $5,000, and (ii) the total cost of the Replacement for which the disbursement is requested.

Performance of Replacements

4.1

Deferred Maintenance. Notwithstanding anything contained herein to the contrary, Borrower agrees to perform all of the Scheduled Repairs within sixty (60) days after the date hereof or such other period of time, if any, set forth in the Reserve Letter. The Deferred Maintenance Deposit shall be used solely for the payment of the actual costs of the Scheduled Repairs. Upon completion of the Scheduled Repairs in accordance with the requirements hereof, the portion of the Deferred Maintenance Deposit remaining undisbursed, if any, shall be disbursed to Borrower. All conditions, covenants and agreements set forth herein with respect to a disbursement from the Replacement Account shall apply to the disbursements from the Deferred Maintenance Deposit.

4.2

Entry Onto Property; Inspections. Lender may inspect the Property in connection with any Work prior to disbursing funds from the Reserve with respect thereto. In connection with any Work that is (i) a structural repair or improvement, (ii} a replacement or repair of a major component or element of any part of the Property or (iii) Scheduled Repairs, Lender may require, at Borrower's expense, one or more inspections and/or certificates of completion by an appropriate independent, qualified professional (e.g., architect, engineer, consultant) approved by Lender. In addition to Lender's costs and expenses, Borrower shall pay Lender a reasonable inspection fee, provided, however, such fees shall not exceed $500, in the aggregate, in any calendar year.

Borrower’s Records. Borrower shall furnish such financial statements, invoices, records, papers and documents relating to the Property as Lender may reasonably require from time to time to make the determinations permitted or required to be made by Lender with respect to disbursements of the Deferred Maintenance Deposit and/or the Reserve.

Insufficiency of Reserve Balances, Temporary Deferral of Monthly Deposits. The insufficiency of any balance in the Reserve or the Deferred Maintenance Deposit shall not abrogate Borrower's agreement to fulfill its obligations contained in this Security Instrument. In the event Lender determines that (i) the balance in the Reserve is less than the current estimated cost to complete the Work which Borrower, in the prudent operation of the Property can reasonably be anticipated to incur during the succeeding twenty four (24) months, or (ii) the balance of the Deferred Maintenance Deposit is

less than the amount necessary to complete the Scheduled Repairs, Borrower shall deposit the shortage within ten (10) days of request by Lender. In- the event Lender determines from time to time.

BOOK 3293 PAGE 275

based on Lender's inspections that the amount of the Monthly Deposit is insufficient to fund the cost of likely Work and related contingencies that may arise during the remaining term of the Loan, Lender may require an increase in the amount of the Monthly Deposits upon thirty (30) days prior written notice to Borrower. Lender may approve a temporary deferral or a reduction in the amount of the Monthly Deposit; provided, however, that if Lender approves either a temporary deferral or reduction in the amount of the Monthly Deposit, such action by Lender shall not prevent Lender from requiring Borrower to resume payment of the Monthly Deposits on any date that Lender may deem appropriate below:

Certain Defined Terms. The following terms shall have the meanings assigned to them

(a)

"Deferred Maintenance Deposit" means the Deferred Maintenance Deposit set forth in the Reserve letter, if any.

(b)

"Monthly Deposit" means the sum of the Monthly Leasing Account Deposit and the Monthly Replacement Account Deposit.

(c)

"Monthly Leasing Account Deposit" means the Monthly Leasing Account Deposit set forth in the Reserve Letter, if any.

(d)

"Monthly Replacement Account Deposit" means the Monthly Replacement Account Deposit set forth in the Reserve Letter. If there is no Monthly Leasing Account Deposit, the Monthly Replacement Account Deposit shall have the same meaning as the Monthly Deposit.

(e)

"Replacements" means the costs of any repairs, improvements, equipment, alterations, additions, changes, replacements and other items which, under generally accepted accounting principles, consistently applied, are properly classified as capital expenditures or capital improvements and, in the case of multifamily Projects only shall include the costs of window treatments and carpeting, blinds, equipment and appliances, and painting of the exterior of the Property), but excluding (i) costs of routine maintenance to the Property; (ii) the costs of salaries, benefits and administrative expenses related to the employment of (A) officers and executives of Borrower, and of employees of Borrower above the level of building manager, and (B) employees of Borrower at or below the level of building manager, except in the case of those costs which Borrower can demonstrate to Lender's satisfaction to be properly allocable to the work performed by such employees in connection with Replacements; (iii) the cost of any items for which Borrower is reimbursed by insurance or otherwise; (iv) the cost of any landscaping work to the Property-, (v) the cost of any material additions or material alterations to the Property after the date hereof; and (vi) (except in the case of multifamily projects) the cost of any alterations, additions, changes, replacements and improvements that are made primarily in order to prepare space for occupancy by a tenant other than "vanilla box" alterations, additions, changes , replacements and improvements.

(f)

"Reserve Deposits" shall mean the Deferred Maintenance Deposit and the Monthly Deposit.

(g)

"Reserve Letter" means a letter from Borrower to Lender of even date herewith confirming the amount of the Monthly Replacement Account Deposit, the Monthly Leasing Deposit Account Deposit (if any) and the Deferred Maintenance Deposit, if any, and the Scheduled Repairs, if any.

(h)

"Scheduled Repairs" means the Scheduled Repairs described in the Reserve letter, if any.

BOOK 3293 PAGE 276

EXHIBIT C

The term 'Debt Service Coverage Ratio" shall mean the ratio of (a) the NOI (hereinafter defined) produced by the operation of the Property during the twelve (12) calendar month period immediately preceding the calculation to (b) the Annual Debt Service.

The Term "NOI" shall mean the Gross Income (as hereinafter defined) derived from the operation of the Property, less Expenses (hereinafter defined).

The term "Annual Debt Service" shall mean an amount equal to twelve (12) times the Constant Monthly Payment payable under the Note.

The term "Gross Income" means (and includes only) Rents (as defined in the Security Instruments) and specifically embracing all amounts classified as "Rent" or "Additional Rent" under individual Leases, including, but not limited to percentage Rents, CAM fees, taxes, insurance, marketing and promotion fund fees and Merchant Association dues and fees such other income, including any rent loss or business interruption insurance proceeds, laundry, parking, vending or concession income, which are actually received by the Borrower or its agents or representatives. Notwithstanding the foregoing, Gross Income shall not include (a) condemnation or insurance proceeds (excluding rent or business interruption insurance proceeds); (b) any proceeds from the sale, exchange, transfer, financing or refinancing of all or any portion of the Property; (c) amounts received from tenants as a security depo sit; (d) any other type of income otherwise includable in NOI but aid directly by any tenant to a person or entity other than Borrower or its agents ore representatives; or (e) interest income.

The term "Expenses" shall mean the aggregate of the following items: (a) real estate taxes, general and special assessments or similar charges; (b) sales, use and person property taxes; (c) management fees of not less than five percent (5%) of the gross income derived from the operation of the Property and disbursements for management services whether such services are performed at the Property or off site; (d) wages, salaries, pension costs and all fringe and other employee-related benefits and expenses, up to and including (but not above) the level of the on-site manager, engaged in the repair, operation and maintenance of the Property and service to tenants and on-site personnel engaged in audit and accounting functions performed by Borrower; (e) insurance premiums including, but not limited to, casualty, liability, rent and fidelity, insurance premiums; (f) cost of all electricity, oil, gas, water, s team, HVAC and any other energy, utility or similar item and overtime services, the cost of building and cleaning supplies, and all other administrative, management, ownership, operating, advertising, marketing and maintenance expenses incurred in connection with the operation of Property (including without limitation, all landscaping, common areas, parking lots and roadways); (g) cost of necessary cleaning, repair, replacement maintenance, decoration or painting of existing improvements on the Property (including, without limitation, parking lots and roadways), of like kind and quality or such kind or quality which is necessary to maintain the Property to the same standards standards as competitive properties of similar size and location of the Property, together with adequate reserves for the repair and replacement of capital improvements on the Property acceptable to Lender, (h) the cost of such other maintenance materials, HVAC repairs, parts and supplies, and all equipment to be used in the ordinary cou rse of business, which is not capitalized in accordance with generally accepted accounting principles ("GAAP'); (i) cost of tenants concessions to the extent not included in management fees paid by (Borrower) payable by Borrower pursuant to Leases in effect for the Property; (j) legal, accounting and other professional expenses incurred in connection with the Property; (k) casualty losses to the extent not reimbursed by a third party; and (1) all amounts that should be reserved, as reasonably determined by the Borrower with approval by the Lender in its reasonable discretion, for repair or maintenance of the Property and to maintain the value of the Property including replacement reserves in amounts not less than those required in Exhibit B of this Security Instrument. The Expenses shall be based on the above-described items actually incurred or payable on an accrual basis in accordance with GAAP by Borrower during the twelve (12) month period ending one month prior to the date on which the NOI is to be calculated (except the capital expenses and reserves set forth in subsection (g) above), with customary adjustments for items such as taxes and insurance which accrue but are paid periodically, as adjusted by Lender to reflect projected adjustments for the subsequent twelve (12) month period beginning on the date on which the NOI is to be calculated.

BOOK 3293 PAGE 277

Notwithstanding the foregoing, the term "Expenses" shall not include (i) depreciation or amortization any other non-cash of expense unless approved by Lender; (ii) interest, principal, fees, costs and expense reimbursements of Lender in administrating the Loan or exercising remedies under the Loan Documents; or (iii) any expenditure (other than leasing commissions and tenant concessions) properly treated as a capital item under GAAP and such expenditure is treated by Borrower as a capital item in Borrower's financial statements.

VIRGINIA:

IN THE CLERK'S OFFICE OF THE CIRCUIT COURT OF CHESTERFIELD COUNTY THE 2 DAY OF JUN 1998, THIS DEED WAS PRESENTED AND WITH THE CERTIFICATE .... , ADMITTED TO
RECORD AT 14:25 O’CLOCK. THE TAX IMPOSED
BY SECTION 56 . 1-802 IN THE AMOUNT OF
$.00 HAS BEEN PAID.

TESTE: JUDY L. WORTHINGTON, CLERK

EXHIBIT B-3

BOOK 3293 PAGE278

OXBRIDGE SQUARE LIMITED PARTNERSHIP, as assignor

(Borrower)

LAUREATE REALTY SERVICES, INC., as assignee

(Lender)

ASSIGNMENT

OF LEASES AND RENTS

Dated: June 2, 1998

Location: Oxbridge Square Shopping Center

County: Chesterfield

UPON RECORDATION RETURN TO:

Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
200 North Tryon Street, Ste. 4200
Charlotte, North Carolina 28202-4006
Attn: Jonathan J. Nugent, Esq.

BOOK 3293 PAGE279

THIS ASSIGNMENT OF LEASES AND RENTS ("Assignment") is made as of the 2d day of June, 1998, by OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, as assignor, having its principal place of business at ("Borrower") to LAUREATE REALTY SERVICES, INC., a South Carolina corporation, having an address at 227 West Trade Street, Suite 400, Charlotte, North Carolina 28202, Attn: Julie Johnson, as assignee ("Lender").

RECITALS:

Borrower, by its promissory note of even date herewith given to Lender, is indebted to Lender in the principal sum of Four Million Five Hundred Seventeen Thousand Five Hundred and No/100 Dollars ($4,517,500.00), in lawful money of the United States of America (the note, together

with all extensions, renewals, modifications, substitutions and amendments thereof, the "Note"); with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note.

Borrower desires to secure the payment and performance of the Obligations as defined in Article 2 of the Security Instrument (defined below}.

1. ASSIGNMENT

1.1

PROPERTY ASSIGNED. Borrower hereby absolutely and unconditionally assigns and grants to Lender the following property, rights, interests and estates, now owned, or hereafter acquired by Borrower:

(a)

Leases. All existing and future leases affecting the use, enjoyment, or occupancy of all or any part of that certain lot or piece of land, more particularly described in Exhibit A annexed hereto and made a part hereof, together with the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter located thereon (collectively, the "Property") and the right, title and interest of Borrower, its successors and assigns, therein and thereunder.

(b)

Other Leases and Agreements. All other leases and other agreements, whether or not in writing, affecting the use, enjoyment or occupancy of the Property or any portion thereof now or hereafter made, whether made before or after the filing by or against Borrower of any petition for relief under 11 U.S.C. § 101 et seq., as the same may be amended from time to time (the "Bankruptcy Code"), together with any extension, renewal or replacement of the same, this Assignment of other present and future leases and present and future agreements being effective without further or supplemental assignment. The leases described in Subsection 1.1 (a) and the leases and other agreements described in this Subsection 1.1(b), together with all other present and future leases and present and future agreements and any extension or renewal of the same are collectively referred to as the "Leases".

(c)

Rents, All rents, additional rents, revenues, income, issues and profits arising from the Leases and renewals and replacements thereof and any cash or security deposited in connection therewith and together with all rents, revenues, income, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the use, enjoyment and occupancy of the Property whether aid or accruing before or after the filing by or against Borrower of any petition for relief under the bankruptcy Code {collectively, the "Rents'}.

(d)

Bankruptcy Claims. All of Borrower's claims and rights (the "Bankruptcy Claims") to the payment of damages arising from any rejection by a lessee of any Lease under the Bankruptcy Code, 11 U.S.C. § 101 et seq., as the same may be amended (the "Bankruptcy Code").

(e)

Lease Guaranties. All of Borrower's right, title and interest in and claims under any and all lease guaranties, letters of credit and any other credit support given by any guarantor in connection with any of the Leases (individually, a "Lease Guarantor" and collectively, the "Lease Guarantors") to Borrower (individually, a "Lease Guaranty" and collectively, the "Lease Guaranties").

(f)

Proceeds.

All proceeds from the sale or other disposition of the Leases, the Rents, the Lease Guaranties and the Bankruptcy Claims.

(g)

Other. All rights, powers, privileges, options and other benefits of Borrower as lessor under the Leases and beneficiary under the Lease Guaranties, including without limitation the immediate and continuing right to make claim for, receive, collect and receipt for all Rents payable or

BOOK 3293 PAGE280

receivable under the Leases and all sums payable under the Lease Guaranties or pursuant thereto (and to apply the same to the payment of the Debt (as hereinafter defined)), and to do all other things which Borrower or any lessor is or may become entitled to do under the Leases or the Lease Guaranties.

(h)

Entry.. The right, at Lender's 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,

(i)

Power of Attorney. Borrower's irrevocable power of attorney, coupled with an interest, to take any and all of the actions set forth in Section 3.1 of this Assignment and any or all other actions designated by Lender, but subject to the provisions of the Loan Documents and subject to the

rights of Dumbarton Properties, Inc., {"Property Manager"} dated July 15, 1980 by and between Borrower and Property Manager, for the proper management and preservation of the Property.

(j)

Other Rights and Agreements. Any and all other rights of Borrower in and to the items set forth in subsections (a) through (i) above, and all amendments, modifications, replacements, renewals and substitutions thereof

1.2

CONSIDERATION, This Assignment is made in consideration of that certain loan (the "Loan") made by Lender to Borrower evidenced by the Note and secured by that certain mortgage and security agreement, deed of trust and security agreement, deed to secure debt and security agreement or similar real estate security instrument given by Borrower to or for the benefit of Lender, dated the date hereof, in the principal sum of Four Million Six Hundred Thousand and No/100 Dollars ($4,600,000.00), covering the Property and intended to be duly recorded in the public records of the county where the Property is located (the "Security Instrument"). The principal sum, interest and all other sums due and payable under the Note, the Security Instrument, this Assignment and the other Loan Documents (as defined in the Security Instrument) are collectively referred to as the "Debt".

TERMS OF ASSIGNMENT

2,1

PRESENT ASSIGNMENT AND LICENSE BACK. It is intended by Borrower that this Assignment constitute a present, absolute assignment of the Leases, Rents, Lease Guaranties and Bankruptcy Claims, and not an assignment for additional security only. Nevertheless, subject to the terms of this Section 2.I, Lender grants to Borrower a revocable license to collect and receive the Rents and other sums due under the Lease Guaranties. Borrower shall hold the Rents and all sums received pursuant to any Lease Guaranty, or a portion thereof sufficient to discharge all current sums due on the Debt, in trust for the benefit of Lender for use in the payment of such sums.

2.2

NOTICE TO LESSEES.. Borrower hereby agrees to authorize and direct the lessees named in the Leases or any other or future lessees or occupants of the Property and all Lease Guarantors to pay over to Lender or to such other partyas Lender directs all Rents and all sums due under any Lease Guaranties upon receipt from Lender of written notice to the effect that Lender is then the holder of the Security Instrument and that a Default (defined below) exists which has not been cured within the applicable grace and cure periods set forth in the Loan Documents, and to continue so to do until otherwise notified by Lender.

2.3

INCORPORATION BY REFERENCE. All representations, warranties, covenants, conditions and agreements contained in the Security Instrument as same may be modified, renewed, substituted or extended are hereby made a part of this Assignment to the same extent and with the same force as if fully set forth herein.

3. REMEDIES

3.1

REMEDIES OF LENDER. Upon or at any time after the occurrence of a default under this Assignment or an Event of Default (as defined in the Security Instrument) (a "Default") and the expiration of all applicable grace and cure periods provided in the Loan Documents, the license granted to Borrower in Section 2.1 of this Assignment shall automatically be revoked, and Lender shall immediately be entitled to possession of all Rents and sums due under any Lease Guaranties, whether or not Lender enters upon or takes control of the Property. In addition, Lender may, at its option, without waiving such Default, without notice and without regard to the adequacy of the security for the, Debt, either in person or by agent, nominee or attorney, with or without bringing any action or proceeding, or by a receiver appointed by a court, but subject to the provisions of Section 10.1 of the Security Instrument, dispossess Borrower and its agents and servants from the Property, without liability for trespass, damages or otherwise and exclude Borrower and its agents or servants wholly therefrom, and take possession of the Property and all books, records and accounts relating thereto and have, hold, manage, lease and operate the Property on such terms and for such period of time as Lender may deem proper and either with or without taking possession of the Property in its own name, demand, sue for or

BOOK 3293 PAGE 281

otherwise collect and receive all Rents and sums due under all Lease Guaranties, including those past due and unpaid with full power to make from time to time all alterations, renovations, repairs or replacements thereto or thereof as may seem proper to Lender and may apply the Rents and sums received pursuant to any Lease Guaranties to the payment of the following in such order and proportion as Lender in its sole discretion may determine, any law, custom or use to the contrary notwithstanding: (a) all expenses of managing and securing the Property, including, without being limited thereto, the salaries, fees and wages of a managing agent and such other employees or agents as Lender may deem necessary or desirable and all expenses of operating and maintaining the Property, including, without being limited thereto, all taxes, charges, which assessments, water charges, sewer rents and any other liens, and premiums for all insurance which Lender may deem necessary or desirable, and the cost of all alterations, renovations, repairs or replacements, and all expenses incident to taking and retaining possession of the Property; and (b) the Debt, together with all costs and reasonable attorneys' fees. In addition, upon the occurrence of a Default, Lender, at its option, may (I) complete any construction on the Property in such manner and form as Lender deems advisable, (2) exercise all rights and powers of Borrower, including, without limitation, the right to negotiate, execute, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents from the Property and all sums due under any Lease Guaranties, (3) either 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 occupancy of such part of the Property as may be in possession of Borrower or (4) require Borrower to vacate and surrender possessi on of the Property to Lender or to such receiver and, in default thereof, Borrower may be evicted by summary proceedings or otherwise.

3.2

OTHER REMEDIES. Nothing contained in this Assignment and no act done or omitted by Lender pursuant to the power and rightsanted to Lender hereunder shall be deemed to be a waiver by Lender of its rights and remedies under the Note, the Security Instrument, or the other Loan Documents and this Assignment is made and accepted without prejudice to any of the rights and remedies possessed by Lender under the terms thereof. The right of Lender to collect the Debt and to enforce any other security therefor held by it may be exercised by Lender either prior to, simultaneously with, or subsequent to any action taken by it hereunder. Borrower hereby absolutely, unconditionally and irrevocably waives any and all rights to assert any setoff, counterclaim or crossclaim of any nature whatsoever with respect to the obligations of Borrower under this Assignment, the Note, the Security Instrument, the other Loan Documents or otherwise with res pect to the Loan in any action or proceeding brought by Lender to collect same, or any portion thereof, or to enforce and realize upon the lien and security interest created by this Assignment, the Note, the Security Instrument, or any of the other Loan Documents (provided, however, that the foregoing shall not be deemed a waiver of Borrower's right to assert any compulsory counterclaim if such counterclaim is compelled under local law or rule of procedure, nor shall the foregoing be deemed a waiver of Borrower's right to assert any claim which would constitute a defense, setoff, counterclaim or crossclaim of any nature whatsoever against Lender in any separate action or proceeding).

3.3

OTHER SECURITY. Lender may take or release other security for the payment of the Debt, may release any party primarily or secondarily liable therefor and may apply any other security held by it to the reduction or satisfaction of the Debt without prejudice to any of its rights under this Assignment,.

3.4

NON-WAIVER. The exercise by Lender of the option granted it in Section 3.1 of this Assignment and the collection of the Rents and sums due under the Lease Guaranties and the application thereof as herein provided shall not be considered a waiver of any default by Borrower under the Note, the Security Instrument the Leases, this Assignment or the other Loan Documents. 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 Assignment. Borrower shall not be relieved of Borrower's obligations hereunder by reason of (a) the failure of Lender to comply with any request of Borrower or any other party to take any action to enforce any of the provisions hereof or of the Security Instrument, the Note or the other Loan Documents, (b) the release regardless of consideration, of the whole or any part of the Property, or (c) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of this Assignment, the Note, the Security Instrument or the other Loan Documents. 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 any action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender thereafter to enforce its rights under this Assignment. The rights of Lender under this Assignment shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Nothing in this Assignment shall entitle Lender to seek or^- recover a money Judgement from Borrower in derogation of the provisions of the Note and Security Instrument nor shall the terms her eof modify, expand or supplement the exceptions in the Note or Security Instrument to Lender's agreement not to seek or collect money judgement against Borrower.

BOOK 3293 PAGE 282

3.5

BANKRUPTCY. (a) Upon or at any time after the occurrence of a Default, Lender shall have the right to proceed in its own name or in the name of Borrower in respect of any claim, suit, action or proceeding relating to the rejection of any Lease, including, without limitation, the right 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 lessee under such Lease under the Bankruptcy Code.

(b)

If there shall be filed by or against Borrower a petition under the Bankruptcy Code, and Borrower, as lessor under any Lease, shall determine to reject such 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 Lease. Lender shall have the right, but not the obligation to serve upon Borrower within such ten-day period a notice stating that (i) Lender demands that Borrower assume and assign the Lease to Lender pursuant to Section 365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate assurance of future performance under the Lease. If Lender serves upon Borrower the notice described in the preceding sentence, Borrower shall not seek to reject the Lease and shall comply with the demand provided far in clause (i) of the pr eceding 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.

NO LIABILITY, ]FURTHER ASSURANCES

4.1

NO LIABILITY OF LENDER. This Assignment shall not be construed to bind Lender to the performance of any of the covenants, conditions or provisions contained in any Lease or Lease Guaranty or otherwise impose any obligation upon Lender except that nothing herein contained shall relieve Lender of its obligations under the terms of any agreement by which a Tenant has agreed to subordinate and attorn to Lender. Lender shall not be liable for any loss sustained by Borrower resulting

from Lender's failure to let the Property after a Default or from any other act or omission of Lender in managing the Property after a Default unless such loss is caused by the willful misconduct and bad faith of Lender. Lender shall not be obligated to perform or discharge any obligation, duty or liability under the Leases or any_. Lease Guaranties or under or by reason of this Assignment and Borrower shall, and hereby agrees, to indemnify Lender for, and to hold Lender harmless from, any and all liability, loss or damage which may or might be incurred under the Leases, any Lease Guaranties or under or by reason of this Assignment and from any and all claims and demands whatsoever, including the defense of any such claims or demands which may be asserted against Lender by reason of any alleged obligations and undertakings on its part to perform or discharge any of the terms, co venants or agreements contained in the Leases or any Lease Guaranties. Should Lender incur any such liability, the amount thereof, including costs, expenses and reasonable attorneys' fees, shall be secured by this Assignment and by the Security Instrument and the other Loan Documents and Borrower shall reimburse Lender therefor immediately upon demand and upon the failure of Borrower so to do Lender may, at its option, declare all sums secured by this Assignment and by the Security Instrument and the other Loan Documents immediately due and payable. This Assignment shall not operate to place any obligation or liability for the control, care, management or repair of the Property upon Lender, nor for the carrying out of any of the terms and conditions of the Leases or any Lease Guaranties; nor shall it operate to make Lender responsible or liable far any waste committed on the Property by the tenants or any other parties, or for any dangerous or defective condition of the Property, including without limitation the presence of any Hazardous Substances (as defined in that certain Environmental Indemnity Agreement executed by Borrower in favor of Lender as of even date herewith), or^, for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any tenant, licensee, employee or stranger,

4..2

NO MORTGAGEE IN POSSESSION. Nothing herein contained shall be construed as constituting Lender a "mortgagee in possession" in the absence of the taking of actual possession of the Property by Lender. In the exercise of the powers herein granted Lender, no liability shall be asserted or enforced against Lender, all such liability being expressly waived and released by Borrower.

4.3

FURTHER ASSURANCES. Borrower will, at the cast of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, conveyances, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, require far the better assuring, conveying, assigning, transferring and confirming unto Lender the property and rights hereby assigned or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Assignment or for filing, registering or recording this Assignment and, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower to

BOOK 3293 PAGE283

the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments, to evidence more effectively the lien and security interest hereof in and upon the Leases.

MISCELLANEOUS PROVISIONS

5.1

CONFLICT OF TERMS. In case of any conflict between the terms of this Assignment and the terms of the Security Instrument, the terms of the Security Instrument shall prevail.

5.2

NO ORAL CHANGE. This Assignment 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 the enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

5.3

CERTAIN DEFINITIONS. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Assignment may be used interchangeably in singular or plural form and the word "Borrower " shall mean "each Borrower and any subsequent owner or owners of the Property or any part thereof or interest therein," the word "Lender" shall mean "Lender and

any subsequent holder of the Note," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by the Security Instrument," the word "person" shall include an individual, corporation, partnership, limited liability company, trust, unincorporated association, government, governmental authority, and any other entity, the word "Property" shall include any portion of the Property and any interest therein, and the phrases "attorneys fees", "legal fees" and "counsel fees" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder; 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.

5.4

AUTHORITY. Borrower represents and warrants that it has full power and authority to execute and deliver this Assignment and the execution and delivery of this Assignment has been duly authorized and does not conflict with or constitute a default under any law, judicial order or other agreement affecting Borrower or the Property.

5.5

INAPPLICABLE PROVISIONS. If any term, covenant or condition of this Assignment is held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision.

5.6

DUPLICATE ORIGINALS; COUNTERPARTS. This Assignment may be executed in any number of duplicate originals and each such duplicate original shall be deemed to be an original. This Assignment 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 Assignment. The failure of any party hereto to execute this Assignment, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

5.7

CHOICE OF LAW. This Assignment shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and the applicable laws of the United States of America.

5.8

TERMINATION OF ASSIGNMENT. Upon payment in full of the Debt and the delivery and recording of a satisfaction or discharge of Security Instrument duly executed by Lender, this Assignment shall become and be void and of no effect.

5.9

NOTICES. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed to Borrower or Lender at their addresses set forth in the Security Instrument or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 5.9, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York.

BOOK 3293 PAGE 284

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

5.10

WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THIS ASSIGNMENT, THE NOTE, THE SECURITY INSTRUMENT OR

THE OTHER LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

5.11

SUBMISSION TO JURISDICTION. With respect to any claim or action arising hereunder, Borrower (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State sitting in the county in which the Property is located in which the Property is located and the United States District Court for the county in which the Property is located, and appellate courts from any thereof, and (b) irrevocably waives any objection which it may have at any time to the laying on venue of any suit, action or proceeding arising out of or relating to this Assignment brought in any such court, irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

5-12

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

5.13

HEADINGS, ETC. The headings and captions of various paragraphs of this Assignment 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.

5.14

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.

5.15

SOLE DISCRETION OF LENDER. Wherever pursuant to this Assignment (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 commercially reasonable.

5.16

EXCULPATION. Lender's rights and Borrower's obligations under this Assignment are subject to the provisions of Article 13 of the Security Instrument.

5.17 GROUND LEASE. Notwithstanding anything to the contrary contained herein, Borrower and Lender, by its acceptance of this Assignment, acknowledge and agree that (i) Borrower has only a leasehold interest in the Property pursuant to that certain Lease dated October 21, 1981 (the "Lease") by and between Borrower, as tenant and Aetna Life Insurance Company, as landlord ("Ground Lessor"), (ii) this Assignment shall not operate as an assignment as to "Net Profits" (as that term is defined in the Lease), insofar as Net Profits exceed the amounts owing to Lender under the Loan Documents, or any other rent or other sum due from Borrower, as tenant, to Ground Lessor under the Lease, and (iii) Lender hereby authorizes Borrower to pay any and all such sums due under the Lease to Ground Lessor pursuant to and in accordance with the terms of the Lease.

THIS ASSIGNMENT, together with the covenants and warranties therein contained, shall inure to the benefit of Lender and any subsequent holder of the Security Instrument and shall be binding upon Borrower, its heirs, executors, administrators, successors and assigns and any subsequent owner of the Property.

BOOK 3293 PAGE 285

IN WITNESS WHEREOF, Borrower has executed this instrument the day and year first above written.

BORROWER:

OXBRIDGE SQUARE LIMITED PARTNERSHIP, a

Virginia limited partnership

By: /s/ James N. Plotkin

Name: James N. Plotkin

Title: General Partner

By: Ronald M. Plotkin

Title: General Partner

By: /s/ James N. Plotkin

Name: James N. Plotkin

Title: Attorney-in-Fact for Ronald M. Plotkin

BOOK 3293 PAGE 286

STATE/COMMONWEALTH OF VIRGINIA

~~CITY~~/COUNTY OF HENRICO, to wit:

I, the undersigned, as Notary Public in and for the jurisdiction aforesaid, do hereby certify that James N, Plotkin, whose name as Attorney in Fact for Ronald M. Plotkin, who is a General Partner of OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of OXBRIDGE SQUARE LIMITED PARTNERSHIP

GIVEN under my hand and seal this 27^th day of May, 1998,

[SEAL]

/s/_________________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

STATE/COMMONWEALTH OF

CIT^Y/COUNTY OF HENRICO

, to wit:

GIVEN under my hand and seal this 27^th day of MAY, 1998.

[SEAL]

/s/_________________________________

NOTARY PUBLIC

My Commission Expires: 6/30/01

BOOK 3293 PAGE 287

Exhibit A
(Legal Description)

ALL that certain lot, piece or parcel of real estate together with improvements thereon and appurtenances thereto belonging, lying and being in Midlothian District, Chesterfield County, Virginia containing in the aggregate 14.3691 acres, more or less, and more particularly described as follows:

Commencing at a monument found where the east line of Courthouse Road meets the south line of Hull Street Road; thence continuing along the south line of Hull street Road N67°23'11"E a distance of 163.07 feet to a rod found, the point of beginning; Thence along the south line of Hull Street Road N67°9'51"E a distance of 102.51 feet to a rod set;

Thence N71°17'45"E a distance of 133:.26 feet to a rod set; Thence N67°49'41"E a distance of 341.03 feet to a rod set; Thence S80°12'49"E a distance of 45.33 feet to a rod set on the west line of Oxbridge Road as relocated;

Thence continuing along the west line of Oxbridge Road as relocated 522°11'39"E a distance of 324.39 feet to a R.R. spike found;

Thence along a curve to the right having a radius of 300.00 feet, a chard bearing of S08°44'27"W, a chord of 308.44 feet and a length of 323.95 feet to a rod found;

Thence along a curve to the left having a radius of 430.00, feet, a chord bearing of S26°00'39"W, a chord of 203.17 feet and a length of 205. 11 feet to a rod found;

Thence departing the west line of Oxbridge Road as relocated S67°48'21"W a distance of 578.47 feet to a rod found;

Thence N83°23'11"W a distance of 153.35 feet to a rod found; Thence S07°31'21"W a distance of 96.98 feet to a R.R. spike found;

Thence S28°42'43"W a distance of 81.36 feet to a rod set on the east line of Courthouse Road;

Thence continuing along the east line of Courthouse Road N57°10'31"W, a distance of 49.34 feet to a rod set;
Thence N06°36'07"E a distance of 451.48 feet to a rod set; Thence N83°22'38"W a distance of 5.64 feet to a rod set; Thence N09°20' 59"E a distance of 10.81 feet to a monument found;

Thence N05°35'20"E a distance of 162.96 feet to a monument found;

Thence N07°59'01"W a distance of 16.95 feet to a rod set;

BOOK 3293 PAGE 288

Thence departing the east line of Courthouse Road N67°48'21"E a distance of 237.75 feet to a rod found;

Thence N19°06'09"W a distance of 2i0.00 feet to the point of beginning, containing 625,917 square feet or 14,3691 acres.

AND ALSO BEING the same real estate conveyed to Aetna Life Insurance Company a Connecticut corporation, by deed from Oxbridge Square Limited Partnership, a Virginia limited partnership, dated October 20, 1981, recorded October 20, i981, in the Clerk's office, Circuit Court, Chesterfield County, Virginia, in Deed Book 1567, page 640.

VIRGINIA:

IN THE CLERK’S OFFICE OF THE CIRCUIT
COURT OF CHESTERFIELD COUNTY, THE 2 DAY OF JUN 2998, THIS DEED WAS PRESENTED AND WITH THE CERTIFICATE…, ADMITTED TO RECORD AT 14:25 O’CLOCK. THE TAX IMPOSED BY SECTGION 58.1-802 IN THE AMOUNT OF $.00 HAS BEEN PAID.

TESTE: JUDY L. WORTHINGTON, CLERK

EX-10 9 exh1016oxbcertofassumptor.htm OXBRIDGE SHOPPING CTR CERTIFICATE OF ASSUMPTOR Converted by EDGARwiz

CERTIFICATE OF ASSUMPTOR

In addition to all other representations, warranties and covenants made by OXBRIDGE SQUARE SHOPPING CENTER, LLC, a Virginia limited liability company ("Assumptor"), in connection with Assumptor's assumption of a mortgage loan made by LAUREATE REALTY SERVICES, INC., a South Carolina corporation ("Lender") to OXBRIDGE SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership ("Original Borrower") in the original principal amount of Four Million Five Hundred Seventeen Thousand Five Hundred and No/ 100 Dollars ($4,517,500.00) (the "Loan"), Assumptor does hereby represent, warrant and covenant to LASALLE NATIONAL BANK, as Trustee under that certain Pooling and Servicing Agreement ("PSA") dated as of Augus t 1 , 1998 for certificateholders of G MAC Commercial Mortgage Securities, Inc. Pass-Through Certificates Series 1998-C2 ("Noteholder"), successor in interest to Lender, and Noteholder's successors, transferees and assigns, as of the 2nd day of June, 2004, as follows:

Review of Documents.

Assumptor has reviewed:

(a) the Promissory Note (the "Note") dated June 2, 1998, made by the Original Borrower payable to Lender and evidencing the Loan, (b) the Deed of Trust and Security Agreement (the "Security Instrument") dated June 2, 1998, creating a first lien on certain real property and the improvements located thereon known as Chesterfield County, Virginia (the "Property"), and (c) the Assignment of Leases and Rents dated June 2, 1998 related to the Property (the "Assignment of Leases and Rents") (collectively referred to as the "Loan Documents").

Purpose of Certificate.

This Certificate is delivered to Noteholder in order to induce Noteholder to: (a) consent to the transfer of the Property to Assumptor and the assumption by Assumptor of the obligations of the Original Borrower under the Loan Documents (the "Assumption"). Assumptor hereby acknowledges that Noteholder shall rely upon this Certificate and Assumptor's representations, warranties and covenants contained herein, in consenting to the Transfer.

No Default. The execution, delivery and performance of the obligations imposed on Assumptor under the Loan Documents will not cause Assumptor to be in default under the provisions of any agreement, judgment or order to which Assumptor is a party or by which Assumptor is bound.

Items Due and Payable. To the best of Assumptor's knowledge, no defaults exist under the Loan, and all of the following items regarding the Property which have become due and payable have been paid or, with the approval of Noteholder, an escrow fund sufficient to pay them has been established: taxes; government assessments; insurance premiums; water, sewer and municipal charges; and any other charges affecting the Property.

Compliance with Applicable Laws and Regulations. To the best of Assumptor's knowledge, all improvements to the Property and the use or uses of the Property comply with, and shall remain in compliance with, all applicable statutes, rules and regulations, including all applicable statutes, rules and regulations pertaining to requirements for equal opportunity, antidiscrimination, fair housing, access for the disabled, environmental protection, zoning and land

use. To the best of Assumptor's knowledge, improvements on the Property comply with, and shall remain in compliance with, applicable health, fire, and building codes. To the best of Assumptor's knowledge, there is no evidence of any illegal activities relating to controlled substances on the Property. To the best of Assumptor's knowledge, all required permits, licenses and certificates for the lawful use and operation of the Property, including, but not limited to, certificates of occupancy, licenses, or the equivalent, have been obtained and are current and in full force and effect.

Condition of Property.

To the best of Assumptor's knowledge, the Property has not been damaged by fire, water, wind or other cause of loss, or any previous damage to the Property has been fully restored. Assumptor has disclosed to Lender its knowledge of a minor discrepancy in the legal description attached to the Security Instrument and the legal description of the Property legally owned by Original Borrower. Lender acknowledges this discrepancy and both parties further acknowledge this discrepancy and both parties further acknowledge that no change to the Lender's insured title policy has occurred.

Defense of Usury.

Assumptor knows of no facts that would support a claim of usury to defeat or avoid its obligation to repay the principal of, interest on, and other sums or amounts due and payable under the Loan Documents.

Insurance Policies. Assumptor has furnished to Noteholder all insurance policies and certificates required pursuant to the Loan Documents.

No Insolvency or Judgment. Neither Assumptor is currently (a) the subject of or a party to any completed or pending bankruptcy, reorganization or insolvency proceeding; or (b) the subject of any judgment unsatisfied of record or docketed in any court of the state in which the Property is located or in any other court with jurisdiction located in the United States.

10.

No Condemnation. No part of any Property subject to the Security Instrument has been taken in condemnation or other like proceeding to an extent which would materially impair the value of the Property, the Security Instrument or the Loan or the usefulness of such Property for the purposes contemplated, nor is any proceeding pending, threatened or known to be contemplated for the partial or total condemnation or taking of the Property.

11. No Subordinate Financing. Except as otherwise expressly approved by Noteholder in writing, and except for the Security Instrument referenced herein, no part of the Property subject to the Security Instrument is, or will become, subject to a mortgage, deed of trust or other type of prior or subordinate lien.

12.

No Labor or Materialmen Claims. To the best of Assumptor's knowledge, all parties furnishing labor and materials to or for the benefit of the Property have been paid in full and, except for such liens or claims insured against by the policy of title insurance to be issued or endorsed in connection with the Assumption, there are no mechanics', laborers' or materialmen's liens or claims outstanding for work, labor or materials affecting the Property, whether prior to, equal with or subordinate to the lien of the Security Instrument.

13.

No Other Interests. To the best of Assumptor's knowledge, no person, party, firm or corporation has (a) any possessory interest in the Property or right to occupy the same except

under and pursuant to the provisions of existing leases by and between tenant and the Original Borrower, true and complete copies of all such leases having been previously disclosed to Lender and Noteholder; or (b) an option to purchase the Property or an interest therein except as disclosed in the leases, if any.

14.

Single Asset Status. Assumptor does not own any real property o r assets other than the Property and does not operate any business other than the management and operation of the Property.

15.

Taxes Paid. Assumptor has filed all federal, state, county and municipal tax returns required to have been filed by Assumptor, and has paid all taxes which have become due pursuant to such returns or to any notice of assessment received by Assumptor, and Assumptor has no knowledge of any basis for additional assessment with respect to such taxes. To the best of Assumptor's knowledge, there are not presently pending any special assessments against the Property or any part thereof.

16.

Adverse Change. No material adverse change in the financial condition of Assumptor has occurred between the respective dates of the financial statements which were furnished to Noteholder relating to such persons and the date hereof.

17.

Financial Statements. The financial statements of Assumptor furnished to Noteholder pursuant to the request for consent to the Transfer, reflect in each case a positive net worth as of the date thereof.

18.

Working Capital. After the Loan is assumed, Assumptor will have sufficient working capital, including cash flow from the Property, not only to adequately maintain the Property, but also to pay all of Assumptor's outstanding debts as they come due.

19.

Validity of Loan Documents. Assumptor represents to Noteholder that there is no known action, suit or proceeding, or any governmental investigation or any arbitration, in each case pending or, to the knowledge of Assumptor, threatened against Assumptor or the Property before any governmental or administrative body, agency or official which: (i) challenges the validity of the Loan Documents or the authority of Assumptor to enter into the Assumption and Release Agreement and thereby become bound by the Loan Documents or to perform the transactions contemplated hereby or thereby, or (ii) if adversely determined would have a material adverse effect on the occupancy of the Property or the business, financial condition or results of operations of Assumptor or the Property.

20.

Rent Roll. To the best of Assumptor's knowledge, the rent roll for the Property attached hereto as Exhibit A is true, correct and complete as of the date hereof

21.

Leases. To the best of Assumptor's knowledge, Noteholder has been furnished with true, correct and complete executed copies of all Leases of the Property, and any amendments, assignments or modifications thereto.

22.

No Material Change. Since the date of application for the Transfer, there has been no material change in the occupancy of the Property or the business, financial condition or results of operations of Assumptor, the Property or any tenant of the Property.

23.

Representations and Warranties True. Each and every representation and warranty contained herein will remain true and correct at all times from the date hereof until the Loan is repaid in full in accordance with its terms. In the event that any representation or warranty contained herein becomes untrue, in whole or in part, after the date hereof, Assumptor will promptly advise Noteholder in writing.

24.

Ratification. Assumptor covenants that it shall, promptly upon the request of Noteholder, ratify and affirm this Certificate of Assumptor in writing, as of such date or dates as Noteholder shall specify.

25.

Survival. The representations, warranties and covenants set forth in this Certificate of Assumptor, shall survive the assignment and delivery of the Loan to any investor. Assumptor agrees that such investor shall be a third party beneficiary of the representations, warranties and covenants set forth herein.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, Assumptor executed this Certificate of Assumptor as of the day and year first above written.

ASSUMPTOR:

OXBRIDGE SQUARE SHOPPING CENTER, LLC,
a Virginia limited liability company

By:

Blue Ridge Real Estate Company,

its member

By: /s/ Patrick M. Flynn

Name: Patrick M. Flynn

Title: President

STATE/COMMONWEALTH OF NEW YORK

CITY/COUNTY OF NASSAU

I, the undersi_gned, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Patrick M. Flynn , whose name as President of Blue Ridge Real Estate Company, the member of Oxbridge Square Shopping Center, LLC, is signed to the foregoing and annexed instrument, did personally appear before me this day and acknowledged the same to be the act and deed of Oxbridge Square Shopping Center, LLC.

GIVEN under my hand and seal this 1st day of June, 2004.

[NOTARY SEAL]

/s/ Roseanne Dwyer

NOTARY PUBLIC

My Commission expires:

ROSEANNE DWYER
Notary Public, State of New York
No. 4909302
Qualified in Nassau County
Commission Expires January 11, 2006

EXHIBIT "A"

Space Leases - Oxbridge Square

	OXBRIDGE SQUARE							& nbsp;
	SCHEDULE OF LEASES					Date of Latest
	(Based on data effective				Guarantor	Lease Modification
	June 1, 2004)				(Y=yes)	Agreement	Lease
Tenant			SIZE		(if blank, then	(if blank, then	Expiration	OPTIONS/YEARS
Number	Trade Name/Street # on Hull Street Road	TENANT NAME ON LEASE	(sq. ft.)	Date of Lease	none)	none)	Date	(if blank, then none)

14	Vacant, 9925		2,080
33	Tompkins Taekwondo, 10003	Lisa A. Tompkins	2,000	19-June-2002			6/30/2005
22	Vacant, 9941 thru 9945		5,000
13	Vacant, 9923 – A		6,500
37	Harley Davidson Motorcycle Sales, 10011	H.D. Motorcycle Sales & Service, Inc.	15,000	23-May-2000	Y	8-Nov-02	9/30/2006
18	Community Room, 9933		1,200
3	Affordable Sports Gear, 9905	Wiljoy Investment Corporation	675	16-Dec-2003	Y		4/30/2007
4	Manchesster Cleaners, 9907	JUNG HEE KIM	675	5-Apr-1991		5-Mar-03	7/31/2006
9	Jackson Hewitt Tax Service, 9917	Mallard, Inc.	760	23-Aug-2002			4/30/2006	One/3-yr
8	Watch, Pen, & Pencil (9915)	Jackson D. Bise	675	27-Sep-1988		27-Jun-03	9/30/2006
19	Tropical Tanning, 9935	Ross, Inc.	1,137	3-Mar-2004	Y		3/31/2007
20	Victoria Nails, 9937	Ha T. Nguyen and Kim-Huong T. Nguyen	1,100	23-Sep-1999		13-May-02	9/30/2007
10	Subway, 9919	Subway Sandwich Shops, Inc.	1,200	1-Nov-1994		3-Jul-03	11/30/2006
25	The UPS Store, 9947	AVS, Inc.	2,000	16-Sep-1997	Y	8-May-03	12/31/2007
2	Vacant, 9903		1,014
40	Wachovia Bank, 9961	Wachovia Bank, N.A.	2,986	26-Feb-1980		25-Jan-02	2/28/2007	Two/5-yr
1	Golden Razor, 9901	Curtis W. Courington	1,014	18-May-1989		13-Feb-01	5/31/2004
1	Hair Expressions, 9901	Jodi J. Risener		23-Mar-2004			5/31/2007	One/3-yr
30	Heavenly Grounds Coffee & Gift Shop, 9957	Harold L. Hicks, Jr.	2,400	23-May-2003			9/30/2006	One/3-yr
36	Vacant, 10009		2,000
5	Dr. Elias Family Dentistry, 9909	Dr. Thomas D. Elias, D.M.D.	1,350	15-Nov-2001			11/30/2004
45	Oxbridge Vet Center, 10005 & 10007	Richard L. Kitterman, D.V.M.	3,200	11-Aug-1999			1/31/2006
7	Cigarette Club, 9913	Palmen, Inc.	675	27-Apr-1999	Y	1-Apr-02	6/30/2005
26	VA ABC Store, 9949	VA Alcoholic Beverage Control Board	2,625	3-Apr-2003			10/31/2007
28	Becky’s Hallmark, 9953	Becky’s Cards And Gifts Inc.,	4,000	29-Jul-1992		1-Oct-02	12/31/2006
11	Duron, 9921	Duron, Inc.	3,400	7-Feb-1997		1-Oct-02	3/31/2008
39	Shoney’s, 10013	Big Boy of Richmond, Inc.	5,116	20-May-1980		18-Mar-93	10/31/2008
27	Shanghai Chinese Restaurant, 9951	Chung Chen, Inc.	2,625	31-Jan-1984		9-Aug-02	8/31/2007
32	Ukrop’s Addition, 9959	UKROP’S SUPERMARKTS, INC.	2,400	2-Nov-1979			6/30/2005	Two/5-year
3	Ukrop’s Supermarket, 10001	UKROP’S SUPERMARKTS, INC.	34,512	2-Nov-1979		28-Dec-87	6/30/2005	Two/5-year
12	Vacant, 9923		9,620
15	Price is Right, 9929 *(see note below)	Bargain Hunters, Inc.	4,425	23-Apr-2004	Y	3 yrs from commencement date
38	Captain D’s Seafood, 9963	Big Boy of Richmond, Inc.	3,037	15-Oct-1980		6-Aug-97	11/30/2007
21	Vacant, 9939		1,400
			-----------
	TOTALS (as leased)		127,801

*	Lease begins 7-1-04 or when Tenant opens,
	whichever occurs first.

EXHIBIT A - Space Leases #2 5-18-04

EX-10 10 exh1017jpmorgan.htm JP MORGAN CHASE BANK MORTGAGE ON COURSEY COMMONS SHOPPING CTR Loan No

Loan No. V_45398

FIXED RATE NOTE

$7,700,000.00

September 8, 2004

FOR VALUE RECEIVED, COURSEY COMMONS SHOPPING CENTER LLC, a Louisiana limited liability company, (hereinafter referred to as “Borrower”), promises to pay to the order of JPMORGAN CHASE BANK, a New York banking corporation, its successors and assigns (hereinafter referred to as “Lender”), at the office of Lender or its agent, designee, or assignee at 270 Park Avenue, New York, New York 10017, Attention: Loan Servicing, or at such place as Lender or its agent, designee, or assignee may from time to time designate in writing, the principal sum of SEVEN MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($7,700,000.00), in lawful money of the United States of America, with interest thereon to be computed on the unpaid principal balance from time to time outstanding at the Applicable Interest Rate (hereinafter defined) at all times prior to the occurrence of an Event of Default (as defined in the Security Instrument [hereinafter defined]), and to be paid in installments as set forth below. Unless otherwise herein defined, all initially capitalized terms shall have the meanings given such terms in the Security Instrument.

1. PAYMENT TERMS

Principal and interest due under this Note shall be paid as follows:

(a)

A payment of interest only on the date hereof for the period from the date hereof through September 30, 2004, both inclusive; and

(b)

A constant payment of $44,155.54, on the first day of November, 2004 and on the first day of each calendar month thereafter up to and including the first day of September, 2014;

with payments under this Note to be applied as follows:

(i)

First, to the payment of interest and other costs and charges due in connection with this Note or the Debt, as Lender may determine in its sole discretion; and

(ii)

The balance shall be applied toward the reduction of the principal sum;

and the balance of said principal sum, together with accrued and unpaid interest and any other amounts due under this Note shall be due and payable on the first day of October, 2014 or upon earlier maturity hereof whether by acceleration or otherwise (the “Maturity Date”). Interest on the principal sum of this Note shall be calculated on the basis of a three hundred sixty (360) day year and paid for the actual number of days elapsed. All amounts due under this Note shall be payable without setoff, counterclaim or any other deduction whatsoever.

2. INTEREST

The term “Applicable Interest Rate” means from the date of this Note through and including the Maturity Date, a rate of five and fifty-nine hundredths percent (5.59%) per annum.

3. SECURITY

This Note is secured by, and Lender is entitled to the benefits of, the Security Instrument, the Assignment, the Environmental Indemnity, and the other Loan Documents (hereinafter defined). The term “Security Instrument” means the Mortgage and Security Agreement dated the date hereof given by Borrower for the use and benefit of Lender covering the estate of Borrower in certain premises as more particularly described therein (which premises, together with all properties, rights, titles, estates and interests now or hereafter securing the Debt and/or other obligations of Borrower under the Loan Documents, are collectively referred to herein as the “Property”). The term “Assignment” means the Assignment of Leases and Rents of even date herewith executed by Borrower in favor of Lender. The term “En vironmental Indemnity” means the Environmental Indemnity Agreement of even date herewith executed by Borrower in favor of Lender. The term “Loan Documents” refers collectively to this Note, the Security Instrument, the Assignment, the Indemnity, and any and all other documents executed in connection with this Note or now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of this Note or pertains to indebtedness evidenced by this Note.

4. LATE FEE

If any installment payable under this Note (other than the final installment due on the Maturity Date) is not received by Lender prior to the fifth (5^th) calendar day after the same is due (without regard to any applicable cure and/or notice period), Borrower shall pay to Lender upon demand an amount equal to the lesser of (a) four percent (4%) of such unpaid sum or (b) the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, and such amount shall be secured by the Loan Documents.

5. DEFAULT AND ACCELERATION

So long as an Event of Default exists, Lender may, at its option, without notice or demand to Borrower, declare the Debt immediately due and payable. Subject to the provisions of Section 10 of this Note, all remedies hereunder, under the Loan Documents and at law or in equity shall be cumulative. In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security for the Debt or to defend against any claims asserted by Borrower arising from or related to the Loan Documents, Borrower also agrees to pay to Lender on demand all reasonable costs of collection or defense incurred by Lender, including reasonable attorneys’ fees for the services of counsel whether or not suit be brought.

6. DEFAULT INTEREST

Upon the occurrence and during the continuance of an Event of Default Borrower shall pay interest on the entire unpaid principal sum and any other amounts due under the Loan Documents at the rate equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) the greater of (i) five percent (5%) above the Applicable Interest Rate or (ii) five percent (5%) above the Prime Rate (hereinafter defined), in effect at the time of the occurrence of the Event of Default (the “Default Rate”). The term “Prime Rate” means the prime rate reported in the Money Rates section of The Wall Street Journal. In the event that The Wall Street Journal should cease or temporarily interrupt publication, the term “Prime Rate” shall mean the daily average prime rate published in another business newspaper , or business section of a newspaper, of national standing and general circulation chosen by Lender. In the event that a prime rate is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall select a comparable interest rate index which is readily available and verifiable to Borrower but is beyond Lender’s control. The Default Rate shall be computed from the occurrence of the Event of Default until the actual receipt and collection of a sum of money determined by Lender to be sufficient to cure the Event of Default. Amounts of interest accrued at the Default Rate shall constitute a portion of the Debt, and shall be deemed secured by the Loan Documents. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default.

7. PREPAYMENT

(a)

The principal balance of this Note may not be prepaid in whole or in part (except with respect to the application of casualty or condemnation proceeds) prior to the Maturity Date. If following the occurrence of any Event of Default, Borrower shall tender payment to Lender or Lender shall receive proceeds (whether through foreclosure or the exercise of the other remedies available to Lender under the Security Instrument or the other Loan Documents), Borrower shall pay in addition to interest accrued and unpaid on the principal balance of this Note and all other sums then due under this Note and the other Loan Documents a prepayment consideration in an amount equal to the greater of (A) one percent (1%) of the outstanding principal balance of this Note at the time such payment or proceeds are received, or (B) (x) the present value as of the date such payment or proc eeds are received of the remaining scheduled payments of principal and interest from the date such payment or proceeds are received through the Maturity Date (including any balloon payment) determined by discounting such payments at the Discount Rate (as hereinafter defined), less (y) the amount of the payment or proceeds received. The term “Discount Rate” means the rate which, when compounded monthly, is equivalent to the Treasury Rate (as hereinafter defined), when compounded semi-annually. The term “Treasury Rate” means the yield calculated by the linear interpolation of the yields, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading “U.S. Government Securities/Treasury Constant Maturities” for the week ending prior to the date the payment of such proceeds are received, of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Maturity Date. (In the event Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate.) Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration, which shall be conclusive except in the case of manifest error. Notwithstanding the foregoing, Borrower shall have the additional privilege to prepay the entire principal balance of this Note (together with any other sums constituting the Debt) on any scheduled payment date occurring on or after that date which is three (3) months preceding the Maturity Date without any fee or consideration for such privilege.

(b)

If the prepayment results from the application to the Debt of the casualty or condemnation proceeds from the Property, no prepayment consideration will be imposed. Partial prepayments of principal resulting from the application of casualty or condemnation proceeds to the Debt shall not change the amounts of subsequent monthly installments nor change the dates on which such installments are due, unless Lender shall otherwise agree in writing.

(c)

Notwithstanding any provision of this Section 7 to the contrary, at any time after the earlier of (1) the date which is two (2) years after the “startup day,” within the meaning of Section 860G(a)(9) of the Internal Revenue Code of 1986, as amended from time to time or any successor statute (the “Code”), of a “real estate mortgage investment conduit,” within the meaning of Section 860D of the Code, that holds this Note, and (2) a regularly scheduled payment date on or after that date which is four (4) years after the date of the first monthly payment due under Section 1(b), and provided no Event of Default then exists under the Security Instrument or under any of the Loan Documents, Borrower may cause the release of the Property (in whole but not in part) from the lien of the Security Instrument and the other Loan Documents upon the satisf action of the following conditions precedent:

(A)

not less than thirty (30) days prior written notice to Lender specifying a regularly scheduled payment date (the “Release Date”) on which the Defeasance Deposit (hereinafter defined) is to be made;

(B)

the payment to Lender of interest accrued and unpaid on the principal balance of this Note to and including the Release Date;

(C)

the payment to Lender of all other sums, not including scheduled interest or principal payments, due under this Note, the Security Instrument and the other Loan Documents;

(D)

the payment to Lender of the Defeasance Deposit; and

(E)

the delivery to Lender of:

(1)

a security agreement, in form and substance satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the U.S. Obligations (hereinafter defined) purchased on behalf of Borrower with the Defeasance Deposit in accordance with this subparagraph (the “Security Agreement”);

(2)

a release of the Property from the lien of the Security Instrument (for execution by Lender) in a form appropriate for the jurisdiction in which the Property is located;

(3)

an officer’s certificate of Borrower certifying that the requirements set forth in this subparagraph (i) have been satisfied;

(4)

an opinion of counsel for Borrower in form satisfactory to Lender stating, among other things, that defeasance of this Note will not result in a taxation of the income from the Loan to such REMIC or cause a loss of REMIC status, and that Lender has a perfected first priority security interest in the Defeasance Deposit and the U.S. Obligations purchased by Lender on behalf of Borrower;

(5)

an opinion of a certified public accountant acceptable to Lender to the effect that the Defeasance Deposit is adequate to provide payment on or prior to, but as close as possible to, all successive scheduled payment dates after the Release Date upon which interest and principal payments are required under this Note (including the amounts due on the Maturity Date) and in amounts equal to the scheduled payments due on such dates under this Note;

(6)

evidence in writing from the applicable Rating Agencies to the effect that such release will not result in a re-qualification, reduction or withdrawal of any rating in effect immediately prior to such defeasance for any Securities;

(7)

payment of all of Lender’s expenses incurred in connection with the defeasance including, without limitation, reasonable attorneys fees; and

(8)

such other certificates, documents or instruments as Lender may reasonably request.

In connection with the conditions set forth in subsection (c)(i)(E) above, Borrower shall use the Defeasance Deposit (or appoint Lender as its agent and attorney-in-fact for the purpose of using the Defeasance Deposit) to purchase U.S. Obligations which provide payment on or prior to, but as close as possible to, all successive scheduled payment dates after the Release Date upon which interest and principal payments are required under this Note (including the amounts due on the Maturity Date) and in amounts equal to the scheduled payments due on such dates under this Note (the “Scheduled Defeasance Payments”). Borrower, pursuant to the Security Agreement or other appropriate document, shall authorize and direct that the payments received from the U.S. Obligations may be made directly to Lender and applied to satisfy the obligations o f the Borrower under this Note.

(ii)

Upon compliance with the requirements of this subsection (c), the Property shall be released from the lien of the Security Instrument and the pledged U.S. Obligations shall be the sole source of collateral securing this Note. Any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Obligations required by subparagraph (c)(i) above and satisfy the Borrower’s obligations under this subsection (c) shall be remitted to the Borrower with the release of the Property from the lien of the Security Instrument.

(iii)

For purposes of this subsection (c), the following terms shall have the following meanings:

(A)

The term “Defeasance Deposit” shall mean an amount equal to 100% of the remaining principal amount of this Note, the Yield Maintenance Premium, any costs and expenses incurred or to be incurred in the purchase of the U.S. Obligations necessary to meet the Scheduled Defeasance Payments and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of this Note or otherwise required to accomplish the agreements of this subsection;

(B)

The term “Yield Maintenance Premium” shall mean the amount (if any) which, when added to the remaining principal amount of this Note, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments; and

(C)

The term “U.S. Obligations” shall mean direct non-callable obligations of the United States of America.

(iv)

Upon the release of the Property in accordance with this subsection (c), Borrower shall, at Lender’s request, assign all its obligations and rights under this Note, together with the pledged Defeasance Deposit, to a successor special purpose entity designated by Borrower and reasonably approved by Lender. Such successor entity shall execute an assumption agreement in form and substance satisfactory to Lender in its sole discretion pursuant to which it shall assume Borrower’s obligations under this Note and the Security Agreement. In connection with such assignment and assumption, Borrower shall (x) deliver to Lender an opinion of counsel in form and substance and delivered by counsel reasonably satisfactory to Lender stating, among other things, that such assumption agreement is enforceable against Borrower and such successor entity in accordance with its terms and that this Note, the Security Agreement and the other Loan Documents, as so assumed, are enforceable against such successor entity in accordance with their respective terms, and (y) pay all costs and expenses incurred by Lender or its agents in connection with such assignment and assumption (including, without limitation, the review of the proposed transferee and the preparation of the assumption agreement and related documentation). In connection with such assignment and assumption, Borrower and any Guarantor shall be released of personal liability under the Note and the other Loan Documents, but only as to acts or events occurring after the closing of such assignment and assumption.

(v)

Upon the release of the Property in accordance with this subsection (c), Borrower shall have no further right to prepay this Note pursuant to the other provisions of this Section 7 or otherwise.

2. SAVINGS CLAUSE

This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender 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 Note, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. 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 this 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. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

3. WAIVERS

(a)

Except as specifically provided in the Loan Documents, Borrower and any endorsers, sureties or guarantors hereof jointly and severally waive presentment and demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, protest and notice of protest and non-payment, all applicable exemption rights, valuation and appraisement, notice of demand, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note and the bringing of suit and diligence in taking any action to collect any sums owing hereunder or in proceeding against any of the rights and collateral securing payment hereof. Borrower and any surety, endorser or guarantor hereof agree (i) that the time for any payments hereunder may be extended from time to time without notice and consent, (ii) to the accepta nce by Lender of further collateral, (iii) the release by Lender of any existing collateral for the payment of this Note, (iv) to any and all renewals, waivers or modifications that may be granted by Lender with respect to the payment or other provisions of this Note, and/or (v) that additional Borrowers, endorsers, guarantors or sureties may become parties hereto all without notice to them and without in any manner affecting their liability under or with respect to this Note. No extension of time for the payment of this Note or any installment hereof shall affect the liability of Borrower under this Note or any endorser or guarantor hereof even though the Borrower or such endorser or guarantor is not a party to such agreement.

(b)

Failure of Lender to exercise any of the options granted herein to Lender upon the happening of one or more of the events giving rise to such options shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to the same or any other event. The acceptance by Lender of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the options granted herein to Lender at that time or at any subsequent time or nullify any prior exercise of any such option without the express written acknowledgment of the Lender.

4. EXCULPATION

(a)

Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in this Note, the Security Instrument or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower or its Affiliates or members, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under this Note, the Security Instrument and the other Loan Documents, or in the Property, the Rents, or any other collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the ex tent of Borrower’s interest in the Property, in the Rents and in any other collateral given to Lender, and Lender, by accepting this Note, the Security Instrument and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with this Note, the Security Instrument or the other Loan Documents. The provisions of this section shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name Borrower (but not Borrower’s Affiliates or members) as a party defendant in any action or suit for foreclosure and sale under the Security Instrument; (c) affect the validity or enforceability of any Guaranty made in connection with the Loan or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appoi ntment of a receiver; (e) impair the enforcement of the Assignment of Leases; (f) constitute a prohibition against Lender to seek a deficiency judgment against Borrower (but not against Borrower’s Affiliates or members) in order to fully realize the security granted by the Security Instrument or to commence any other appropriate action or proceeding in order for Lender to exercise its remedies against all of the Property; or (g) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower (but not against Borrower’s Affiliates or members), by money judgment or otherwise, to the extent of any loss, damage, reasonable out-of-pocket cost, expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

(i)

fraud or intentional misrepresentation by Borrower or any Guarantor in connection with the Loan;

(ii)

the gross negligence or willful misconduct of Borrower;

(iii)

the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity;

(iv)

the removal or disposal of any portion of the Property other than in the ordinary course of business of owning, operating or managing the Property after an Event of Default which is continuing;

(v)

the misapplication or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property, (B) any condemnation awards or other amounts received in connection with the condemnation of all or a portion of the Property, or (C) any Rents following an Event of Default which is continuing;

(vi)

intentionally deleted;

(vii)

any security deposits, advance deposits or any other deposits collected with respect to the Property which are not delivered to Lender upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof;

(viii)

intentionally deleted;

(ix)

Borrower fails to permit on-site inspections of the Property, fails to provide financial information, fails to maintain its status as a single purpose entity or fails to appoint a new property manager upon the request of Lender during the existence of an Event of Default, each as required by, and in accordance with the terms and provisions of, the Security Instrument;

(x)

Borrower fails to obtain Lender’s prior written consent to any subordinate financing or other voluntary Lien encumbering the Property; or

(xi)

Borrower fails to obtain Lender’s prior written consent to any assignment, transfer, or conveyance of the Property or any interest therein as required by the Security Instrument.

(b)

Notwithstanding anything to the contrary in this Note, the Security Instrument or any of the Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by the Security Instrument or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B) the Debt shall be fully recourse to Borrower in the event that the first full monthly payment of principal and interest under this Note is not paid when due.

5. AUTHORITY

Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute, deliver and perform its obligations pursuant to this Note and the other Loan Documents and that this Note and the other Loan Documents constitute legal, valid and binding obligations of Borrower. Borrower further represents that the loan evidenced by the Loan Documents was made for business or commercial purposes and not for personal, family or household use.

6. NOTICES

All notices or other communications required or permitted to be given pursuant hereto shall be given in the manner and be effective as specified in the Security Instrument, directed to the parties at their respective addresses as provided therein.

7. TRANSFER

Lender shall have the unrestricted right at any time or from time to time to sell this Note and the loan evidenced by this Note and the Loan Documents or participation interests therein. Borrower shall execute, acknowledge and deliver any and all instruments reasonably requested by Lender to satisfy such purchasers or participants that the unpaid indebtedness evidenced by this Note is outstanding upon the terms and provisions set out in this Note and the other Loan Documents. To the extent, if any, specified in such assignment or participation, such assignee(s) or participant(s) shall have the rights and benefits with respect to this Note and the other Loan Documents as such assignee(s) or participant(s) would have if they were the Lender hereunder.

8. WAIVER OF TRIAL BY JURY

BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO, THOSE RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO, INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE, INTERFERENCE OR NEGLIGE NCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.

9. APPLICABLE LAW

This Note shall be governed by and construed in accordance with the laws of the state in which the real property encumbered by the Security Instrument is located (without regard to any conflict of laws or principles) and the applicable laws of the United States of America.

10. JURISDICTION

BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE IN WHICH THE PROPERTY IS LOCATED IN CONNECTION WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.

11. NO ORAL CHANGE

The provisions of this Note and the Loan Documents may be amended or revised only by an instrument in writing signed by the Borrower and Lender. This Note and all the other Loan Documents embody the final, entire agreement of Borrower and Lender and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the subject matter hereof and thereof and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of Borrower and Lender. There are no oral agreements between Borrower and Lender.

This FIXED RATE NOTE is executed as of the day and year first above written.

BORROWER:

Coursey Commons Shopping Center LLC,
a Louisiana limited liability company

By: Coursey Creek LLC, a Louisiana
limited liability company, Sole Member

By:    Blue Ridge Real Estate Company,
         a Pennsylvania corporation, Sole
          Member

By: /s/ Michael J. Flynn
Name: Michael J. Flynn
Title: Chairman

DeltaView comparison of pcdocs://ny01/941428/2 and pcdocs://ny01/941428/3. Performed on 8/30/2004.

EX-10 11 exh1018sitedevelopmentnote.htm M & T BANK SITE DEVELOPMENT NOTE Converted by EDGARwiz

M&T Bank

Manufacturers and Traders Trust Company

SITE DEVELOPMENT MORTGAGE NOTE

(Construction Loan)

Pennsylvania

August 20, 2004

$864,820.00

BORROWER:

Big Boulder Corporation

a(n) ( ) individual(s) ( ) partnership ( x ) corporation ( ) trust ( ) limited liability company ( )

organized under the laws of Pennsylvania

Address of residence/chief executive office: Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0747.

LENDER: Manufacturers and Traders Trust Company, a New York banking company, with offices located at One Fountain Plaza, Buffalo, New York 14203. Attn: M&T Real Estate, Inc.

Definitions. Each capitalized term shall have the meaning specified herein and the following terms shall have the indicated meanings:

"Loan Agreement" shall mean the agreement between, inter alia, Borrower and the Lender dated on or about the date hereof in connection with the construction and mortgage financing of real property described in the Mortgage, as the same may be amended, modified or replaced from time to time.

"Maturity Date" is August 1, 2006.

"Mortgage" shall mean the mortgage dated on or about the date of this Note executed by Borrower as the same may be amended, modified or replaced from time to time.

"Principal Sum" shall mean Eight Hundred Sixty-Four Thousand Eight Hundred Twenty Dollars ($864,820.00).

Promise to Pay. For value received, and intending to be legally bound, the undersigned Borrower promises to pay to the order of the Lender at its office identified above in lawful money of the United States and in immediately available funds, the Principal Sum or so much thereof as may be advanced, plus interest on the unpaid portion of the Principal Sum, and all Expenses (defined below). Advances under this Note shall be made pursuant to the terms and conditions of the Loan Agreement

Interest. All outstanding amounts of the Principal Sum advanced to Borrower under this Note shall accrue interest at a per annum rate equal to:

( )

( x )

equal to the rate in effect as the rate announced by the Lender as its prime rate of interest on the first day of the calendar month containing such day. The Prime Rate may be greater or less than other interest rates charged by the Bank to other borrowers and is not solely based upon or dependent upon the interest rate which the Bank may charge any particular borrower or class of borrowers.

( )

percentage points above LIBOR for a ( ) one month interest period, ( ) two month interest period, ( ) three month interest period or ( ) six month interest period ("LIBOR Rate"). If no interest period is specified, a one month period shall be used. The definition of LIBOR, adjustments to the LIBOR Rate and other provisions relative thereto are contained on Rider B attached hereto and made a part of this Note by reference.

( )

See Rider A attached hereto and made a part of this Note by reference.

Default Rate. After maturity (whether due to the Maturity Date, by acceleration or otherwise), the interest rate on the unpaid Principal Sum shall be increased to 3 percentage points per year above the otherwise applicable rate per year (the "Default Rate"). Any judgment entered hereon or otherwise in connection with any suit to collect amounts due hereunder shall bear interest at such Default Rate. No failure to impose or delay in imposing the Default Rate shall be construed as a waiver by the Lender of its right to collect, and Borrower's obligation to pay, interest at the Default Rate effective as of the date of maturity (whether due to the Maturity Date, by acceleration or otherwise).

Repayment of Principal and Interest. Borrower shall pay the Principal Sum and interest owing pursuant to this Note to the Lender in installments as follows:

(1.)

Borrower shall pay accrued interest to Lender on the first day of September, 2004 and on the first day of each subsequent month thereafter to, but not including, the Maturity Date; and

(2.)

On the Maturity Date, Borrower shall pay the outstanding Principal Sum and all accrued and unpaid interest, premiums, Expenses and all other amounts owing pursuant to this Note, the Loan Agreement and the Mortgage and remaining unpaid. In addition, the Borrower shall make additional principal payments as set forth in the Loan Agreement.

Late Charge. If Borrower fails to pay the whole or any installment of principal or interest owing pursuant to this Note, the Mortgage or the Loan Agreement including any Escrow payment owing pursuant to the Mortgage or the Loan Agreement within ten (10) days of its due date, Borrower shall immediately pay to the Lender a late charge equal to six percent (6%) of the delinquent amount.

Application of Payments. Payment made with respect to this Note may be applied in any order in the sole discretion of the Lender, but prior to an Event of Default or maturity, each payment shall be shall be applied first to accrued and unpaid interest, next to Principal, next to the Escrow, next to late charges, and finally to Expenses.

Prepayment. Borrower shall have the option of paying the Principal Sum to the Lender in advance of the Maturity Date, in whole or in part, at any time and from time to time upon written notice received by the Lender at least thirty (30) days prior to making such payment; provided, however, that together with such prepayment, Borrower shall pay to the Lender a premium, equal to one percent (1%) of the Principal sum paid. Upon making any prepayment of the Principal Sum in whole, Borrower shall pay to the Lender all interest and Expenses owing pursuant to this Note, the Mortgage or the Loan Agreement and remaining unpaid. Any partial payment of the Principal Sum shall be applied in inverse order of maturity. In the event the Maturity Date of this Note is accelerated, any tender of payment of the amount necessary to satisfy the entire indebtedness made after maturity shall be expressly deemed a voluntary prep ayment. In such a case, to the extent permitted by law, the Lender shall be entitled to the amount necessary to satisfy the entire indebtedness, plus the appropriate prepayment premium as calculated above. No prepayment premium shall apply if the principal amount of this Note is $50,000 or less and is secured by a mortgage on Pennsylvania real property containing two or less residential units or on which two or fewer residential units are to be built (including obligations on a residential condominium unit).

Business Purpose. This Note is being given by Borrower to the Lender in connection with the construction and mortgage financing of real property described in Mortgage and Borrower warrants that the indebtedness evidenced by this Note is for a business purpose.

Events of Default; Acceleration. This Note is issued pursuant to and entitled to the benefits of the Loan Agreement is secured and entitled to the benefits of the Mortgage. An Event of Default under either the Mortgage or the Loan Agreement is an Event of Default under this Note. All amounts under this Note shall become immediately due and payable without any notice, demand, presentment or protest of any kind (each of which is waived by Borrower) (a) automatically, if Borrower or Mortgagor commences any bankruptcy or insolvency proceeding, if voluntary, and upon the lapse of 45 days without dismissal if involuntary; (b) at the sole option of the Lender, upon or at any time or from time to time after the occurrence or existence of any Event of Default and the passage of any applicable grace period; and (c) upon the Maturity Date. After maturity (whether due to the Maturity Date, by acceleration or otherwise), interest on the outstanding Principal Sum shall continue to accrue and be payable at the applicable rate and the Lender's acceptance of any partial payment shall not affect that all amounts under this Note are due and payable in full.

Expenses. Borrower shall pay to the Lender on demand each cost and expense (including, but not limited to, the reasonable fees and disbursements of counsel to the Lender, whether internal or external and whether retained for advice, for litigation or for any other purpose) incurred by the Lender or its agents either directly or indirectly in connection with this Note including, without limitation, endeavoring to (1) collect any amount owing pursuant to this Note or negotiate or document a workout or restructuring; (2) enforce or realize upon any guaranty, endorsement or other assurance, any collateral or other security, or any subordination, directly or indirectly securing or otherwise directly or indirectly applicable in any such amount; or (3) preserve or exercise any right or remedy of the Lender pursuant to this Note (the "Expenses").

Joint and Several. If Borrower is more than one legal person, each such person is jointly and severally liable for all obligations and amounts which become due under this Note and the term "Borrower" shall include each as well as all of them.

Miscellaneous. This Note contains the entire agreement between the Lender and Borrower with respect to the loan it evidences and supersedes every course of dealing, other conduct, oral agreement and representation previously made by the Lender with respect thereto. All rights and remedies of the Lender under applicable law, the Mortgage, the Loan Agreement, this Note or any document in connection with the transaction contemplated hereby or amendment thereof are cumulative and not exclusive. No single, partial or delayed exercise by the Lender of any right or remedy shall preclude the subsequent exercise by the Lender at any time of any right or remedy of the Lender without notice. No waiver or amendment of any provision of this Note shall be effective unless made specifically in writing by the Lender. No course of dealing or other conduct, no oral agreement or representation made by the Lender, an d no usage of trade, shall operate as a waiver of any right or remedy of the Lender. Borrower agrees that in any legal proceeding, a copy of this Note kept in the Lender's course of business may be admitted into evidence as an original. This Note is a binding obligation enforceable against Borrower and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns. If a court deems any provision of this Note invalid, the remainder of the Note shall remain in effect. Section headings are for convenience only. Singular number includes plural and neuter gender includes masculine and feminine as appropriate.

Notices. Any demand or notice hereunder or under any applicable law pertaining hereto shall be in writing and duly given if delivered to Borrower (at its address on the Lender's records) or to the Lender (at the address on page one and separately to the Lender officer responsible for Borrower's relationship with the Lender). Such notice or demand shall be deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an official depository maintained by the United States Post Office for the collection of mail or one (1) business day after delivery to a nationally recognized overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this or any other agreement between Borrower and the Lender.

Governing Law; Jurisdiction. This Note has been delivered to and accepted by the Lender and will be deemed to be made in the Commonwealth of Pennsylvania. This Note will be interpreted in accordance with the laws of the Commonwealth of Pennsylvania excluding its conflict of laws rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE COMMONWEALTH OF PENNSYLVANIA IN A COUNTY OR JUDICIAL DISTRICT WHERE THE LENDER MAINTAINS A BRANCH AND CONSENTS THAT THE LENDER MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER'S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT THE LENDER FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Lender and Borrower. Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Note.

Waiver of Jury Trial. BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE LENDER MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. BORROWER ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

Power to Confess Judgment. BORROWER HEREBY EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD, AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER, TO APPEAR FOR BORROWER AND, WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, AGAINST BORROWER IN FAVOR OF THE LENDER OR ANY HOLDER HEREOF FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED INTEREST AND ALL OTHER AMOUNTS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF THE GREATER OF TEN PERCENT (10%) OF SUCH PRINCIPAL AND INTEREST OR $1,000 ADDED AS A REASONABLE ATTORNEY FEE, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. INTEREST ON ANY S UCH JUDGMENT SHALL ACCRUE AT THE DEFAULT RATE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE LENDER SHALL ELECT UNTIL SUCH TIME AS THE LENDER SHALL HAVE RECEIVED PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS.

( ) Replacement Note. This Note is given in replacement of and in substitution for, but not in payment of, a note dated

, 19

/20

, in the original principal amount of $ issued by Borrower (or) to the Lender (or its predecessor in interest), as the same may have been amended from time to time.

Preauthorized Transfers from Deposit Account. If a deposit number is provided in the following blank, Borrower hereby authorizes the Lender to debit Borrower's deposit account # with the Lender automatically for the full amount of each payment which becomes due under this Note.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this Note, including the Confession ofJudgment, Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by counsel as necessary or appropriate.

Tax ID #

29-0822326

BIG BOULDER CORPORATION

BY: /s/ Eldon D. Dietterick

ELDON D. DIETTERICK, Executive Vice President & Treasurer

ACKNOWLEDGMENTS

COMMONWEALTH OF PENNSYLVANIA

)

:ss.

COUNTY OF CARBON

)

On the 20th day of August, in the year 2004, before me, the undersigned, a Notary Public in and for said Commonwealth, personally appeared ELDON D. DIETTERICK personally known to me or proved to me on the basis of satisfactory evidence to be the individual(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, execute the instrument.

/s/ Eric D. Hanna

Notary Public

COMMONWEAI:I'H OF PENNSYLVANIA

Notarial Seal Eric D. Hanna. Notary Public

Tobyhanna Twp., Monroe County

My Commission Expires Jan. 31, 2005

Member, Pennsylvania Association of Notaries

EX-10 12 exh1019demandnote.htm M & T BANK DEMAND NOTE Converted by EDGARwiz

M & T Bank

Manufacturers and Traders Trust Company

DEMAND NOTE

Pennsylvania

September 14, 2004

$ 2,500,000.00

BORROWER: BLUE RIDGE REAL ESTATE COMPANY, a Pennsylvania corporation; BBC HOLDINGS, INC., a Delaware corporation; BRRE HOLDINGS, INC., a Delaware corporation; BIG BOULDER CORPORATION, a Pennsylvania corporation; NORTHEAST LAND CO., a Pennsylvania corporation; LAKE MOUNTAIN COMPANY, a Pennsylvania corporation, JACK FROST MOUNTAIN COMPANY, a Pennsylvania corporation, BOULDER CREEK RESORT COMPANY, a Pennsylvania corporation, OXBRIDGE SQUARE SHOPPING CENTER, LLC, a Virginia limited liability company, COURSEY COMMONS SHOPPING CENTER, LLC; a Louisiana limited liability company, COURSEY CREEK, LLC, a Louisiana limited liability company and COBBLE CREEK, LLC, a Louisiana limited liability company, jointly and severally, each having an Address of residence/chief executive office: Route 940 and Moseywood Road, P.O. Box 707, Blakeslee, Pennsylvania 18610-0707.

BANK: MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation with banking offices at One M&T Plaza, Buffalo, NY 14240. Attention: Office of General Counsel.

Promise to Pay. For value received; intending to be legally bound. Borrower promises to pay to the order of the Bank, on the dates set forth below, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND 00/XX Dollars ($2.500;000.00) (the "Principal") plus interest as agreed below and all fees and costs (including without limitation attorneys' fees and disbursements whether for internal or outside counsel) the Bank incurs in order to collect any amount due under this Note, to negotiate or document a workout or restructuring, or to preserve its rights or realize upon any guaranty or other security for the payment of this Note ("Expenses").

Interest. The unpaid Principal of this Note shall earn interest calculated on the basis of a 360-day year for the actual number of days of each year (3E5 or 366) from and including the date the proceeds of this Note were disbursed to, but not including, the date all amounts hereunder are paid in full, at a rate per year which shall on each day be equal to the rate in effect on that day as the rate announced by the Bank as its prime rate of interest.

Maximum Legal Rate. It is the intent of the Bank and Borrower that in no event shall interest be payable at a rate in excess of th^e maximum rate permitted by applicable law (the "Maximum Legal Rate"). Solely to the extent necessary to prevent interest under this Note from exceeding the Maximum Legal Rate; any amount that would be treated as excessive under a final judicial interpretation of applicable law shall be deemed to have been a mistake and automatically canceled, and, if received by the Bank, shall be refunded to Borrower.

Default Rate. If an Event of Default (defined below) occurs, the interest rate on the unpaid Principal shall immediately be automatically increased to 5 percentage points per year above the otherwise applicable rate per year, and any judgment entered hereon or Otherwise in connection with any suit to collect amounts due hereunder shall bear interest at such default rate.

Repayment of Principal and Interest; Late Charge. Payments shall be made in immediately available United States funds at any banking office of the Bank. Interest will continue to accrue until payment is actually received. If payment is not received within five days of its due date, Borrower shall pay a late charge equal to the greatest of (a) $50.00, (b) 5% of the delinquent amount or (c) the Bank's then current late charge as announced from time to time.

The Maturity Date of this Note is any time the Bank demands payment. Absent an earlier demand, the Note shall be due and payable in full nine (9) months from the date hereof. The Borrower acknowledges and agrees that the Bank may demand payment in full at any time with or without the occurrence of an Event of Default; such demand being at the sole and unfettered discretion of the Bank.

( X ) Borrower shall pay the entire Principal on the Maturity Date. In addition, until the out standing Principal is paid in full, payments of all accrued and unpaid interest in amounts which will vary will become due and payable on the 14^th day of each:

( x ) month ( ) quarter ( ) year commencing on October 14, 2004.

Representations, Warranties and Covenants.

Borrower represents and warrants to and agrees and covenants with the Bank that now and until this Note is paid in full:

Business Purpose. The Loan proceeds shall be used only for a business purpose and not for any personal, family or household purpose, unless the following box is checked: ( ) Personal Loan.

Good Standing Authority. Borrower is an entity or sole proprietor (i) duly organized and existing and in good standing under the laws of the jurisdiction in which it was formed, (ii) duly qualified, in good standing and authorized to do

business in every jurisdiction in which failure to be so qualified might have a material adverse effect on its business or assets and (iii) has the power and authority to own each of its assets and to use them as contemplated now or in the future.

Legality. The execution, issuance, delivery to the Bank and performance by Borrower of this Note (i) are in furtherance of Borrower's purposes and within its power and authority; (ii) do not (A) violate any statute, regulation or other law or any judgment, order or award of any court, agency or other governmental authority or of any arbitrator or (B) violate Borrower's certificate of incorporation or other governing instrument, constitute a default under any agreement binding on Borrower, or result in a lien or encumbrance on any assets of Borrower; and (iii) have been duly authorized by all necessary corporate or partnership action.

Compliance. The Borrower conducts its business and operations and the ownership of its assets in compliance with each applicable statute, regulation and other law, including without limitation environmental laws. All approvals, including without limitation authorizations; permits, consents, franchises, licenses, registrations; filings, declarations; reports and notices (the "Approvals") necessary to the conduct of Borrower's business and for Borrower's due issuance of this Note have been duly obtained and are in full force and effect. The Borrower is in compliance with all conditions of each Approval.

Financial Statements and Other Information. Promptly deliver to the Bank (i) quarterly, within sixty (60) days after the end of each of its fiscal quarters, its 10Q statement and a consolidated financial statement of the Borrower, all Guarantors and each of Borrower's and Guarantors' Subsidiaries as of the end of such quarter, which financial statement shall consider of income and cash flows for such period, for the corresponding period in the previous fiscal year, with a consolidated balance sheet as of the end of such period; the quarterly financial statements to be internally prepared and verified in writing by the chief executive officer of the Borrower, all guarantors and each of Borrower's and Guarantors' Subsidiaries; and in such detail as the Bank may request; (ii) within one hundred twenty (120) days after the end of each fiscal year, consolidated statements of the Borrower's, each Guarantors' and each of Borrower's and Guarantors' Subsidiaries' income and cash flows and its consolidated balance sheet as of the end of such fiscal year, setting forth comparative figures for the preceding fiscal year and to be (check applicable box, if no box is checked the financial statements shall be audited):

( x ) audited ( ) reviewed ( ) compiled

by an independent certified public accountant acceptable to the Bank; all such statements shall be certified by the Borrower's and each Guarantors' and each Subsidiary of Borrower and each Guarantors' chief financial officer to be correct and in accordance with the Borrower's and each Guarantors' and each Subsidiary of Borrower and each Guarantors' records and to present fairly the results of the Borrower's and each Guarantors' and each Subsidiary of Borrower and each Guarantors' operations and cash flows and its financial position at year end; and (iii) with each statement of income, a certificate executed by the Borrower's and each Guarantors' and each Subsidiary of Borrower and each Guarantors' chief executive and chief financial officers or other such person responsible for the financial management of the Borrower and each Guarantors' and each Subsidiary of Borrower and each Guarantors (A) setting forth the computations require d to establish the Borrower's and each Guarantors' and each Subsidiary of Borrower and each Guarantors' compliance with each financial covenant, if any, during the statement period, (B) stating that the signers of the certificate have reviewed this Agreement and the operations and condition (financial or other) of the Borrower and each Guarantors' and each Subsidiary of Borrower and each Guarantors during the relevant period and (C) stating that no Event of Default occurred during the period, or if an Event of Default did occur, describing its nature, the date(s) of its occurrence or period of existence and what action the Borrower and each Guarantors' and each Subsidiary of Borrower and each Guarantors has taken with respect thereto. The Borrower and each Guarantors' and each Subsidiary of Borrower and each Guarantors shall also promptly provide the Bank with copies of all annual reports, proxy statements and similar information distributed to shareholders, partners or members, and copies of all filings wit h the Securities and Exchange Commission and the Pension Benefit Guaranty Corporation, and shall provide, in form satisfactory to the Bank; such additional information, reports or other information as the Bank may from time to time reasonably request regarding the financial and business affairs of the Borrower and each Guarantors' and each Subsidiary of Borrower and each Guarantors. If the Borrower is an individual, the Borrower shall provide annually a personal financial statement in form and detail acceptable to the Bank and such other financial information as the Bank may from time to time reasonably request.

Accounting; Tax Returns and Payment of Claims. Borrower will maintain a system of accounting and reserves in accordance with generally accepted accounting principles, has flied and will file each tax return ; required of it and, except as disclosed in an attached schedule, has paid and will pay when due each tax, assessment, fee, charge, fire and penalty imposed by any taxing authority upon Borrower or any of its assets, income or franchises, as well as all amounts owed to mechanics, materialmen, landlords, suppliers and the like in the ordinary course of business.

Title to Assets; Insurance. Borrower has good and marketable title to each of its assets free of security interests and mortgages and other liens except as disclosed in its financial statements or on a schedule attached to this Note or pursuant to the Bank's prior written consent. Borrower will maintain its property in good repair and will maintain and on

request provide the Bank with evidence of insurance coverage satisfactory to the Bank including without limitation fire and hazard, liability, worker's compensation and business interruption insurance and flood hazard insurance as required.

Judgments and Litigation. There is no pending or threatened claim, audit, investigation, action or other legal proceeding or judgment, order or award of any court, agency or other governmental authority or arbitrator (each an "Action") which involves Borrower or its assets and might have a material adverse effect upon Borrower or threaten the validity of this Note or any related document or transaction. Borrower will immediately notify the Bank in writing upon acquiring knowledge of any such Action.

Notice of Change of Address and of Default. Borrower will immediately notify the Bank in writing (i) of any change in its address or of the location of any collateral securing this Note, (ii) of the occurrence of any Event of Default defined below, (iii) of any material change in Borrower's ownership or management and (iv) of any material adverse change in Borrower's ability to repay this Note.

No Transfer of Assets. Until this Note is paid in full, Borrower shall not without the prior written consent of the Bank (i) sell or otherwise dispose of substantially all of its assets, (ii) acquire substantially all of the assets of another entity, (iii) if it is a corporation, participate in any merger, consolidation or other absorption or (iv) agree to do any of these things.

Events of Default; Acceleration. The following constitute an event of default ("Event of Default"): (i) failure by Borrower to make any payment when due (whether at the stated maturity, by acceleration or otherwise) of the amounts due under this Note, or any part thereof, or there occurs any event or condition which after notice, lapse of time or both will permit such acceleration; (ii) Borrower defaults in the performance of any covenant or other provision with respect to this Note or any other agreement between Borrower and the Bank or any of its affiliates or subsidiaries (collectively, "Affiliates"); (iii) Borrower fails to pay when due (whether at the stated maturity, by acceleration or otherwise) any indebtedness for money owing to the Bank (other than under this Note), any third party or any Affiliate, the occurrence of any event which could result in acceleration of payment of any such indebtedness or th e failure to perform any agreement with any third party; (iv) the reorganization, merger, consolidation or dissolution of Borrower (or the making of any agreement therefor); the sale, assignment, transfer or delivery of all or substantially all of the assets of Borrower to a third party; or the cessation by Borrower as a going business concern; (v) the death or judicial declaration of incompetency of Borrower, if an individual; (vi) failure to pay, withhold or collect any tax as required by law; the service or filing against Borrower or any of its assets of any lien (other than a lien permitted in writing by the Bank), judgment, garnishment, order or award, other than a judgment, order or award for which Borrower is fully insured, if ten (10) days thereafter such judgment, order or award is not satisfied, vacated, bonded or stayed pending appeal; (vii) if Borrower becomes insolvent (however such insolvency is evidenced) or is generally not paying its debts as such debts become due; (viii) the making of any g eneral assignment by Borrower for the benefit of creditors; the appointment of a receiver or similar trustee for Borrower or its assets; or the making of any, or sending notice of any intended, bulk sale; (ix) Borrower commences, or has commenced against it, any proceeding or request for relief under any bankruptcy, insolvency or similar laws now or hereafter in effect in the United States of America or any state or territory thereof or any foreign jurisdiction or any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against or winding up of affairs of Borrower; (x) any representation or warranty made in this Note, any related document, any agreement between Borrower and the Bank or any Affiliate or in any financial statement of Borrower proves to have been misleading in any material respect when made; Borrower omits to state a material fact necessary to make the statements made in this Note, any related document, any agreement between Borrower and the Bank or any Affi liate or any financial statement of Borrower not misleading in light of the circumstances in which they were made; or, if upon the date of execution of this Note, there shall have been any materially adverse change in any of the facts disclosed in any financial statement, representation or warranty that was not disclosed in writing to the Bank at or prior to the time of execution hereof; (xi) any pension plan of Borrower fails to comply with applicable law or has vested unfunded liabilities that, in the opinion of the Bank, might have a material adverse effect on Borrower's ability to repay its debts; (xii) the occurrence of any event described in sub-paragraph (i) through and including (xi) hereof with respect to any endorser. guarantor or any other party liable for, or whose assets or any interest therein secures, payment of any of the amounts due under this Note ("Guarantor"); (xiii) there occurs any change in the management or ownership of Borrower or any Guarantor which is, in the opinion of t he Bank, materially adverse to its interest and which remains uncorrected for thirty days after the Bank notifies Borrower of its opinion; (xiv) Borrower fails to supply new or additional collateral within ten days of request by the Bank; or (xv) the Bank in good faith deems itself insecure with respect to payment or performance of under this Note. All amounts hereunder shall become immediately due and payable upon the occurrence of (ix) above, or at the Bank's option, upon the occurrence of any other Event of Default.

Right of Setoff. The Bank shall have the right to set off against the amounts owing under this Note any property held in a deposit or other account with the Bank or any Affiliates or otherwise owing by the Bank or any Affiliate in any capacity to Borrower or any Guarantor or endorser of this Note. Such setoff shall be deemed to have been exercised immediately at the time the Bank or such Affiliate elect to do so.

Miscellaneous. This Note, together with any related loan and security agreements and guaranties, contains the entire agreement between the Bank and Borrower with respect to the Note, and supersedes every course of dealing, other

conduct, oral agreement and representation previously made by the Bank. All rights and remedies of the Bank under applicable law and this Note or amendment of any provision of this Note are cumulative and not exclusive. No single; partial or delayed exercise by the Bank of any right or remedy shall preclude the subsequent exercise by the Bank at any time of any right or remedy of the Bank without notice. No waiver or amendment of any provision of this Note shall be effective unless made specifically in writing by the Bank. No course of dealing or other conduct, no oral agreement or representation made by the Bank, and no usage of trade, shall operate as a waiver of any right or remedy of the Bank. No waiver of any right or remedy of the Bank shall be effective unless made specifically in writing by the Bank. Borrower agrees that in any legal proceeding, a copy of this Note kept in the Bank's course of busi ness may be admitted into evidence as an original. This Note is a binding obligation enforceable against Borrower and its successors and assigns and shall inure to the benefit of the Bank and its successors and assigns. If a court deems any provision of this Note invalid, the remainder of the Note shall remain in effect. Section headings are for convenience only. Singular number includes plural and neuter gender includes masculine and feminine as appropriate.

Notices.

Any demand or notice hereunder or under any applicable law pertaining hereto shall be in writing and duly given if delivered to Borrower (at its address on the Bank's records) or to the Bank (at the address on page one and separately to the Bank officer responsible for Borrower's relationship with the Bank). Such notice or demand shall be deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an official depository maintained by the United States Post Office for the collection of mail or one (1) business day after delivery to a nationally recognized overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this or any other agreement between Borrower and the Bank.

Joint and Several. If there is more than one Borrower, each of them shall be jointly and severally liable for all amounts and obligations which, become due under this Note and the term "Borrower" shall include each as well as all of them.

Governing Law; Jurisdiction. This Note has been delivered to and accepted by the Bank and will be deemed to be made in the Commonwealth of Pennsylvania. Except as otherwise provided under federal law, this Note will be interpreted in accordance with the laws of the Commonwealth of Pennsylvania excluding its conflict of laws rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE COMMONWEALTH OF PENNSYLVANIA IN A COUNTY OR JUDICIAL DISTRICT WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER'S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and Borrower. Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Note.

Waiver of Jury Trial. BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

Power to Confess Judgment. BORROWER HEREBY EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD, AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER, TO APPEAR FOR BORROWER AND,. WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS. AGAINST BORROWER IN FAVOR OF THE BANK OR ANY HOLDER HEREOF FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED INTEREST AND ALL OTHER AMOUNTS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF THE GREATER OF TEN PERCENT (10%) OF SUCH PRINCIPAL AND INTEREST OR $1,000 ADDED AS A REASONABLE ATTORNEY'S FEE, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. INTEREST ON ANY SUCH JUDGMENT SHALL ACCRUE AT THE D EFAULT RATE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID; VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE BANK SHALL ELECT UNTIL SUCH TIME AS THE BANK SHALL HAVE RECEIVED PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS.

Preauthorized Transfers from Deposit Account. If a deposit account number is provided in the following blank Borrower hereby authorizes the Bank to debit Borrower's deposit account # with the Bank automatically for any amount which becomes due under this Note.

Acknowledgment.

Borrower acknowledges that it has read and understands all the provisions of this Note, including the Confession of Judgment, Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by counsel as necessary or appropriate.

TIN # 24-0854342

TIN # 51-0294425

BLUE RIDGE REAL ESTATE COMPANY

BBC HOLDINGS, INC.

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, Executive Vice President

Eldon D. Dietterick, President & Treasurer

& Treasurer

TIN # 51-0294426

TIN # 24-0822326

BRRE HOLDINGS, INC.

BIG BOULDER CORPORATION

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, President & Treasurer

Eldon D. Dietterick, Executive Vice President

& Treasurer

TIN #23-1682251

TIN # 23-2243205

NORTHEAST LAND CO.

LAKE MOUNTAIN COMPANY

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, Executive Vice President

& Treasurer

TIN #23-1670482

TlN # 65-1190104

JACK FROST MOUNTAIN COMPANY

BOULDER CREEK RESORT COMPANY

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, Executive Vice President

& Treasurer

TIN #20-1168459

TIN #20-1172559

OXBRIDGE SQUARE SHOPPING CENTER, LLC

COURSEY COMMONS SHOPPING CENTER, LLC

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, Manager

TIN #20-1172597

TIN #20-1172624

COURSEY CREEK, LLC

COBBLE CREEK, LLC

By: /s/ Eldon D. Dietterick

Eldon D. Dietterick, Manager

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA

)

: SS.

COUNTY OF CARBON

)

On the 14^th day of September, in the year 2004, before me, the undersigned, a Notary Public in and for said Commonwealth, personally appeared Eldon D. Dietterick, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(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/ John E. Riley

Notary Public

Commonwealth Of Pennsylvania

Notarial Seal

John E. Riley, Notary Public

Kidder Twp., Carbon County

My Commission Expires May 14. 2007

Member, Pennsylvania Association of Notaries

EX-13 13 exhibit131toform10kannualrep.htm PORTIONS OF FISCAL 2004 ANNUAL REPORT TO SHAREHOLDERS Converted by EDGARwiz

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Exhibit 13.1

PORTIONS OF 2004 ANNUAL REPORT TO SHAREHOLDERS

SELECTED FINANCIAL DATA

You should read the following selected financial data together with our consolidated financial statements and the related notes appearing elsewhere in this report and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial data included in this report.

Blue Ridge Real Estate Company and Subsidiaries

and Big Boulder Corporation and Subsidiaries

COMBINED SUMMARY OF SELECTED FINANCIAL DATA

	10/31/04	10/31/03	10/31/02	7 Months Ended 10/31/2001	3/31/2001
Revenues	$17,375,453	$18,217,518	$17,097,898	$3,859,025	$17,474,208
Net income (loss)	6,246,107	(879,137)	686,758	(804,422)	252,532
Net income (loss)per combined share	$3.26	($0.45)	$0.36	($0.42)	$0.13
Cash dividends per combined share	0	0	0	0	0
Weighted average number of combined shares outstanding	1,916,130	1,916,130	1,916,431	1,917,858	1,926,402
Total assets	45,461,969	27,960,410	24,645,828	22,926,443	23,974,080
Long-term debt and capital lease obligations	15,881,808	10,990,756	8,049,805	7,670,240	8,034,641
Shareholders' equity	15,769,866	9,523,759	10,202,521	9,526,263	10,367,281

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FINANCIAL SECTION

Page

Quarterly Financial Information (Unaudited)

Stock and Dividend Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Combined Balance Sheets

Combined Statements of Operations and Earnings Retained in the Business

Combined Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Auditors

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QUARTERLY FINANCIAL INFORMATION (Unaudited)

The results of operations for each of the quarters in the last two years are presented below.

Quarter Year ended 10/31/04	Operating Revenues	Income (Loss) from Continuing Operations	Net Income (Loss)	Earnings (Loss) Per Weighted Avg. Combined Share
1st	$7,057,891	$368,100	$127,016	$0.07
2nd	6,153,694	880,586	7,566,167	3.94
3rd	2,628,174	(1,152,289)	(794,315)	(0.41)
4th	1,535,694	(1,106,590)	(652,761)	(0.34)
	$17,375,453	($1,010,193)	$6,246,107	$3.26
Year ended 10/31/03
1st	$7,996,925	$587,290	$370,786	$0.19
2nd	6,745,852	606,048	348,851	0.19
3rd	2,377,948	(416,622)	(1,471,221)	(0.77)
4th	1,096,793	309,889	(127,553)	(0.06)
	$18,217,518	$1,086,605	($879,137)	($0.45)

The quarterly results of operations for Fiscal 2004 and 2003, reflect the cyclical nature of the Companies' business since (1) the Companies’ two ski facilities operate principally during the months of December through March and (2) land dispositions occur sporadically and do not follow any pattern during the fiscal year.

Revenues generated from advance ticket sales have been recorded as deferred revenue.

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STOCK AND DIVIDEND INFORMATION

Market Price of Common Stock

Our common stock is quoted on the OTC Bulletin Board under the symbol “BLRGZ.” There has been a limited and sporadic trading market for our common stock. However, our management does not believe such limited activity constitutes an established public trading market. As of January 25, 2005, we had 595 holders of record of our common stock.

The following sets forth the high asked and low bid price quotations as reported on the monthly statistical reports of the National Association of Securities Dealers, Inc. for Fiscal Years 2004 and 2003. No dividends were paid on common stock in either period.

Fiscal Year 2004

HIGH

LOW

ASKED

BID

First Quarter

16.750

13.250

Second Quarter

21.000

13.900

Third Quarter

27.250

20.750

Fourth Quarter

29.000

27.000

Fiscal Year 2003

HIGH

LOW

ASKED

BID

First Quarter

12.750

10.500

Second Quarter

12.250

11.000

Third Quarter

14.000

11.750

Fourth Quarter

15.000

12.150

The reported quotations represent prices between dealers, do not reflect retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.

Dividend Policy

We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, operating results, capital requirements, and other factors the board of directors deems relevant.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our principal business is the development, marketing and operation of “drive-to” and “destination” resorts at our two ski areas, Jack Frost Mountain and Big Boulder. Also significant to our operations is the management and development of our real estate and rental properties.

During Fiscal 2004, we realized significant growth in the earnings per weighted average combined share of common stock, primarily as a result of the section 1031 tax deferred exchange sale of the Dreshertown Plaza Shopping Center. This sale enabled us to purchase two additional shopping centers with a combined asset value of approximately $20 million.

Since completion of our last real estate development projects in the late 1980’s, management has been focused on the promotion and maintenance of our two ski areas, our summer operations and our four resort communities. The homes within the four resort communities are privately owned and approximately 25% are enrolled in our rental program. These privately owned homes are designed to appeal to vacationers seeking comfortable and affordable rental accommodations and to facilitate more frequent short-stay getaways. Over the past three years, management has determined, based on market trends and historically lower interest rates, to refocus our attention on the development of our real estate holdings.

During Fiscal 2005, we expect to invest approximately $1 million in our ski operations, which funds will be derived from our ski operations’ cash flow. We believe that the addition of new homes to our existing resort communities will enable our ski operations to remain competitive in a tight recreational market due to the existing weak economy.

We own 19,739 acres of land in Northeastern Pennsylvania. Of our core land holdings, we have designated 5,124 acres as held for development and are moving forward with municipal approvals. Based on independent market studies, we believe that our primary focus should be on single and multi-family dwellings in proximity to our ski area. Additionally, a proposed 18-hole golf course with surrounding resort community is planned for the Jack Frost Mountain ski area. The golf course community will consist of approximately 40% single family homes and 60% multi-family units, as well as golf club amenities and the necessary infrastructure. It is expected that all of the planned developments will result in approximately 3,700 lots or units. We anticipate that some lots will be subdivided and sold as parcels of land, while others will be developed into single and multi-family hou sing. We also expect that certain subdivisions may be sold outright in phases to nationally-recognized land developers in order to facilitate the market for housing and to reduce the inherent risk associated with any land development.

We made the decision this past summer to close two of our summer recreational centers, which resulted in the recognition of impairment losses in Fiscal 2004. The Fern Ridge Campground was closed in October 2004 due to Tobyhanna Township’s non-renewal of our sewage permit. The Traxx Motocross Park closed in November 2004. This site will be used for an additional housing community.

Recent Developments

In January 2005, we filed a registration statement with the Securities and Exchange Commission pursuant to which we are proposing to offer our existing shareholders non-transferable rights to purchase shares of our common stock that have an aggregate value of $15,500,000, rounded to the nearest whole share. Under the proposed rights offering, each of the shareholders will also have an over-subscription right. In connection with filing the registration statement, we entered into a Standby Securities Purchase Agreement

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with Kimco Realty Services, Inc., a wholly-owned subsidiary of Kimco Realty Corporation, which provides that Kimco Realty Services will purchase any and all shares of our common stock not subscribed for by our shareholders in the proposed rights offering. The registration statement has not been declared effective by the Securities and Exchange Commission. If we commence the proposed rights offering, we intend to use the proceeds from the rights offering to develop an eighteen-hole golf course at Jack Frost Mountain and infrastructure improvements for residential communities at Jack Frost and Big Boulder Areas.

Critical Accounting Policies and Significant Judgments and Estimates

We have identified the most critical accounting policies upon which our financial status depends. The critical policies and estimates were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The most critical accounting policies identified relate to revenue recognition, deferred operating costs, net deferred tax assets and liabilities, land and land development costs, the valuation of long-lived assets and recognition of deferred revenues.

Timbering revenues from stumpage contracts are recognized in accordance with Staff Accounting Bulleting No. 104 – Revenue Recognition, SAB 104. At the time a stumpage contract is signed, the risk of ownership has been passed to the buyer at a fixed, determinable cost. Reasonable assurance of collectibility has been determined by the date of signing, and our few obligations have already been met. Therefore, full accrual recognition at the time of contract execution is appropriate under SAB 104 guidance.

Prior to Fiscal 2004, our estimate of deferred operating costs was primarily based on deferring costs directly related to ski operations in order to match those costs to the period in which ski operating revenues were recognized. Ski operating revenues were recognized principally over the months of December through March. The deferred costs consisted principally of depreciation, insurance, real estate taxes, advertising, repairs, maintenance and supplies. Effective April 1, 2004, we elected to change this significant accounting procedure relative to deferring certain ski operating costs incurred during the non-ski season. Upon investigation of competitors’ practices, management has determined that a change in accounting principle should be made in order to report ski operations in accordance with the predominant industry practice used by similar operating companies. Additionally, we bel ieve the new method better enables users of the financial statements, including management, to benchmark our ski operations segment results against our competitors by removing the timing difference associated with matching certain ski operating costs incurred in a prior fiscal year against current fiscal year ski operating revenues.

We capitalize as land and land development costs the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use. The cost of sales for individual parcels of real estate or condominium units within a project is determined using the relative sales value method. Selling expenses are charged against income in the period incurred.

Our estimate of deferred tax assets and liabilities is primarily based on the difference between the tax basis and financial reporting basis of depreciable assets, like-kind exchanges of assets, accruals and deferred revenues.

Our valuation of long-lived assets, namely properties, is based on historical cost. Depreciation and amortization is provided principally using the straight-line method over the estimated useful life of the class of property. Upon sale or retirement of depreciable property, the cost and related accumulated depreciation are removed from the related accounts, and resulting gains or losses are reflected in income.

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Interest, real estate taxes, and insurance costs, including those costs associated with holding unimproved land, are normally charged to expense as they are incurred. Costs of land development, such as surveyor and consultant fees, are capitalized as land costs. Interest cost incurred during the construction of facilities is capitalized as part of the cost of such facilities. Maintenance and repairs are charged to expense, and major renewals and betterments are added to property accounts.

Impairment losses are recognized in operating income, as they are determined. We review our long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In that event, we calculate the expected future net cash flows to be generated by the asset. If those net future cash flows are less than the carrying value of the asset, an impairment loss is recognized in operating income. The impairment loss is the difference between the carrying value and the fair value of the asset. Two such losses were recognized as of October 31, 2004.

Deferred revenue consists of revenue billed in advance for services and dues that are not yet earned. Revenue billed in advance for services consists of season lift tickets and advance ticket sales and gift certificates for the ski resorts. We recognize revenue billed in advance ratably over the principal months of the ski season, December through March. Dues that are not yet earned consist of rents related to our commercial properties that have been paid in advance, and dues related to memberships in our hunting and fishing clubs paid in advance. We recognize revenue related to the hunting and fishing clubs over the one-year period that the dues cover.

We have no off-balance sheet arrangements as defined in S-K 303(a)(4)(ii).

Results of Operations

FISCAL 2004 VERSUS FISCAL 2003

For fiscal year ended October 31, 2004, (“Fiscal 2004”), we reported net income of $6,246,107 or $3.26 per combined share as compared with a net loss of $(879,317) or $(.45) per combined share for fiscal year ended October 31, 2003 (“Fiscal 2003”).

Combined revenue of $17,375,453 represents a decrease of $842,065 or 5% when compared to Fiscal 2003. Ski Operations revenue decreased $527,754 or 5%, and Real Estate Management Operations / Rental Operations revenue increased $917,854 or 27% when compared to Fiscal 2003.

In Fiscal 2004, Ski Operations had approximately 215,000 skier visits to our slopes compared to 236,000 skier visits for Fiscal 2003. Revenue per skier was $32 for Fiscal 2004 compared to $30 for Fiscal 2003, an increase of $2 or 7%. Tubing operations had approximately 48,000 tuber visits for Fiscal 2004 compared to 63,000 in Fiscal 2003. Revenue per tuber was $16 compared to $15 last season, an increase of $1 or 7%. The ski areas operated for a combined total of 172 days compared to 184 days for Fiscal 2003. The food and beverage operations at the ski areas contributed revenue of $7.46 per skier visit compared to $7.30 for Fiscal 2003, an increase of $.16 or 2%. The retail shop operations at the ski areas contributed revenue of $2.02 per skier visit compared to $2.08 for Fiscal 2003, a decrease of $.06 per skier visit or 3%.

The Real Estate Management Operations / Rental Operations had revenue of $4,367,757 in Fiscal 2004 as compared to $3,449,903 in Fiscal 2003, which resulted in an increase of $917,854 that was primarily attributed to an increase in the rent of investment properties. This increase in revenue was mainly from two newly acquired shopping centers in Fiscal 2004 and an increase in commission revenue earned on the resale of homes in our resort communities. The Oxbridge Square shopping center's revenue was $455,313 and the Coursey Commons shopping center's revenue was $329,986 for Fiscal 2004. Resale of our resort community homes resulted in revenue of $465,301 for Fiscal 2004 as compared to $408,136 for Fiscal 2003, which represents an increase of $57,165 or 14%.

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In Fiscal 2004, Summer Recreation Operations had revenue of $1,944,023 as compared to $1,876,724 for Fiscal 2003, which represents an increase of $67,299 or 3%. This increase is mainly attributed to the Irish festival which generated revenue of $120,932 in Fiscal 2004 as compared to $77,247 in Fiscal 2003. The Lake Club had revenue of $218,895 in Fiscal 2004 as compared to $200,036 in Fiscal 2003, an increase of $18,859 or 9%. This increase was due to additional club memberships issued.

In Fiscal 2004, Land Resource Management had revenue of $1,321,443 as compared to $2,620,907 for Fiscal 2003, which resulted in a decrease of $1,299,464. In Fiscal 2004, 104 acres of land were sold generating $994,542 in revenue with a basis of $6,514 as compared to Fiscal 2003 in which 134 acres of land were sold generating revenue of $1,398,498 with a basis of $9,831. This results in a decrease of $403,956 or 29% for Fiscal 2004 as compared to Fiscal 2003. To date approximately 5% of our 19,739 acres have been marked for timbering. A forester has been hired to generate a long-term plan of managed timbering which pays specific attention to protecting the environment and retaining the value of the land. In Fiscal 2004 timber sales were $326,900 as compared to Fiscal 2003 which generated $1,222,420 of revenue, a decrease of $895,520 or 73%.

Operating costs associated with Ski Operations for Fiscal 2004 were $9,944,341 as compared to $10,669,427 for Fiscal 2003, which represents a decrease of $725,086 or 7%. This decrease was due mainly to a reduction in advertising expense of $345,137 or 48% and decreased labor expense of $323,972 or 45%.

Operating costs associated with Real Estate Management Operations / Rental Operations for Fiscal 2004 were $3,735,890 as compared to $3,081,817 for Fiscal 2003, which represents an increase of $654,073.The increase was mainly attributable to the expenses associated with the two new shopping centers acquired in Fiscal 2004. The Oxbridge Square Shopping Center had expenses of $299,202 and the Coursey Commons Shopping Center had expenses of $207,653 for Fiscal 2004.

Operating costs associated with Summer Recreation Operations for Fiscal 2004 were $1,660,939 as compared with $1,738,786 for Fiscal 2003, which represents a decrease of $77,847 or 4%. This decrease was primarily due to a reduction in Splatter paintball supplies and services of $62,953 or 80%.

Operating costs associated with Land Resource Management for Fiscal 2004 were $1,125,127 as compared with $585,137 for Fiscal 2003 which represents an increase of $539,990 or 92%. This increase is primarily attributable to an increase in consulting fees of $255,748 or 47% and an increase in the cost of land and buildings sold of $248,436 or 46% relating to the 1031 tax deferred exchanges in the land sales division.

The asset impairment loss in Fiscal 2004 of $1,021,034 is the result of closing the Fern Ridge campground and the Traxx Motocross Park. The campground was closed because we were unable to obtain sewage permits. The impairment loss resulting from the closing of the Fern Ridge campground is $452,325. The motocross park was closed because its location is the site for future resort community development at Jack Frost Mountain. The impairment loss resulting from the closing of the Traxx Motocross Park was $568,709.

General and Administration costs for Fiscal 2004 were $898,315 as compared with $1,055,746 for Fiscal 2003 which represents a decrease of $157,431 or 15%. This decrease is attributable to $200,900 of compensation recognized under an employee stock plan that was expensed in Fiscal 2003. There was no such compensation expense in Fiscal 2004

The discontinued operations are the result of the sale of the Dreshertown Plaza Shopping Center. The center recorded a net income of $418,216 through the sale date of March 31, 2004. Gain on disposition of the center was $12,026,867.

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Interest and Other Income was $1,076,964 in Fiscal 2004 as compared to $22,475 in Fiscal 2003, an increase of $1,054,489. This increase is primarily attributable to the sale of our four communication towers in Fiscal 2004.

Interest expense for Fiscal 2004 was $591,969 as compared to $259,754 for Fiscal 2003, which represents an increase of $332,215. This increase is attributable to the mortgages acquired for the residential investment properties ($29,452), and the additional interest incurred on the new mortgages resulting from the purchase of the Oxbridge Square ($124,469) and Coursey Commons ($159,199) shopping centers in Fiscal 2004.

The effective Tax Rate for Fiscal 2004 was 34% and Fiscal 2003 was 40%.

Results of Operations

FISCAL 2003 VERSUS FISCAL 2002

For fiscal year ended October 31, 2003, the Companies reported net loss of $(879,137) or $(.45) per combined share as compared with a net income of $686,758 or $.36 per combined share for fiscal year ended October 31, 2002.

Combined revenue of $18,217,518 represents an increase of $1,119,620 or 6% when compared to Fiscal 2002. Ski Operations increased $254,909 or 2%, and Real Estate Management Operations / Rental Operations increased $87,064 or 3% when compared to Fiscal 2002.

The Ski Operations in Fiscal 2003 had approximately 236,000 skier visits to our slopes compared to 223,000 skier visits for Fiscal 2002. Revenue per skier was $30 compared to $32 for Fiscal 2002 for a decrease of $2 or 7 %. Tubing operations had approximately 63,000 tuber visits for both Fiscal 2003 and Fiscal 2002. Revenue per tuber was $15 compared to $16 last season for a decrease of $1 or 7%. The ski areas operated for a combined total of 184 days compared to 160 days for Fiscal 2002. The food and beverage operations at the ski areas contributed revenue of $7.30 per skier visit compared to $6.94 for Fiscal 2002 for an increase of $.36 or 5%. The retail shop operations at the ski areas contributed revenue of $2.08 per skier visit compared to $1.79 for Fiscal 2002 for an increase of $.29 or 14%.

The Real Estate Management Operations / Rental Operations increase is attributed to an increase in the rent of investment properties.

In Fiscal 2003, Summer Recreation Operations had revenue of $1,876,724 as compared to $2,439,963 for Fiscal 2002 which represents a decrease of $563,329 or 30%. This decrease is mainly attributed to having only one major summer music festival in Fiscal 2003. In Fiscal 2002 there were three major music festivals. In Fiscal 2003, festival revenue was $468,746 as compared to $810,757 in Fiscal 2002 which represents a decrease of $342,011 or 73%. Campground revenue was also affected by the reduction of music festivals. In Fiscal 2003, campground revenue was $324,716 as compared to $396,406 in Fiscal 2002 which represents a decrease of $71,690 or 22%. In Fiscal 2003, Splatter (Paintball) revenue was $457,449 as compared to $485,901 in Fiscal 2002 which represents a decrease of $28,452 or 6%. In Fiscal 2003, Traxx (Motocross Park) was $425,777 as compared to $550,673 in Fiscal 2002 which represents a de crease of $124,896 or

29%. These decreases in Summer Recreation Operations revenues were also the result of a weak economy and rainy weather conditions throughout the spring and summer of 2003.

In Fiscal 2003, Land Resource Management had revenue of $2,620,907 as compared to $1,280,021 for Fiscal 2002. In Fiscal 03, 134 acres of land was sold generating $1,398,498 with a basis of $9,831 as compared to Fiscal 2002 in which 27 acres of land were sold generating revenue of $106,756 with a basis of $1,153. This results in an increase of $1,291,742 or 92% for Fiscal 2003 as compared to Fiscal 2002. To date approximately 5% of the Companies’ 19,528 acres have been marked for timbering. A forester has been hired

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to generate a long-term plan of managed timbering which pays specific attention to protecting the environment and retaining the value of the land. In Fiscal 2003 timber sales were $1,222,420 as compared to Fiscal 2002 which generated $1,173,265 of revenue for an increase of $49,155 or 4%.

Operating costs associated with Ski Operations for Fiscal 2003 were $10,669,427 as compared to $10,108,567 for Fiscal 2002 which represents an increase of $560,860 or 5%. This increase was due to higher insurance rates (40%) and depreciation (52%) expenses.

Operating costs associated with Real Estate Management Operations / Rental Operations for Fiscal 2003 were $3,081,817 as compared to $2,827,821 for Fiscal 2002 which represents an increase of $253,996 or 9%. This increase was due mainly to the new construction and excavation department which began operation in Fiscal 2003.

Operating costs associated with Summer Recreation Operations for Fiscal 2003 were $1,738,786 as compared with $2,250,002 for Fiscal 2002 which represents a decrease of $511,216 or 29%. This decrease was mainly attributable to the Companies having only one major summer music festival in Fiscal 2003 as compared to three in Fiscal 2002.

Operating costs associated with Land Resource Management for Fiscal 2003 were $585,137 as compared with $523,542 for Fiscal 2002 which represents an increase of $61,595 or 11%. This increase is attributable to an increase in cost of goods for the construction and excavation division.

General and Administration costs for Fiscal 2003 were $1,055,746 as compared with $703,976 for Fiscal 2002 which represents an increase of $351,770 or 33%. This increase is attributable to the reclassifying of salaries from the ski areas (30%) and recognition of compensation cost related to extending the term of certain stock options (70%).

The discontinued operations are the result of the sale of the Dreshertown Plaza Shopping Center. Operating costs associated with discontinued operations were $3,089,563 in Fiscal 2003 as compared to $892,832 in Fiscal 2002 which represents an increase of $2,196,731. The increase was mainly attributable to the $1,972,090 (90%), buy out of Dreshertown Plaza Shopping Center’s management company agreement and $150,000 contingency accrual (6%) for an environmental cleanup at the shopping center.

Interest and Other Income increased by $4,409 in Fiscal 2003 as compared to Fiscal 2002.

Interest expense for Fiscal 2003 was $259,754 as compared to $207,888 for Fiscal 2002 which represents an increase of $51,866. This increase is attributable to the mortgages acquired for the residential investment properties, and approximately $2,100,000 of new debt related to ski resort equipment.

The effective Tax Rate for Fiscal 2003 and Fiscal 2002 was 40%.

Liquidity and Capital Resources:

The Combined Statement of Cash Flows reflects net cash used by operating activities of $(826,949) for the fiscal year ended October 31, 2004, net cash provided by operating activities of $245,764 for the fiscal year ended October, 31, 2003 versus net cash provided by operating activities of $2,916,042 for the fiscal year ended October 31, 2002.

Material non-recurring cash items during the past three years include the buyout of the management company for the Dreshertown Plaza shopping center of $1,900,000, the sale of the communication towers for

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$1,469,000 and the exchange of the Dreshertown Plaza shopping center for the Oxbridge Square and the Coursey Commons shopping centers.

We currently anticipate that the funds needed for future operations and to implement our land development strategy will be satisfied through operating cash, borrowed funds and reinvested profits from completed and sold units or lots. We expect that with respect to land development, future construction will be conducted in phases, with the profits from each phase used to fund additional future construction. Construction is being implemented in phases as to reduce any market risk associated with changing economic conditions.

For the Fiscal year ended October 31, 2004, our major capital expenditures were for residential investment properties, the purchase of two shopping centers, infrastructure costs associated with the 23 single unit Laurelwoods Longview Drive residential community at Big Boulder ski area, the installation of fire and security systems at both ski areas and the corporate office, a new compressor at Big Boulder ski area, and a real estate sales office.

During the fiscal year ended October 31, 2004, we borrowed against our $3,100,000 lines of credit for a period of 11 months in varying amounts with a maximum of $2,933,180. During the fiscal year ended October 31, 2003, we borrowed against our $3,100,000 line of credit for a period of ten months in varying amounts with a maximum of $1,800,000. During the fiscal year ended October 31, 2002, we borrowed against our $2,000,000 line of credit for a period of four months in varying amounts with a maximum of $1,500,000. The rates of interest are one percentage point less than the Prime Rate on the $2.1 million line, and one half of one percentage point (0.50%) less than the Prime Rate on the $1.0 million line.

Contractual Obligations:	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years

Lines of Credit	1,493,000	1,493,000	0	0	0
Demand Note	2,500,000	2,500,000	0	0	0
Long-Term Debt	15,043,563	766,060	2,070,465	1,472,849	10,734,189
Capital Leases	838,245	244,686	593,559	0	0
Purchase Obligations	594,332	594,332	0	0	0
Pension Contribution Obligations	486,334	486,334	0	0	0
Other Long-Term Obligations	0	0	0	0	0

Total Contractual Cash Obligations	$20,469,140	$5,598,078	$2,664,024	$1,433,564	$10,773,470

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is limited primarily to the fluctuating interest rates associated with variable rate indebtedness. At October 31, 2004, we had $5,354,664 of variable rate indebtedness, representing 26.9% of our total debt outstanding, at an average rate of 3.71% (calculated as of October 31, 2004). Our average interest rate is based on our various credit facilities and our market risk exposure fluctuates based on changes in underlying interest rates.

Exposure to market risk may also exist in our mortgages receivable issued in connection with land sales. Mortgages receivable are considered fully collectible by management and accordingly, no allowance for loan losses is considered necessary.

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New Accounting Pronouncements:

In January 2003, the Financial Accounting Standards Board issued FIN No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"), which addresses whether certain types of entities, referred to as variable interest entities ("VIE’s"), should be consolidated in a company's financial statements. A VIE is an entity that either: (1) has equity investors that lack certain essential characteristics of a controlling financial interest, including the ability to control the entity, the obligation to absorb the entity's expected losses and the right to receive the entity's expected residual returns, or (2) lacks sufficient equity to finance its own activities without financial support provided by the other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE. An entity should consolidate a VIE if it stands to absorb a majority of the V IE's expected losses or to receive a majority of the VIE's expected residual returns. FIN No. 46 is effective now for new VIE's formed after December 31, 2003. Application of FIN No. 46 for VIE's created prior to January 1, 2004 is required for the first annual period beginning after December 15, 2004. We do not expect the adoption of FIN No. 46 to have a significant impact on our financial position or results of operations.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 revised (“SFAS No. 123R”), Share-Based Payment. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No.123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Public entities (other than those filing as small business issuers) will be required to apply SFAS No. 123R as of the first interim or annual reporting period that begins after June 15, 2005. We have not yet evaluated the impact that implementing SFAS No. 123R will have on our financial position or results of operations.

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BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES

COMBINED BALANCE SHEETS

October 31, 2004 and 2003

ASSETS	10/31/04	10/31/03
Current Assets:
Cash and cash equivalents (all funds are interest bearing)	$89,739	$178,315
Accounts receivable and notes receivable	506,993	705,408
Inventories	246,394	295,828
Prepaid expenses and other current assets	833,658	822,537
Deferred operating costs	0	2,509,778
Deferred tax asset	85,000	0
Total current assets	1,761,784	4,511,866
Cash held in escrow	134,907	309,308
Notes receivable noncurrent	299,986	353,238
Land and land development costs (5,124 acres per land ledger)	4,527,937	918,860
Properties:
Land held for investment, principally unimproved (14,615 and 14,389, respectively, acres per land ledger)	6,366,791	1,791,594
Land improvements, buildings and equipment - ski	43,353,302	41,435,444
Land improvements, buildings and equipment - commercial	26,255,727	5,828,587
Land improvements, buildings and equipment	1,754,707	6,045,496
	77,730,527	55,101,121
Less accumulated depreciation and amortization	38,993,172	35,944,275
	38,737,355	19,156,846
Assets held for sale	0	2,710,292
	$45,461,969	$27,960,410
LIABILITIES AND SHAREHOLDERS' EQUITY	10/31/04	10/31/03
Current Liabilities:
Notes payable - line of credit	$1,493,000	$1,188,000
Notes payable - demand note	2,500,000	0
Current installments of long-term debt and capital lease obligations	1,010,746	7,101,661
Accounts and other payables	1,708,615	979,509
Accrued claims	99,282	250,942
Deferred revenue	747,638	737,533
Accrued pension expense	606,406	733,710
Accrued liabilities	699,959	824,998
Deferred income taxes	0	832,000
Total current liabilities	8,865,646	12,648,353
Long-term debt and capital lease obligations, less current installments	14,871,062	3,889,095
Deferred income non-current	515,631	515,631
Other non-current liabilities	5,764	12,572
Deferred income taxes	5,434,000	1,371,000
Commitments and contingencies
Combined shareholders' equity:
Capital stock, without par value, stated value $.30 per combined share, Blue Ridge and Big Boulder each authorized 3,000,000 shares, each issued 2,198,148 shares	659,444	659,444
Capital in excess of stated value	1,461,748	1,461,748
Compensation recognized under employee stock plans	200,900	200,900
Earnings retained in the business	15,533,181	9,287,074
	17,855,273	11,609,166

Less cost of 282,018 shares of capital stock in treasury as of October 31, 2004 and 2003, respectively.	2,085,407	2,085,407
	15,769,866	9,523,759
	$45,461,969	$27,960,410

The accompanying notes are an integral part of the combined financial statements.

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BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES

COMBINED STATEMENTS OF OPERATIONS

AND EARNINGS RETAINED IN THE BUSINESS

for the years ended October 31, 2004, 2003 and 2002

	10/31/04	10/31/03	10/31/02
Revenues:
Ski operations	$9,742,230	$10,269,984	$10,015,075
Real estate management	3,236,598	3,129,394	3,029,396
Summer recreation operations	1,944,023	1,876,724	2,439,963
Land resource management	1,321,443	2,620,907	1,280,021
Rental income	1,131,159	320,509	333,443
	17,375,453	18,217,518	17,097,898
Costs and expenses:
Ski operations	9,944,341	10,669,427	10,108,567
Real estate management	2,986,785	2,750,152	2,585,552
Summer recreation operations	1,660,939	1,738,786	2,250,002
Land resource management	1,125,127	585,137	523,542
Rental income	749,105	331,665	242,269
General and administration	898,315	1,055,746	703,976
Asset impairment loss	1,021,034	0	0
	18,385,646	17,130,913	16,413,908
(Loss) income from continuing operations	(1,010,193)	1,086,605	683,990

Other income (expense):
Interest and other income	1,076,964	22,475	18,066
Interest expense	(591,969)	(259,754)	(207,888)
	484,995	(237,279)	(189,822)

(Loss) income from continuing operations before income taxes	(525,198)	849,326	494,168

Provision (credit) for income taxes:
Current	(71,000)	(14,000)	14,000
Deferred	61,000	682,000	219,591
	(10,000)	668,000	233,591

Net (loss) income before discontinued operations and cumulative effect	(515,198)	181,326	260,577

Discontinued operations (including $12,026,867 gain on disposal in 2004)	12,445,083	(1,445,463)	645,181

Provision (credit) for income taxes on discontinued operations:
Current	89,000	0	219,000
Deferred	4,089,000	(385,000)	0
	4,178,000	(385,000)	219,000

Net income (loss) from discontinued operations	8,267,083	(1,060,463)	426,181

Net income (loss) before cumulative effect of change in accounting principle	7,751,885	(879,137)	686,758

Cumulative effect of change in accounting principle (net of tax effect of $1,004,000)	(1,505,778)	0	0
Net income (loss)	6,246,107	(879,137)	686,758

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BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES

COMBINED STATEMENTS OF OPERATIONS

AND EARNINGS RETAINED IN THE BUSINESS

for the years ended October 31, 2004, 2003 and 2002

	10/31/04	10/31/03			10/31/02

Earnings retained in business:
Beginning of year	9,287,074		10,166,211	9,479,453
End of year	$15,533,181		$9,287,074	$10,166,211

Pro forma amounts assuming the change in accounting principle applied retroactively:
Pro forma net income (loss)	$7,751,885	($1,019,533)			$585,174

Basic earnings (loss) per weighted average combined share:
Net (loss) income before discontinued operations and cumulative effect	($0.27)	$0.15			$0.15
Income (loss) from discontinued operations, net of tax	4.31	(0.60)			0.21
Cumulative effect of change in accounting principle, net of tax	(0.79)	0.00			0.00

Net income (loss)	$3.26	($0.45)			$0.36

Diluted earnings (loss) per weighted average combined share:
Net (loss) income before discontinued operations and cumulative effect	($0.26)	$0.15			$0.14
Income (loss) from discontinued operations, net of tax	4.22	(0.60)			0.22
Cumulative effect of change in accounting principle, net of tax	(0.77)	0.00			0.00

Net income (loss)	$3.19	($0.45)			$0.36

Pro forma amounts assuming the change in accounting principle applied retroactively:

Pro forma basic earnings (loss) per weighted average combined share	$4.05	($0.53)			$0.31

Pro forma diluted earnings (loss) per weighted average combined share	$3.96	($0.53)			$0.30

The accompanying notes are an integral part of the combined financial statements.

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BLUE RIDGE REAL ESTATE COMPANY and SUBSIDIARIES

AND

BIG BOULDER CORPORATION and SUBSIDIARIES

COMBINED STATEMENTS OF CASH FLOWS

for the years ended October 31, 2004, 2003 and 2002

	10/31/04	10/31/03	10/31/02
Cash Flows (Used In) Provided By Operating Activities:
Net income (loss)	$6,246,107	($879,137)	$686,758
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, amortization and impairment loss	4,314,827	2,050,863	1,897,753
Deferred income taxes	3,146,000	297,000	438,591
(Gain) loss on sale of assets	(13,097,691)	24,384	5,490
Compensation cost under employee stock plans	0	200,900	0
Changes in operating assets and liabilities:
Accounts receivable and notes receivable	251,667	(670,354)	(11,454)
Prepaid expenses and other current assets	38,313	47,305	(203,517)
Deferred operating costs	1,554,505	(73,730)	(170,745)
Land and land development costs	(3,609,077)	(918,860)	0
Accounts payable and accrued liabilities	318,295	128,102	213,799
Deferred revenue	10,105	39,291	59,367
Net cash (used in) provided by operating activities	(826,949)	245,764	2,916,042
Cash Flows Used In Investing Activities:
Proceeds from disposition of assets	15,894,314	17,504	18,344
Additions to properties	(18,689,878)	(2,661,513)	(3,149,214)
Cash held in escrow	174,401	(201,399)	(107,909)
Net cash used in investing activities	(2,621,163)	(2,845,408)	(3,238,779)
Cash Flows Provided By Financing Activities:
Borrowings under line of credit	9,723,180	5,592,000	1,700,000
Payment of line of credit	(9,418,180)	(5,004,000)	(1,748,195)
Proceeds from demand note payable	2,500,000	0	0
Proceeds from long-term financing	15,734,076	3,218,400	1,100,000
Payment of long-term debt and capital lease obligations	(15,179,540)	(1,289,227)	(720,435)
Purchase of treasury stock	0	(525)	(10,500)
Net cash provided by financing activities	3,359,536	2,516,648	320,870
Net (decrease) in cash and cash equivalents	(88,576)	(82,996)	(1,867)
Cash and cash equivalents, beginning of year	178,315	261,311	263,178
Cash and cash equivalents, end of year	$89,739	$178,315	$261,311

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$670,747	$421,105	$376,431
Income taxes	$19,435	$9,947	$116,233

Supplemental disclosure of non cash investing and financing activities:
Additions to property acquired through capital lease obligations	$283,398	$1,011,778	$0
Seller financed property additions	$4,053,118

The accompanying notes are an integral part of the combined financial statements

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NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Combination:

The combined financial statements include the accounts of Blue Ridge Real Estate Company (Blue Ridge) and its wholly-owned subsidiaries, Northeast Land Company, Jack Frost Mountain Company, Boulder Creek Resort Company, BRRE Holdings, Inc., Oxbridge Square Shopping Center, LLC, Coursey Commons Shopping Center, LLC, Coursey Creek, LLC and Cobble Creek, LLC; and Big Boulder Corporation (Big Boulder) and its wholly-owned subsidiaries, Lake Mountain Company and BBC Holdings, Inc. Under a Security Combination Agreement between Blue Ridge and Big Boulder and under the by-laws of both Companies, shares of the Companies are combined in unit certificates, each certificate representing concurrent ownership of the same number of shares of each company; shares of each company may be transferred only together with an equal number of shares of the other company. All significant intercompany accoun ts and transactions are eliminated.

Revenue Recognition:

Revenues are derived from a wide variety of sources, including sales of lift tickets, ski school tuition, dining, retail stores, equipment rental, property management services, timbering and other recreational activities. Revenues are recognized as services are performed or products are delivered. Timbering revenues from stumpage contracts are recognized in accordance with Staff Accounting Bulletin No. 104 - Revenue Recognition, ("SAB 104"). At the time a stumpage contract is signed, the risk of ownership has been passed to the buyer at a fixed, determinable cost. Reasonable assurance of collectibility has been determined by the date of signing, and the few obligations of the Companies have already been met. Therefore, full accrual recognition at the time of contract execution is appropriate under SAB 104 guidance.

Seasonality:

Operations are highly seasonal at both ski mountains with the majority of revenues realized during the ski season from late November through the end of March. The length of the ski season and the profitability of operations are significantly impacted by weather conditions. Although the mountains have snowmaking capacity to mitigate some of the effects of adverse weather conditions, abnormally warm weather or lack of adequate snowfall can materially affect revenues.

Disposition of Land and Resort Homes:

The Companies recognize income on the disposition of real estate in accordance with the provisions of Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate" (SFAS 66). Down payments of less than 20% are accounted for as deposits as required by SFAS No. 66.

The costs of developing land for resale as resort homes and the costs of constructing certain related amenities are allocated to the specific parcels to which the costs relate. Such costs, as well as the costs of construction of the resort homes, are charged to operations as sales occur. Land held for resale and resort homes under construction are stated at lower of cost or market.

Land and Land Development Costs:

The Companies capitalize as land and land development costs, the original acquisition cost, direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (engineering, surveying, landscaping, etc.) until the property reaches its intended use. The cost of sales for individual parcels of real estate or condominium units within a project is

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determined using the relative sales value method. Selling expenses are charged against income in the period incurred.

Properties and Depreciation:

Properties are stated at cost. Depreciation and amortization is provided principally using the straight-line method over the following years:

Land improvements

10-30

Buildings

3-30

Equipment and furnishings

3-20

Ski facilities:

Land improvements

10-30

Buildings

5-30

Machinery and equipment

5-20

Upon sale or retirement of depreciable property, the cost and related accumulated depreciation are removed from the related accounts, and resulting gains or losses are reflected in income.

Interest, real estate taxes, and insurance costs, including those costs associated with holding unimproved land, are normally charged to expense as incurred. Interest cost incurred during construction of facilities is capitalized as part of the cost of such facilities.

Maintenance and repairs are charged to expense, and major renewals and betterments are added to property accounts.

Impairment losses are recognized in operating income as they are determined. The Companies review their long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In that event, the Companies calculate the expected future net cash flows to be generated by the asset. If those net future cash flows are less than the carrying value of the asset, an impairment loss is recognized in operating income. The impairment loss is the difference between the carrying value and the fair value of the asset. Two impairment losses were recorded as of October 31, 2004.

Deferred Operating Costs:

Prior to fiscal 2004, management deferred operating costs related to ski operations in order to match those costs to revenues generated during the ski operating period which is principally the months of December through March. Management has changed that principle and now recognizes ski costs as they occur. The principle change and its effect on the financial statements are detailed in Note 2 “Change in Accounting Principle.”

Inventories:

Inventories consist of food, beverage, and retail merchandise and are stated at cost which approximates market, with cost determined using the first-in, first-out method.

Deferred Revenue:

Deferred revenue consists of revenue billed in advance for services and dues that are not yet earned. Revenue billed in advance for services consists of season lift tickets and advance ticket sales and gift certificates for the ski resorts. The Companies recognize revenue billed in advance ratably over the principal months of the ski season, December through March. Dues that are not yet earned consist of rents related to our commercial properties that have been paid in advance, and dues related to memberships in our hunting and fishing clubs paid in advance. The Companies recognize revenue related to the hunting and fishing clubs over the one-year period that the dues cover.

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Income Taxes:

The Companies account for income taxes utilizing the asset and liability method of recognizing the tax consequence of transactions that have been recognized for financial reporting or income tax purposes. Among other things, this method requires current recognition of the effect of changes in statutory tax rates on previously provided deferred taxes. Valuation allowances are established, when necessary, to reduce tax assets to the amount expected to be realized. Blue Ridge, including its subsidiaries, and Big Boulder, including its subsidiaries, report as separate entities for federal income tax purposes. State income taxes are reported on a separate company basis.

Deferred Income:

Amounts received under a contract with the Pennsylvania Department of Transportation for reimbursement of the cost of a constructed asset are deferred. The amounts will be recognized as income over the period in which depreciation on those assets is charged. This asset has not yet been placed in service.

Advertising Costs:

Advertising costs directly related to ski operations were previously capitalized and included with deferred operating costs. As of the April 1, 2004 change in accounting principle, advertising costs are now expensed when incurred (Note 2). Advertising expense for Fiscal 2004, 2003 and 2002 was $1,509,994, $1,385,482 and$1,463,455, respectively.

Use of Estimates and Assumptions:

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, unexpected changes in market conditions or a downturn in the economy could adversely affect actual results. Estimates are used in accounting for, among other things, inventory obsolescence, accounts and notes receivables, legal liability, insurance liability, depreciation, employee benefits, taxes, and contingencies. Estimates and assumptions are reviewed periodically and the effects of revis ions are reflected in the combined financial statements in the period they are determined to be necessary.

Management believes that its accounting policies regarding revenue recognition, deferred operating costs, long lived assets, deferred revenues, income taxes and other reserves, among others, affect its more significant judgments and estimates used in the preparation of its Combined Financial Statements. For a description of these critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Management has changed the method of recording deferred operating costs since the Companies' fiscal year ended October 31, 2003. (Note 2)

Statement of Cash Flows:

For purposes of reporting cash flows, the Companies consider cash equivalents to be all highly liquid investments with maturities of three months or less when acquired.

Concentration of Credit Risk:

Financial instruments which potentially subject the Companies to concentration of credit risk consist principally of temporary cash investments. The Companies’ temporary cash investments are held by financial institutions. The Companies have not experienced any losses related to these investments.

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Earnings (Loss) Per Share:

Basic earnings (loss) per share is calculated based on the weighted-average number of shares outstanding. Diluted earnings (loss) per share includes the dilutive effect of stock options.

Business Segments:

Stock Compensation:

The Companies apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options as permitted by SFAS No. 123, "Accounting for Stock Based Compensation", and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Under APB No. 25, because the exercise price of the employee stock options equals the estimated fair market value of the Companies' underlying stock on the date of the grant, no compensation expense is recognized. However, during Fiscal 2003, the original term of 35,000 options granted at an original exercise price of $6.75 were extended to July 1, 2008. In accordance with FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation” ("FIN 44"), the extension of the life of the award requires a new measurement of compensation as if the aw ard was newly granted. Because the exercise price was less than the current fair market value at the new date of grant, compensation cost of $122,900, net of tax has been recognized in the combined statement of operations.

Had compensation cost for the Companies' employee stock option plan been determined consistent with SFAS No. 123 and SFAS No. 148, the Companies' net income and earnings per share would have been reduced to the pro forma amounts indicated below:

	10/31/04	10/31/03	10/31/02

Net income (loss), as reported	$ 6,246,107	$ (879,137)	$ 686,758
Add: Stock-based employee
compensation expense included in
reported net (loss) income, net of
related tax effects	-	122,900	-
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax effects	(372,557)	(346,368)	(82,276)

Pro forma net income (loss)	$ 5,873,550	$ (1,102,605)	$ 604,482

Basic earnings (loss) per share:
As reported	$ 3.26	$ (0.45)	$ 0.36
Pro forma	$ 3.09	$ (0.57)	$ 0.32

Diluted earnings (loss) per share:
As reported	$ 3.19	$ (0.45)	$ 0.36
Pro forma	$ 3.00	$ (0.57)	$ 0.31

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Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Companies' calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2004, 2003 and 2002, respectively: 3.8, 4.4 and 5.6 years expected life; stock volatility of 22.3%, 5.9% and 4.1%; a risk-free interest rate of 3.6%, 3.0% and 2.5%; and no dividends during the expected term.

Reclassification:

Certain amounts in the 2003 and 2002 combined financial statements have been reclassified to conform to the 2004 presentation.

New Accounting Pronouncements:

In January 2003, the Financial Accounting Standards Board issued FIN No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"), which addresses whether certain types of entities, referred to as variable interest entities ("VIE’s"), should be consolidated in a company's financial statements. A VIE is an entity that either: (1) has equity investors that lack certain essential characteristics of a controlling financial interest, including the ability to control the entity, the obligation to absorb the entity's expected losses and the right to receive the entity's expected residual returns, or (2) lacks sufficient equity to finance its own activities without financial support provided by the other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE. An entity should consolidate a VIE if it stands to absorb a majority of the VIE's expected losses or to receive a majority of the VIE's expected residual returns. FIN No. 46 is effective now for new VIE's formed after December 31, 2003. Application of FIN No. 46 for VIE's created prior to January 1, 2004 is required for the first annual period beginning after December 15, 2004. The Companies do not expect the adoption of FIN No. 46 to have a significant impact on its financial position or results of operations.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 revised (“SFAS No. 123R”), Share-Based Payment. SFAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No.123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Public entities (other than those filing as small business issuers) will be required to apply SFAS No. 123R as of the first interim or annual reporting period that begins after June 15, 2005. The Companies have not yet evaluated the impact that implementing SFAS No. 123R will have on their financial position or results of operations.

2. CHANGE IN ACCOUNTING PRINCIPLE

Prior to Fiscal 2004, management’s estimate of deferred operating costs was primarily based on deferring costs directly related to ski operations in order to match those costs to the period in which ski operating revenues are recognized. Ski operating revenues are recognized principally over the months of December through March. Effective April 1, 2004, the Companies elected to change their method of deferring certain ski operating costs incurred during the non-ski season. Upon investigation of competitors’ practices, management has determined that a change in accounting principle should be made in order to report ski operations in accordance with the predominant industry practice used by similar operating companies. Additionally, the Companies believe the new method better enables users of the financial statements, including management, to benchmark the Companies’ ski o perations segment results against their competitors by removing the timing difference associated with matching certain ski operating costs incurred in a prior fiscal year against current fiscal year ski operating revenues. The effect of this change in accounting principle is a $2,509,778 decrease

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in net income, net of a deferred tax benefit of $1,004,000 and is reflected in the Combined Statements of Operations.

3. DISCONTINUED OPERATIONS

Effective March 10, 2004, the Companies discontinued operation of the Dreshertown Shopping Center as a result of the property being sold. Previously this discontinued operation was included in the Real Estate Management / Rental Income business segment of the combined statement of operations.

Operating results of the discontinued operation in Fiscal years 2004, 2003 and 2002 are as follows:

	2004	2003	2002
Revenues	$720,018	$1,644,100	$1,538,013
Expenses	(301,802)	(3,089,563)	(892,832)
Income (loss) from operations	418,216	(1,445,463)	645,181
Gain on sale	12,026,867	0	0
Income (loss) from discontinued operations before income taxes	$12,445,083	($1,445,463)	$645,181

Assets and liabilities of the discontinued operation in Fiscal years 2004 and 2003 are as follows:

	2004	2003

Accounts receivable	$ 0	$ 107,417
Prepaid expenses	0	155,434
Property and equipment – net	0	2,401,897
Total assets	$ 0	$ 2,664,748

Security Deposits – tenants	$ 0	$ 85,886
Accrued expenses	0	167,308
Current installments of long-term debt	0	6,282,999
Total liabilities	$ 0	$6,536,193

4. CONDENSED FINANCIAL INFORMATION:

Condensed financial information of the constituent Companies, Blue Ridge and its subsidiaries and Big Boulder and its subsidiaries, at October 31, 2004, 2003 and 2002 and for each of the years then ended is as follows:

	Blue Ridge and Subsidiaries
	10/31/04	10/31/03	10/31/02
FINANCIAL POSITION:
Current assets	$1,761,784	$2,342,819	$1,822,718
Total assets	38,318,248	20,238,523	17,601,995
Current liabilities	7,649,751	11,531,451	9,128,902
Shareholders' equity	10,783,896	3,801,014	4,454,828
OPERATIONS:
Revenues	12,288,890	12,508,769	11,193,063
(Loss) income from continuing operations and before taxes	(878,170)	744,276	306,113
(Credit) provision for income taxes	(91,000)	627,000	161,639
Net income (loss)	6,982,885	(854,187)	570,655

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	Big Boulder and Subsidiaries
	10/31/04	10/31/03	10/31/02
FINANCIAL POSITION:
Current assets	$ 0	$2,169,047	$2,268,339
Total assets	7,143,721	7,721,887	7,043,833
Current liabilities	1,215,895	1,116,902	876,761
Shareholders' equity	4,985,970	5,722,745	5,747,693
OPERATIONS:
Revenues	5,086,563	5,708,749	5,904,835
Income (loss) from continuing operations and before taxes	352,972	105,050	188,055
Provision (credit) for
income taxes	81,000	41,000	71,952
Net (loss) income	(736,778)	(24,950)	116,103

5. SHORT-TERM FINANCING:

Management has two lines of credit with Manufacturers and Traders Trust Company totaling $3.1 million. The $2.1 million line is used for general operation and the $1 million line was secured for real estate transactions. At October 31, 2004, Blue Ridge had utilized approximately $1,043,000 of the general line of credit, aggregating $2,100,000 which is an on demand line with no expiration date. The line of credit bears interest at 1% less than the prime rate (3.75% at October 31, 2004). At October 31, 2004, the Companies had also utilized $450,000 of the real estate line of credit, aggregating $1,000,000. The real estate line of credit bears interest at .50% less than the prime rate (4.25% at October 31, 2004). The weighted average interest rate at October 31, 2004 was 3.71%. The agreement requires, among other things, that the Companies comply with consolidated debt to wort h, debt service coverage and tangible net worth ratios. The Companies have met or obtained waivers for each of these covenants at January 27, 2005. The line of credit agreement enables the Companies to issue letters of credit in amounts up to $100,000. At October 31, 2004, a $20,000 letter of credit to Tobyhanna Township was outstanding. Outstanding letters of credit reduce the amounts available under the line of credit.

During Fiscal 2004, management entered into a $2,500,000 demand note payable with Manufacturers and Traders Trust Company. Interest is due and payable monthly at the bank's prime rate which was 4.75% at October 31, 2004. The principal of the note is payable on demand or absent an earlier demand, payable in entirety on maturity date of June 14, 2005.

6. LONG-TERM DEBT:

Long-term debt as of October 31, 2004 and 2003 consists of the following:

	10/31/04	10/31/03
Mortgage note payable to bank, interest is LIBOR plus 160 basis points (2.73% at March 31, 2004) payable monthly with principal reduction of $18,000 through maturity, March 2004	$0	$4,383,000

Mortgage note payable to bank, interest at 80% of the bank's prime rate (3.80% at October 31, 2004) payable in monthly installments of $24,187 plus interest through Fiscal 2005	241,874	532,120

Mortgage note payable to insurance company, interest fixed at 10.5% payable in monthly installments of $15,351 including interest through Fiscal 2014	1,081,488	1,148,278

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	10/31/04	10/31/03
Mortgage note payable to bank, interest at LIBOR plus 200 basis points, (fixed at a SWAP rate 3.61% at October 31, 2004), payable monthly with principal reduction of $39,286 per month January to April through 2009 (a), (b)	785,714	942,857

Mortgage note payable to bank, interest fixed at 4.33% (effective 5/27/04 for one year, thereafter rate to be negotiated) payable in monthly installments of $8,707 including interest through Fiscal 2008	748,192	819,958

Mortgage note payable to bank, interest fixed at 4.69% (effective 10/01/04 for one year of loan, thereafter rate to be negotiated) payable in monthly installments of $1,699 including interest through Fiscal 2008	148,371	465,590

Mortgage note payable to bank, interest at the bank's prime rate (4% at March 31, 2004) payable in entirety upon maturity date of April 30, 2004.	0	1,900,000

Capital lease obligation payable to bank, implicit interest at 5.28%, payable in 20 principal and interest installments of $18,498 in the months of January to April through Fiscal 2007	199,646	258,946

Capital lease obligation payable to bank, implicit interest at 5.28%, payable in 20 principal and interest installments of $38,300 in the months of January to April through Fiscal 2007	415,738	540,007

Capital lease obligation payable to bank, implicit interest at 4.89%, payable in 20 principal and interest installments of $16,059 in the months of January to April through Fiscal 2008	222,861	0

Mortgage note payable to finance company, interest fixed at 7.40% payable in monthly installments of $33,091 including interest through Fiscal 2023	4,012,134	0

Mortgage note payable to bank, interest fixed at 5.59% payable in monthly installments of $44,146 including interest through Fiscal 2014	7,691,714	0

Site development mortgage note payable to bank, interest at the bank's prime rate (4.75% at October 31, 2004) payable in installments of $45,100 due at the closing of each Laurelwoods unit with the balance due August 1, 2006. ( c )	334,076	0
	15,881,808	10,990,756
Less current installments	1,010,746	7,101,661
	$14,871,062	$3,889,095

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Properties at cost, which have been pledged as collateral for long-term debt, include the following at October 31, 2004:

Investment properties leased to others	$2,190,470
Ski facilities	$17,578,911

(a) The Companies have entered into an interest swap agreement, which is considered a derivative financial instrument, to hedge its variable interest rate payment obligations on its long-term debt. The derivative is not used for trading purposes and involves little complexity. The notional amount of the interest rate swap agreement is equivalent to the principal balance of the long-term debt and is used to measure the interest to be paid or received, and does not represent the amount of exposure to credit loss. Exposure to credit loss is limited to the receivable amount, if any, that may be generated as a result of this swap agreement.

The fair value of the derivative financial instrument, which is the amount the Companies would receive or pay to terminate the agreement, is not significant. No carrying amounts were recorded in the accompanying combined balance sheet and no gains or losses were recognized in income during 2004.

(b) During Fiscal 2002 the Companies entered into a $1,100,000 mortgage note payable with Manufacturers and Traders Trust Company. The agreement requires, among other things, that the Companies comply with annual consolidated debt to worth and consolidated debt service coverage ratios and meet a consolidated tangible net worth threshold. The Companies have not met the required consolidated debt to worth ratio at October 31, 2004. The primary reason for default is the additional demand note classified as current which totals $2,500,000. The Companies have met the consolidated debt service coverage ratio and the required tangible net worth threshold and have obtained a waiver for the covenant in default at January 27, 2005.

(c) During Fiscal 2004 the Companies entered into a site development mortgage note with Manufacturers and Traders Trust Company aggregating an amount not to exceed $864,820. The funds are specifically earmarked for the development of infrastructure relating to the construction of 23 homes in Laurelwoods. The payment of this note will occur as each home sale closes in equal installments of $45,100. The Bank agreed, subject to the conditions contained in the loan agreement, to issue on the Companies' behalf, an irrevocable standby Letter of Credit to Kidder Township in an amount not to exceed $864,820 for the purpose of guaranteeing completion of the infrastructure improvements to the Laurelwoods premises as required by Kidder Township. The amount of the Letter of Credit is to be reduced as the site improvements and infrastructure work is completed and shall be for a maximum period of two years. &nb sp;The Letter of Credit is part of, and reduces availability under the site development note (d). The Letter of Credit amount was $530,744 as of October 31, 2004.

(d) During Fiscal 2004 the Companies entered into a construction line of credit mortgage note with Manufacturers and Traders Trust Company aggregating an amount not to exceed $4,100,000. The funds will be used for construction of new units in the Laurelwoods premises and will bear interest at the bank's prime rate (4.75% at October 31, 2004). Advances for each unit shall be permitted based upon progression of construction as determined by the bank based upon its reasonable discretion and further based upon written certification of the completion of the applicable construction phase based upon a determined draw schedule. No advances on the loan were taken as of October 31, 2004.

The aggregate amount of long-term debt maturing in each of the five years ending subsequent to October 31, 2004, is as follows: 2005 - $1,010,746; 2006 - $1,143,039; 2007 - $851,878; 2008 - $669,107; 2009-$1,062,421; thereafter $11,144,617.

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7. INCOME TAXES:

The provision (credit) for income taxes is as follows:

	10/31/04	10/31/03	10/31/02
Currently payable:
Federal	($89,000)	($14,000)	$14,000
State	18,000	0	0
	(71,000)	(14,000)	14,000
Deferred:
Federal	(474,000)	383,000	149,865
State	535,000	299,000	69,726
	61,000	682,000	219,591
	($10,000)	$668,000	$233,591

A reconciliation between the amount computed using the statutory federal income tax rate and the provision (credit) for income taxes is as follows:

	10/31/04	10/31/03	10/31/02
Computed at statutory rate	($178,567)	$288,771	$168,017
State net operating losses subject to valuation allowance	(233,000)	204,356	0
State income taxes, net of federal income tax	364,980	197,340	46,019
Nondeductible expenses	3,852	1,980	0
Other	32,735	(19,563)	19,555
AMT (utilization) tax	0	(4,884)	0
Provision (credit) for income taxes	($10,000)	$668,000	$233,591

The components of the deferred tax assets and (liabilities) as of October 31, 2004 and 2003 are as follows:

	10/31/04	10/31/03
Current deferred tax asset (liability):
Deferred operating costs	$0	($1,040,000)
Accrued expenses	55,000	180,000
Deferred revenues	30,000	28,000

Current deferred tax asset (liability)	85,000	(832,000)

Noncurrent deferred tax liability:
Depreciation	(7,444,000)	(3,406,000)
Deferred income, sewer line and tower	212,000	214,000
Capital lease obligation	3,000	(4,000)
Net operating losses and AMT credit carryforward	3,208,000	2,920,000
Valuation allowance	(1,413,000)	(1,095,000)

Noncurrent deferred tax liability	(5,434,000)	(1,371,000)

Deferred income tax liability, net	($5,349,000)	($2,203,000)

At October 31, 2004, the Companies have $245,620 of Alternative Minimum Tax (AMT) credit carryforward available to reduce future income taxes. The AMT credit has no expiration date.

At October 31, 2004, the Companies have available approximately $5,241,000 of federal net operating losses.The Companies also have state net operating loss carryforwards of approximately $11,817,000, that will

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begin to expire in 2005. The Companies have recorded a valuation allowance against state net operating losses, which are not expected to be utilized.

8. PENSION BENEFITS:

Weighted Average Assumptions	10/31/04	10/31/03	10/31/02
Discount Rates used to determine net periodic benefit cost as of October 31, 2004, 2003 and 2002	6.50%	6.50%	7.25%
Expected long-term rates of return on assets	8.50%	8.50%	8.50%
Rates of increase in compensation levels	4.00%	4.00%	4.00%

Change in Benefit Obligation	10/31/04	10/31/03
Benefit obligation at beginning of year	$4,412,671	$3,525,594
Service cost (net of expenses)	220,086	194,237
Interest cost	279,984	261,011
Plan amendments	0	0
Actuarial (gain) loss	(28,511)	591,074
Benefit payments	(164,287)	(159,245)
Benefit obligation at end of year	$4,719,943	$4,412,671

Change in Plan Assets	10/31/04	10/31/03
Fair value of plan assets at beginning of year	$2,736,947	$2,207,622
Actual return on plan assets	97,286	255,142
Employer contributions	458,512	476,586
Benefits paid	(164,287)	(159,245)
Actual expenses paid during the year	(45,468)	(43,158)
Fair value of plan assets at end of year	$3,082,990	$2,736,947

Reconciliation of Funded Status of the Plan	10/31/04	10/31/03
Funded status at end of year	($1,636,953)	($1,675,724)
Unrecognized transition obligation	72,785	81,265
Unrecognized net prior service cost	7,081	7,692
Unrecognized net actuarial gain	950,681	853,057
Net amount recognized at end of year	($606,406)	($733,710)

Amounts Recognized in the Combined Balance Sheets	10/31/04	10/31/03
Prepaid benefit cost	$0	$0
Accrued benefit cost	(606,406)	(733,710)
Intangible asset	0	0
Accumulated other comprehensive income	0	0
Net amount recognized	($606,406)	($733,710)

Additional Year-End Information for Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets	10/31/04	10/31/03
Projected benefit obligation	$4,719,943	$4,412,671
Accumulated benefit obligation	$3,638,886	$3,433,026
Fair value of plan assets	$3,082,990	$2,736,947

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Pension Expense Reconciliation	10/31/04	10/31/03
Prepaid (accrued) benefit cost at beginning of year	($733,710)	($890,493)
Net periodic benefit cost	(331,208)	(319,803)
Contributions	458,512	476,586
Prepaid (accrued) benefit cost at end of year	($606,406)	($733,710)

Components of Net Periodic Benefit Cost	10/31/04	10/31/03	10/31/02
Service cost	$263,286	$237,437	$170,579
Interest cost	279,984	261,011	219,313
Expected return on plan assets	(245,414)	(201,264)	(228,316)

Amortization of transition obligation	8,480	8,480	8,480
Amortization of prior service cost	611	611	611
Amortization of accumulated gain	24,261	13,528	(12,754)
Total net periodic benefit cost	$331,208	$319,803	$157,913

Estimated Future Benefits Payments	Fiscal Year	Benefits
	2005	$182,965
	2006	$179,111
	2007	$186,763
	2008	$247,187
	2009	$235,373
	2010-2014	$1,469,603

The Companies expect to contribute $486,334 to the pension plan in fiscal 2005.

Measurement Date October 31, 2004

Weighted Average Assumptions	For Determination of:
	Benefit Obligations as of October 31, 2004	Net Periodic Pension Cost for Year Ending October 31, 2004

Discount rate	6.50%	6.50%
Rate of compensation increase	4.00%	4.00%
Expected long-term return		8.50%

Weighted-average asset allocations	10/31/04	10/31/03
Asset Category
Equity	65.86%	62.56%
Fixed Income	23.70%	33.81%
Money Market	10.44%	3.63%
Total	100.00%	100.00%

The Company's goal is to conservatively invest the plan assets in higher-grade securities and other assets with a minimum risk of market fluctuation. Based on the allocation of our assets between equity, fixed income and money market we estimate our long term rate of return to be approximately 8.5%.

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9. PROPERTIES:

Properties consist of the following at October 31, 2004 and 2003.

	10/31/2004	10/31/2003
Land, held for investment	$6,366,791	$1,791,594
Land improvements	1,258,615	5,574,589
Corporate buildings	496,092	470,907
Buildings leased to others	26,255,727	5,828,587

Ski Facilities
Land	4,552	4,552
Land improvements	8,359,121	8,256,234
Buildings	6,792,365	6,792,365
Machinery & equipment	24,279,411	23,534,269
Equipment & furnishings	3,917,853	2,848,024
	77,730,527	55,101,121
Less accumulated depreciation and amortization	38,993,172	35,944,275
	$38,737,355	$19,156,846

Included in machinery and equipment is $1,328,250 and $1,011,780 of assets held under capital lease at October 31, 2004 and 2003. Depreciation expense was $2,341,479 and $2,227,991 in Fiscal year 2004 and 2003. Included in accumulated depreciation and amortization at October 31, 2004 are asset impairment losses totaling $1,021,034. An impairment loss of $452,325 was recorded as a result of closing the Fern Ridge Campground and an impairment loss of $568,709 resulted from the closing of the Traxx Motocross Park.

10. ACCRUED LIABILITIES:

Accrued liabilities consist of the following at October 31, 2004 and 2003.

	10/31/2004	10/31/2003
Accrued Payroll	$263,602	$238,810
Accrued Security & Other Deposits	170,908	199,739
Accrued Professional Fees	98,424	210,959
Accrued - Miscellaneous	167,025	175,490
	$699,959	$824,998

11. LEASES:

The Companies are lessors under various operating lease agreements for the rental of land, land improvements and investment properties leased to others. Rents are reported as income over the terms of the leases as they are earned. Shopping centers are leased to various tenants for renewable terms averaging 3.22 years with options for renewal. A store has been net leased until October 31, 2024. Information concerning rental properties and minimum future rentals under current leases as of October 31, 2004 is as follows:

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		Properties Subject to Lease
		Cost	Accumulated Depreciation
Investment properties leased to others		$22,418,516	$1,004,817
Land and land improvements		6,728,114	1,517,824
Minimum future rentals:
Fiscal years ending October 31:	2005	$2,183,045
	2006	1,796,951
	2007	1,428,317
	2008	1,079,056
	2009	812,914
	Thereafter	22,987,997
		$30,288,280

Thereafter, includes $1,428,000 under a land lease expiring in 2072 and $12,420,837 under a net lease for a store expiring in 2024. There were no contingent rentals included in income for the fiscal years ended October 31, 2004, 2003 and 2002. Includes all option years and rental escalations, recognized using straight-line basis.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Companies' financial instruments are as follows at October 31, 2004 and 2003:

	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
ASSETS:	10/31/04		10/31/03
Cash and cash equivalents	$ 89,739	$89,739	$178,315	$178,315
Accounts and notes receivable	506,993	506,993	705,408	705,408
Cash held in escrow	134,907	134,907	309,308	309,308

LIABILITIES:
Notes payable, line of credit	1,493,000	1,493,000	1,188,000	1,188,000
Notes payable, demand note	2,500,000	2,500,000	0	0
Accounts and other payables	1,708,615	1,708,615	979,509	979,509
Long-term debt	15,881,808	17,956,705	10,990,756	11,541,516

Fair Values were determined as follows:

Cash and cash equivalents, accounts receivable, cash held in escrow, notes payable, line of credit, notes payable-demand note, accounts and other payables: The carrying amounts approximate fair value because of the short-term maturity of these instruments.

Long-term debt: The fair value of notes payable is estimated using discounted cash flows based on current borrowing rates available to the Companies for similar types of borrowing arrangements.

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13. QUARTERLY FINANCIAL INFORMATION (Unaudited)

The results of operations for each of the quarters in the last two years are presented below.

Quarter Year ended 10/31/04	Operating Revenues	Income (Loss) from Continuing Operations	Net Income (Loss)	Earnings (Loss) Per Weighted Avg. Combined Share
1st	$7,057,891	$368,100	$127,016	$0.07
2nd	6,153,694	880,586	7,566,167	3.94
3rd	2,628,174	(1,152,289)	(794,315)	(0.41)
4th	1,535,694	(1,106,590)	(652,761)	(0.34)
	$17,375,453	($1,010,193)	$6,246,107	$3.26
Year ended 10/31/03
1st	$7,996,925	$587,290	$370,786	$0.19
2nd	6,745,852	606,048	348,851	0.19
3rd	2,377,948	(416,622)	(1,471,221)	(0.77)
4th	1,096,793	309,889	(127,553)	(0.06)
	$18,217,518	$1,086,605	($879,137)	($0.45)

Revenues generated from advance ticket sales have been recorded as deferred revenue.

14. BUSINESS SEGMENT INFORMATION:

The following information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In accordance with SFAS No. 131, the Companies' business segments were determined from the Companies' internal organization and management reporting, which are based primarily on differences in services.

The Companies and the subsidiaries, under SFAS No. 131, operate in four business segments consisting of the following:

Ski Operations:

Ski Operations consist of two ski areas located in the Pocono Mountains of Northeastern Pennsylvania.

Real Estate Management/Rental Operations

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Summer Recreation Operations

Summer Recreation Operations consist of seasonal recreational operating centers located in the Pocono Mountains of Northeastern Pennsylvania, which include the following: Splatter Paintball; Lake Mountain Sports Club; and Summer Music Festivals. As of July 31, 2004, we decided to close two summer operation centers. The Fern Ridge Campground was closed in October 2004. Our decision to close the campground was based on Tobyhanna Township’s decision not to renew future approvals for our existing sewage disposal process. It is management’s position that the cost of connecting the campground to the township’s central sewage system was not cost effective and not in our best interest. We will be exploring different options as to the future use of the campground site which is located in close proximity to Interstate 80 and Route 115 in Blakeslee, Pennsylvania. Traxx Motocross Park closed in November 2004. We believe that this site, which is located next to the Jack Frost Mountain ski area, is a prime location for an additional housing community, which was the driving force behind our decision to close this park.

Land Resource Management

	10/31/04	10/31/03	10/31/02
Revenues from continuing operations:
Ski operations	$9,742,230	$10,269,984	$10,015,075
Real estate management/rental operations	4,367,757	3,449,903	3,362,839
Summer recreation operations	1,944,023	1,876,724	2,439,963
Land resource management	1,321,443	2,620,907	1,280,021
	$17,375,453	$18,217,518	$17,097,898

Income (loss) from continuing operations:
Ski operations	($202,111)	($399,443)	($93,492)
Real estate management/rental operations	631,867	368,086	535,018
Summer recreation operations	(737,950)	137,938	189,961
Land resource management	196,316	2,035,770	756,479
	($111,878)	$2,142,351	$1,387,966

General and administrative expenses:
Ski operations	$503,676	$545,902	$378,322
Real estate management/rental operations	225,814	270,772	185,131
Summer recreation operations	100,506	99,757	92,170
Land resource management	68,319	139,315	48,353
	$898,315	$1,055,746	$703,976

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	10/31/04	10/31/03	10/31/02
Interest and other income:
Ski operations	$5,267	($7,478)	$4,378
Real estate management/rental operations	1,087,604	29,953	13,688
Summer recreation operations	0	0	0
Land resource management	(15,907)	0	0
	$1,076,964	$22,475	$18,066
Interest expense:
Ski operations	$133,480	$112,450	$67,198
Real estate management/rental operations	449,521	145,846	140,690
Summer recreation operations	0	0	0
Land resource management	8,968	1,458	0
	$591,969	$259,754	$207,888

(Loss) income from continuing operations before income taxes	($525,198)	$849,326	$494,168

For the fiscal years ended October 31, 2004, 2003, and 2002, no one customer represented more than 10 % of total revenues.

Identifiable assets, net of accumulated depreciation at October 31, 2004, 2003, and 2002 and depreciation expense and capital expenditures for the years then ended by business segment are as follows:

October 31, 2004	Identifiable Assets	Depreciation Expense	Capital Expenditures
Ski operations	$9,838,058	$1,598,268	$912,879
Real estate management/rental operations	28,335,485	446,184	21,490,490
Summer recreation operations	431,405	168,152	85,310
Land resource management	158,802	45,742	97,897
Other corporate	6,698,219	83,133	186,886
Total	$45,461,969	$2,341,479	$22,773,462

	Identifiable	Depreciation	Capital
October 31, 2003	Assets	Expense	Expenditures
Ski operations	$12,359,117	$1,585,448	$2,845,725
Real estate management/rental operations	10,876,228	402,031	1,707,395
Summer recreation operations	2,005,411	161,095	109,659
Land resource management	88,774	14,963	51,005
Other corporate	2,630,880	64,454	30,102
Total	$27,960,410	$2,227,991	$4,743,886

	Identifiable	Depreciation	Capital
October 31, 2002	Assets	Expense	Expenditures
Ski operations	$9,697,759	$1,291,229	$2,855,099
Real estate management/rental operations	9,388,281	368,288	56,795
Summer recreation operations	1,995,857	161,531	150,517
Land resource management	63,253	5,986	58,463
Other corporate	3,500,678	69,280	37,102
Total	$24,645,828	$1,896,314	$3,157,976

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15. CONTINGENT LIABILITIES and COMMITMENTS:

The Companies are party to various legal proceedings incidental to their business. Certain claims, suits, and complaints arising in the ordinary course of business have been filed or are possible of assertion against the Companies. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, which are not expected to have a material effect on the combined financial position or results of operations of the Companies.

16. RELATED PARTY TRANSACTIONS:

Kimco is our controlling shareholder and Kimco Realty Corporation, the parent company of Kimco, is presently providing consulting services to us. The services are focused on land development, acquisitions and disposals. For the fiscal year ended October 31, 2004, Kimco was paid $285,000 in consulting fees. Kimco Realty Corporation served as the management company for the Dreshertown Plaza Shopping Center from June 2003 to March 2004, at which point the shopping center was sold. During its management term, Kimco Realty Corporation was paid $50,977 in management fees.

During June 2004, two commercial rental real estate properties were acquired, the Oxbridge Square Shopping Center, Richmond, Virginia and the Coursey Commons Shopping Center, Baton Rouge, Louisiana as replacement properties in our Real Estate Management/Rental Operations segment. Together the properties approximated $20,000,000 of acquired value. The purchase was financed by approximately $8,044,000 of cash held in escrow from the sale of Dreshertown Plaza, plus assuming a long-term note approximating $4,053,000 and obtaining a short-term bridge loan from Kimco Capital Corp., a wholly-owned subsidiary of Kimco Realty Corporation, approximating $7,375,000 with interest payable at 6% per annum. As of September 3, 2004, the short-term bridge loan from Kimco Capital Corp. was paid in full and replaced with long-term financing with JP Morgan Chase Bank in the amount of $7.7 million. A s of the dates of purchase, a wholly-owned subsidiary of Kimco Realty Corporation was, and currently remains the management company for both shopping centers and receives a fixed monthly fee of 4.5% of rental income on store leases. As of December 1, 2004, that subsidiary received $24,600 for management fees earned on the new shopping centers.

Michael J. Flynn, the Chairman of our board of directors, is also the President, Chief Operating Officer and Vice Chairman of the board of directors of Kimco Realty Corporation. In addition, Patrick M. Flynn, who serves as one of our directors and is our President and Chief Executive Officer, is the Director of Real Estate at Kimco Realty Corporation. Finally, Milton Cooper, who serves as one of our directors, also serves as Chief Executive Officer and Chairman of the board of directors of Kimco Realty Corporation.

17. STOCK OPTIONS and CAPITAL STOCK:

During Fiscal 1998, the Companies adopted an employee stock option plan, under which an officer was granted options to purchase shares of the Companies' common stock. The exercise price on the 35,000 options is $6.75 and the original term was extended in February 2003 to July 1, 2008. In accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation ("FIN 44"), the extension of the life of the award requires a new measurement of compensation as if the award was newly granted. Because the exercise price was less than the current fair market value at the date of the grant, compensation cost of $122,900, net of tax has been recognized in the combined statement of operations.

During Fiscal 2002, additional corporate officers were granted stock options in varying amounts for a total of 11,000 shares, all expiring December 10, 2006. Additionally, during Fiscal 2003, six key employees were granted stock options totaling 18,000 shares, due to expire on December 2, 2007.

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Option activity during the years ended October 31, 2004, 2003 and 2002 is as follows:

	10/31/04		10/31/03		10/31/02
		Weighted		Weighted
		Average		Average
		Exercise		Exercise
	Shares	Price	Shares	Price	Shares
Outstanding at beginning of year:	64,000	$8.56	46,000	$7.65	35,000
Granted	32,000	$17.75	18,000	$10.90	11,000
Exercised	-	-	-	-	-
Canceled	-	-	-	-	-
Outstanding at end of year	96,000	$11.62	64,000	$8.56	46,000

Options exercisable at year-end	96,000	$11.62	64,000	$8.56	46,000

Option price range	$6.75 - $17.75		$6.75 - $10.90		$6.75 - $10.50
Weighted average fair value of options granted during year	$17.64		$8.20		$2.71

Weighted average remaining contractual life (in years)	3.8		4.4		5.6

No treasury shares were purchased during Fiscal 2004. 50 treasury shares and 1,000 treasury shares were purchased in Fiscal 2003 and 2002, respectively.

18. PER SHARE DATA:

Earnings per share for the years ended October 31, 2004, 2003 and 2002 are computed as follows:

	10/31/04	10/31/03	10/31/02
Net earnings (loss)	$6,246,107	($879,137)	$686,758
Weighted average combined shares of common stock outstanding used to compute basic earnings per combined share	1,916,130	1,916,130	1,916,431
Additional combined common shares to be issued assuming exercise of stock options, net of combined shares assumed reacquired	43,793	19,114	13,899
Combined shares used to compute dilutive effect of stock option	1,959,923	1,935,244	1,930,330
Basic earnings (loss) per combined common share	$3.26	($0.45)	$0.36
Diluted earnings (loss) per combined common share	$3.19	($0.45)	$0.36

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19. SUBSEQUENT EVENTS:

In Fiscal 2005 the Letter of Credit to Kidder Township for the purpose of guaranteeing completion of infrastructure work in the Laurelwoods development is satisfied. The infrastructure work has been completed and as of January 2005 the Letter of Credit has been returned to Manufacturers and Traders Trust Company.

In January 2005 several officers and key employees chose to exercise stock options totaling 33,000 shares.

In November 2004 the Companies sold a parcel of land (approximately 1,560 acres) for $2,000,000. The transaction was treated as a section 1031 tax deferred exchange. Management has 45 days from the transaction date to identify potential exchange properties.

In January 2005, the Companies filed a registration statement with the Securities and Exchange Commission pursuant to which the Companies are proposing to offer to existing shareholders non-transferable rights to purchase shares of common stock that have an aggregate value of $15,500,000, rounded to the nearest whole share. Under the proposed rights offering, each of the shareholders will also have an over-subscription right. In connection with filing the registration statement, the Companies entered into a Standby Securities Purchase Agreement with Kimco Realty Services, Inc., a wholly-owned subsidiary of Kimco Realty Corporation, which provides that Kimco Realty Services will purchase any and all shares of common stock not subscribed for by the shareholders in the proposed rights offering. The registration statement has not been declared effective by the Securities and Exchange Commission. If the Companies commence the proposed rights offering, the Companies intend to use the proceeds from the rights offering to develop an eighteen-hole golf course at Jack Frost Mountain and infrastructure improvements for residential communities at Jack Frost and Big Boulder Areas.

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Report of Independent Registered Public Accounting Firm

To Shareholders of

Blue Ridge Real Estate Company

and Big Boulder Corporation:

We have audited the accompanying combined balance sheets of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries (the “Companies”) as of October 31, 2004 and 2003, and the related combined statements of operations and earnings retained in the business and cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Blue Ridge Real Estate Company and subsidiaries and Big Boulder Corporation and subsidiaries as of October 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

As disclosed in Note 2 to the combined financial statements, the Companies changed their method of accounting for deferred operating costs in 2004.

Parente Randolph, PC

Wilkes-Barre, Pennsylvania

January 10, 2005, except for
Note 5 and Note 6 paragraph (b)
as to which the date is January 27, 2005

EX-14 14 exh141ethics.htm CODE OF ETHICS MacPac 8.0 Business template

Blue Ridge Real Estate Company

Big Boulder Corporation

Code of Ethics for Executive Officers and Senior Financial Employees

(This Code of Ethics is intended to

set forth specific standards for executive officers

and senior financial employees in the discharge

of their duties.)

The Company is committed to the highest standards of ethical business conduct. The Company provides this Code of Ethics (this “Code”) as a set of guidelines pursuant to which the Company’s executive officers and senior financial employees are to perform their duties. Employees subject to this Code include each of the Company’s executive officers, the controller or principal accounting officer, and any person who performs a similar function. However, the Company expects all of its employees who participate in the preparation of any part of the Company’s financial statements to adhere to these guidelines.

The items set forth below are presented as guidelines for the executive officers and senior financial employees, but are, in fact, statements of mandatory conduct. It is also important to note that any waiver (express or implied) of, or amendment to, the requirements set forth in this Code will be subject to public disclosure. Note that if the Company fails to take action within a reasonable period of time after a material departure from any provision of this Code is made known to an executive officer of the Company, that failure would be considered an implied waiver of this Code and thus subject to public disclosure.

The Company’s board of directors has designated the firm of Morgan Lewis and Bockius, the Company’s General Counsel, to be the compliance officer (the “Compliance Officer”) for the implementation and administration of this Code.

In order to adhere to this Code, a person must:

Act with honesty and integrity, avoiding violations of this Code, including actual or apparent conflicts of interest with the Company (or any subsidiary or other affiliate thereof) in personal and professional relationships.

Avoid conflicts of interest, whether actual or apparent, with the Company (or any subsidiary or other affiliate thereof), and disclose to the Compliance Officer any material transaction or relationship that could reasonably be expected to give rise to any actual or apparent conflict of interest.

Provide the Company’s other employees, consultants, and advisors with information that is accurate, complete, objective, relevant, timely and understandable.

Record or participate in the recording of entries in the Company’s books and records that are accurate to the best of his or her knowledge.

Endeavor to ensure full, fair, timely, accurate and understandable disclosure in the Company’s periodic reports and in other public communications made by the Company.

Comply with rules and regulations of federal, state, provincial and local governments, and other appropriate private and public regulatory agencies.

Disclose to the Compliance Officer any facts or circumstances that reasonably could be expected to give rise to a violation of this Code.

Act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing his or her independent judgment to be subordinated.

Respect the confidentiality of information acquired in the course of his or her work except where he or she has Company approval to disclose such information or where disclosure is otherwise legally mandated. Confidential information acquired in the course of his or her work will not be used for personal advantage.

Share and maintain skills important and relevant to the Company’s needs.

Proactively promote ethical behavior among peers in his or her work environment.

Achieve responsible use of and control over all assets and resources employed by or entrusted to him or her.

CERTIFICATION

This Code of Business Conduct and Ethics was duly approved and adopted by the Board of Directors on the 19th day of May, 2004.

/s/ Michael J. Flynn

Chairman of the Board

EX-21 15 exh211subs.htm LIST OF SUBSIDIARIES 1

Subsidiaries of the Registrants


Blue Ridge Real Estate Company Subsidiaries	Jurisdiction of Incorporation/ Formation

1. Northeast Land Company	Pennsylvania
2. Jack Frost Mountain Company	Pennsylvania
3. BRRE Holdings, Inc.	Delaware
4. Boulder Creek Resort Company	Pennsylvania
5. Oxbridge Square Shopping Center, LLC	Virginia
6. Coursey Commons Shopping Center, LLC	Louisiana
7. Coursey Creek, LLC	Louisiana
8. Cobble Creek, LLC	Louisiana


Big Boulder Corporation Subsidiaries	Jurisdiction of Incorporation/ Formation

1. Lake Mountain Company	Pennsylvania
2. BBC Holdings, Inc.	Delaware
3. Big Boulder Lodge, Inc.	Pennsylvania

EX-23 16 exh231auditorconsent.htm CONSENT OF PARENTE RANDOLPH CONSENT OF INDEPENDENT AUDITORS

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-118845) of Blue Ridge Real Estate Company (“Blue Ridge”) and Big Boulder Corporation (“Big Boulder”), of our reports, dated January 10, 2005, except for Note 5 and Note 6 paragraph (b), as to which the date is January 27, 2005, with respect to the combined financial statements of Blue Ridge and Big Boulder and the related financial statement schedule, which reports appear in the October 31, 2004 annual report on Form 10-K of Blue Ridge and Big Boulder.

/s/ Parente Randolph, P.C.

Wilkes-Barre, Pennsylvania

February 9, 2005

EX-31 17 exhibit311.htm SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 31

EXHIBIT 31.1

CERTIFICATIONS

I, Patrick M. Flynn, certify that:

1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended October 31, 2004 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the “Registrants”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrants’ other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

(c) Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially

affect, the registrants’ internal control over financial reporting; and

5. The registrants’ other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ boards of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: February 11, 2005

/s/ Patrick M. Flynn

Patrick M. Flynn

Chief Executive Officer

and President

EX-31 18 exhibit312.htm SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 31

EXHIBIT 31.2

CERTIFICATIONS

I, Eldon D. Dietterick, certify that:

1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended October 31, 2004 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the “Registrants”);

(b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: February 11, 2005

/s/ Eldon D. Dietterick

Eldon D. Dietterick

Executive Vice President

and Treasurer

EX-32 19 exhibit321.htm SECTION 906 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended October 31, 2004 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the “Registrants”) as filed with the Securities and Exchange Commission on the date hereof (the ”Report”), I, Patrick M. Flynn, Chief Executive Officer and President of the Registrants, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d); and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants.

/s/ Patrick M. Flynn

Patrick M. Flynn

Chief Executive Officer and President

February 11, 2005

EX-32 20 exhibit322.htm SECTION 906 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended October 31, 2004 of Blue Ridge Real Estate Company and Big Boulder Corporation (together , the “Registrants”) as filed with the Securities and Exchange Commission on the date hereof (the ”Report”), I, Eldon D. Dietterick, Executive Vice President and Treasurer (chief financial officer) of the Registrants, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants.

/s/ Eldon D. Dietterick

Eldon D. Dietterick

Executive Vice President and Treasurer

(Principal Financial Officer)

February 11, 2005

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