-----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, Em4UtNGclZfmKWzEd+3i07PFU/ytYCcE/xlpuNMID3mmNuKwln8YsXNJv6Sx2dBa b9xw1isqMk5sjuCOzQ24QQ== 0000751364-96-000009.txt : 19960123 0000751364-96-000009.hdr.sgml : 19960123 ACCESSION NUMBER: 0000751364-96-000009 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960118 ITEM INFORMATION: Change in fiscal year FILED AS OF DATE: 19960122 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NET LEASE REALTY INC CENTRAL INDEX KEY: 0000751364 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561431377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11290 FILM NUMBER: 96505758 BUSINESS ADDRESS: STREET 1: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 BUSINESS PHONE: 4074221574 MAIL ADDRESS: STREET 1: 400 E SOUTH ST STE 500 STREET 2: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 FORMER COMPANY: FORMER CONFORMED NAME: CNL REALTY INVESTORS INC /DE/ DATE OF NAME CHANGE: 19930429 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN CORRAL REALTY CORP DATE OF NAME CHANGE: 19920703 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 18, 1996 COMMERCIAL NET LEASE REALTY, INC. (Exact Name of Registrant as Specified in Charter) Maryland 0-12989 56-1431377 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 400 East South Street, Suite 500 32801 Orlando, Florida (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (407) 422-1574 ITEM 1. CHANGES IN CONTROL OF REGISTRANT. Not applicable. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. Not applicable. ITEM 3. BANKRUPTCY OR RECEIVERSHIP. Not applicable. ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. Not applicable. ITEM 5. OTHER EVENTS. On July 20, 1995, Commercial Net Lease Realty, Inc. (the "Company") filed a shelf registration statement on Form S-3, File No. 33-61165, with the Securities and Exchange Commission that permits the issuance of a combination of debt and equity securities of up to $200 million. Pursuant to a prospectus supplement filed as part of this registration statement on January 5, 1995, the Company intends to offer 3 million shares of common stock from the shelf registration (the "Offering"). The net proceeds from the Offering are estimated to be approximately $36.6 million at an assumed Offering price of $13.125 per share (approximately $42.2 million if the underwriters' over allotment option to purchase up to 450,000 additional shares is exercised in full), after deducting estimated offering expenses and underwriting discounts. To secure long-term fixed rate financing, the Company has entered into a $52.6 million mortgage loan commitment (the "Commitment") dated October 30, 1995 with Principal Mutual Life Insurance Company, the proceeds of which will be used to pay down the balance on the Company's $100 million credit facility. The permanent debt financing (the "Permanent Debt Financing") to be made pursuant to the Commitment is secured by 42 properties designated in the Commitment. The Permanent Debt Financing consists of two loans that will bear interest at a fixed weighted average rate of approximately 7.26 percent and will have a weighted average maturity of 7.2 years. The first loan of $13.2 million was closed on December 14, 1995 and the second loan of $39.4 million is expected to close in late January 1996. During the period October 1, 1995 through December 31, 1995, the Company purchased three properties. During January 1996, the Company intends to purchase six properties and newly constructed buildings on seven land parcels it currently owns. The acquisition of these properties plus the properties acquired in December 1995 are hereinafter referred to as the "Acquisition Properties." The total purchase price of the Acquisition Properties is expected to be approximately $50.0 million. The Company anticipates that the purchase of the Acquisition Properties will be funded by a combination of net proceeds from the Offering, the Permanent Debt Financing and the Company's $100 million credit facility. ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS. Not applicable. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS Page COMMERCIAL NET LEASE REALTY, INC. Pro Forma Financial Information (unaudited): Pro Forma Balance Sheet as of September 30, 1995 4 Pro Forma Statement of Earnings for the nine months ended September 30, 1995 5 Pro Forma Statement of Earnings for the year ended December 31, 1994 6 Notes to Pro Forma Financial Statements for the nine months ended September 30, 1995 and the year ended December 31, 1994 7 PRO FORMA FINANCIAL INFORMATION The pro forma information of the Company gives effect to (i) $46.7 million in net proceeds from the sale of 4,000,000 shares in the prior offering (the "Prior Offering Transaction"), and (ii) the completion and sale of 3,000,000 shares of common stock offered hereby at an Offering Price of $13.125 per share and the application of the net proceeds therefrom, the receipt of $52.6 million of proceeds from the Permanent Debt Financing, the purchase of the Acquisition Properties for approximately $50.0 million and the repayment of approximately $39.3 million previously drawn under the Company's $100 million credit facility (the "Credit Facility") (collectively, the "Offering Transactions"). The pro forma statements of earnings for the year ended December 31, 1994 and the nine months ended September 30, 1995 give effect to the Prior Offering Transaction and the Offering Transactions as if such transactions had occurred on January 1, 1994. Such pro forma statements of earnings also treat all properties acquired during the year ended December 31, 1994 and the nine months ended September 30, 1995 and the Acquisition Properties as if they had been acquired and fully leased as of January 1, 1994. The Pro Forma Balance Sheet as of September 30, 1995, gives effect to the Offering Transactions as if such transactions had occurred on September 30, 1995. The pro forma information does not purport to represent what the Company's financial position or results of operations actually would have been if the transactions reflected had in fact occurred on the date or at the beginning of the period indicated, or to project the Company's financial position or results of operations at any future date or any future period. COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA BALANCE SHEET SEPTEMBER 30, 1995 (In thousands, except per share data) Pro Forma ASSETS Historical Adjustments Pro Forma ---------- ------------ --------- Land and buildings on operating leases, net of accumulated depreciation (c) $152,174 $ 50,744 (a) $202,918 Net investment in direct financing leases (c) 52,512 52,512 Cash and cash equivalents 162 115 (a) (84)(b) 193 Receivables 500 500 Prepaid expenses 291 291 Loan costs, net of accumulated amortization 587 1,059 (b) 1,646 Accrued rental income 1,823 1,823 Deferred offering costs 165 (165)(b) - Other assets 1,503 (1,159)(a) 344 -------- -------- -------- $209,717 $ 50,510 $260,227 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes payable $ 72,900 $ 49,700 (a) (36,409)(b) $ 86,191 Accrued interest payable 138 138 Accounts payable and accrued expenses 401 609 (b) 1,010 Dividends payable 3,382 3,382 Real estate taxes payable 80 80 Due to related parties 142 142 Rents paid in advance and tenant deposits 121 121 -------- -------- -------- Total liabilities 77,164 13,900 91,064 -------- -------- -------- Stockholders' equity: Common stock 117 30 (b) 147 Capital in excess of par value 138,629 36,580 (b) 175,209 Accumulated dividends in excess of net earnings (6,193) (6,193) -------- -------- -------- 132,553 36,610 169,163 -------- -------- -------- $209,717 $ 50,510 $260,227 ======== ======== ======== COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA STATEMENT OF EARNINGS NINE MONTHS ENDED SEPTEMBER 30, 1995 (In thousands, except per share data) Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental income from operating leases (2) $10,163 $ 6,767 (1) $16,930 Earned income from direct financing leases (2) 3,855 334 (1) 4,189 Contingent rental income 579 579 Interest and other income 98 44 (3) 142 ------- ------- ------- 14,695 7,145 21,840 ------- ------- ------- Expenses: General operating and administrative 551 45 (4) 596 Advisory fees to related party 740 248 (5) 988 Interest 2,335 2,502 (6) 4,837 Taxes 188 96 (7) 284 Depreciation and amortization 1,463 936 (8) 101 (9) 2,500 ------- ------- ------- 5,277 3,928 9,205 ------- ------- ------- Net Earnings $ 9,418 $ 3,217 $12,635 ======= ======= ======= Earnings per share of common stock $ 0.81 $ 0.86 ======= ======= Funds from operations (10) $10,659 $14,812 ======= ======= Weighted average number of shares outstanding 11,664 14,664 ======= ======= COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA STATEMENT OF EARNINGS YEAR ENDED DECEMBER 31, 1994 (In thousands, except per share data) Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental income from operating leases (2) $ 8,116 $14,457 (1) $22,573 Earned income from direct financing leases (2) 3,123 2,463 (1) 5,586 Contingent rental income 829 829 Interest and other income 221 (37)(3) 184 ------- ------- ------- 12,289 16,883 29,172 ------- ------- ------- Expenses: General operating and administrative 605 153 (4) 758 Advisory fees to related party 728 615 (5) 1,343 Interest 498 5,421 (6) 5,919 Taxes 213 269 (7) 482 Depreciation and amortization 1,330 1,828 (8) 193 (9) 3,351 ------- ------- ------- 3,374 8,479 11,853 ------- ------- ------- Net Earnings $ 8,915 $ 8,404 $17,319 ======= ======= ======= Earnings per share of common stock $ 1.04 $ 1.18 ======= ======= Funds from operations (10) $ 9,992 $20,222 ======= ======= Weighted average number of shares outstanding 8,606 14,664 ======= ======= COMMERCIAL NET LEASE REALTY, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE YEAR ENDED DECEMBER 31, 1994 (Dollars in thousands) Pro Forma Balance Sheet: - ----------------------- (a) Represents draw on the Company's Credit Facility used to acquire the Acquisition Properties for approximately $50,744 (approximately $1,059 of which had been paid in miscellaneous acquisition costs as of September 30, 1995). Per the Credit Facility agreement, draws must be made in increments of $100, and as a result, approximately $15 of the draw was added to working capital. Approximately $100 of the Credit Facility was used to reimburse working capital for previously paid deposits on Acquisition Properties. (b) Represents estimated gross proceeds of $39,375 from the issuance of 3 million shares of stock from the Offering and loan proceeds of $52,600 from the Permanent Debt Financing used to pay down approximately $89,009 of the Credit Facility, to pay stock issuance costs of $2,765 ($165 of which had been paid in deferred offering costs as of September 30, 1995) and loan costs of $1,059. In connection with the above, it is assumed the Company used $84 of its working capital reserve and incurred $609 in loan costs payable. (c) In accordance with generally accepted accounting principles, leases in which the present value of the future minimum lease payments equals or exceeds 90 percent of the value of the related properties are treated as direct financing leases rather than as land and buildings. The categorization of the lease has no effect on the rental revenues received. Pro Forma Statements of Earnings: - -------------------------------- (1) Represents rental income as if the properties acquired during the year ended December 31, 1994 and the nine months ended September 30, 1995 (the "New Properties") and the Acquisition Properties had been acquired and fully leased on January 1, 1994. (2) See Note (c) under "Pro Forma Balance Sheet" above. (3) Represents adjustments to interest income due to the change in the amount of cash available for investment in interest bearing accounts from the receipt of rental income before dividends are paid to shareholders as a result of the Prior Offering Transaction and the Offering Transactions. The adjusted pro forma interest income does not include interest income from the investment of offering proceeds. Pro forma interest income decreased for the year ended December 31, 1994 due to a decrease in the amount of cash available for investment in interest bearing accounts as a result of the acquisition of the New Properties and the Acquisition Properties. Interest income on interest bearing accounts is assumed to be earned at a rate of four percent per annum based on the previous experience of the Company. (4) Represents additional expenses due to incremental expenses associated with additional shares of common stock outstanding and due to increased unused commitment fees under the Credit Facility. (5) Represents adjustment to advisory fees due to the increase in rental revenues and funds from operations (as defined in the Company's advisory agreement with its advisor). (6) Represents adjustment in interest expense and other loan costs primarily as a result of the pro forma increase in indebtedness in connection with the Offering Transactions. Pro forma interest expense for the nine months ended September 30, 1995 and the year ended December 31, 1994, was based on the average 30-day LIBOR rates in effect for those periods of 6.01 percent and 4.47 percent, respectively, plus 1.70 percent relating to the Credit Facility and a weighted average interest rate of approximately 7.26 percent relating to the Permanent Debt Financing. COMMERCIAL NET LEASE REALTY, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS - CONTINUED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND THE YEAR ENDED DECEMBER 31, 1994 (Dollars in thousands) Pro Forma Statements of Earnings - Continued - -------------------------------------------- (7) Represents additional expenses assumed to have been incurred as a result of additional state taxes based on additional rental revenue. Due to the fact that the Company's leases are on a net-lease basis, the Company has not included any amounts for real estate taxes in the pro forma statements of earnings. (8) Represents adjustment to depreciation expense for the New Properties and the Acquisition Properties as if the properties had been acquired and fully leased on January 1, 1994. The building portion of the properties accounted for as operating leases are depreciated using the straight-line method over their estimated useful lives which is generally 40 years. (9) Represents adjustment to amortization expense as the result of the amortization of estimated loan costs incurred in connection with the Company's Permanent Debt Financing and additional amortization of the loan costs relating to the Company's Credit Facility as if the Credit Facility was available as of January 1, 1994. (10) Funds from operations has been calculated in accordance with the definition of "funds from operations" recently clarified by the National Association of Real Estate Investment Trusts (NAREIT) defined as net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructurings and sales of property, plus depreciation and after adjustments for unconsolidated partnerships and joint ventures. Under the method previously used by the Company which included adjustments to net income for amortization of deferred financing costs and non-cash lease accounting adjustments, funds from operations would have been $14,273 and $10,351 for the pro forma nine months ended September 30, 1995 and the historical nine months ended September 30, 1995, respectively, and would have been $19,521 and $9,731 for the pro forma year ended December 31, 1994 and the historical year ended December 31, 1994, respectively. Non-cash lease accounting adjustments for the pro forma nine months ended September 30, 1995 and for the historical nine months ended September 30, 1995 were $862 and $530, respectively. Non-cash lease accounting adjustments for the pro forma year ended December 31, 1994 and the historical year ended December 31, 1994 were $1,149 and $515, respectively. Funds from operations should not be considered as a substitute for net income as an indication of the Company's performance or as a substitute for cash flow as a measure of its liquidity. EXHIBITS -------- COMMERCIAL NET LEASE REALTY, INC. EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.2 Purchase Agreement, which is being filed pursuant to Regulation S-K, Item 601(b)(1) in lieu of filing the otherwise required exhibit to the Registration Statement on Form S-3 (the "Registration Statement"), File No. 33- 61165, under the Securities Act of 1933, as amended (the "Securities Act"), and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(5) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(8) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 10.14 Second Amended and Restated Line of Credit and Security Agreement, dated December 7, 1995, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent relating to a $100,000,000 loan. (Filed herewith.) 10.15 Secured Promissory Note, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan. (Filed herewith.) 10.16 Mortgage and Security Agreement, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan. (Filed herewith.) 10.17 The Annual Report to Shareholders for the year ended December 31, 1994 (File No. 0-12989) (Incorporated herein by reference.) 10.18 The Proxy Statement relating to the 1994 Annual Meeting of Stockholders (File No. 0-12989) (Incorporated herein by reference.) 23 Consents of Shaw, Pittman, Potts & Trowbridge (contained in the opinions filed as Exhibits 5 and 8 hereto), which is being filed pursuant to Regulation S-K, Item 601(b)(23) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.) ITEM 8. CHANGE IN FISCAL YEAR. Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be filed on its behalf by the undersigned thereunto duly authorized. COMMERCIAL NET LEASE REALTY, INC. Dated: January 18, 1996 By: /s/ Robert A. Bourne ------------------------ ROBERT A. BOURNE, President EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 1.2 Purchase Agreement, which is being filed pursuant to Regulation S-K, Item 601(b)(1) in lieu of filing the otherwise required exhibit to the Registration Statement on Form S-3 (the "Registration Statement"), File No. 33-61165, under the Securities Act of 1933, as amended (the "Securities Act"), and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(5) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(8) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 10.14 Second Amended and Restated Line of Credit and Security Agreement, dated December 7, 1995, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent relating to a $100,000,000 loan. (Filed herewith.) 10.15 Secured Promissory Note, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan. (Filed herewith.) 10.16 Mortgage and Security Agreement, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan. (Filed herewith.) 10.17 The Annual Report to Shareholders for the year ended December 31, 1994 (File No. 0-12989) (Incorporated herein by reference.) 10.18 The Proxy Statement relating to the 1994 Annual Meeting of Stockholders (File No. 0-12989) (Incorporated herein by reference.) 23 Consents of Shaw, Pittman, Potts & Trowbridge (contained in the opinions filed as Exhibits 5 and 8 hereto), which is being filed pursuant to Regulation S-K, Item 601(b)(23) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.) EX-1 2 [FORM OF UNDERWRITING AGREEMENT] 3,000,000 Shares COMMERCIAL NET LEASE REALTY, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- January __, 1996 SMITH BARNEY INC. GOLDMAN, SACHS & CO. LEGG MASON WOOD WALKER INCORPORATED J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"), proposes to issue and sell an aggregate of 3,000,000 shares (the "Firm Shares") of its common stock, $0.01 par value per share (the "Common Stock"), to the several Underwriters named in Schedule I hereto (the "Underwriters"). The Company also proposes to sell to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional 450,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares". The Company wishes to confirm as follows its agreement with you (the "Representatives") and the other several Underwriters on whose behalf you are acting, in connection with the several purchases of the Shares by the Underwriters. 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 under the Act (the "registration statement"), including a prospectus relating to the Offered Securities (as defined therein), and has filed with, or transmitted for filing to, or shall promptly hereafter file with or transmit for filing to, the Commission a supplement to the form of prospectus included in such registration statement (the "Prospectus Supplement") specifically relating to the Shares and the plan of distribution thereof pursuant to Rule 424 under the Act. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended to the date of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Basic Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement. The term "Prospectus" means the Basic Prospectus, as amended or supplemented by the Prospectus Supplement. The term "Prepricing Prospectus" as used in this Agreement means a prospectus supplement subject to completion specifically relating to the Shares which has heretofore been filed with the Commission, together with the Basic Prospectus. If the Company has filed an abbreviated registration statement to register additional Shares pursuant to Rule 462(b) under the Act (including the exhibits thereto, the "Rule 462 Registration Statement"), then any reference herein to the Registration Statement shall also be deemed to include such Rule 462 Registration Statement. Any reference in this Agreement to the registration statement, the Registration Statement, the Basic Prospectus, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, and any reference to any amendment or supplement to the registration statement, the Registration Statement, the Basic Prospectus, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include any documents filed by the Company with the Commission after the date of the Basic Prospectus under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the documents which are incorporated by reference in the registration statement, the Registration Statement, the Basic Prospectus, any Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto. 2. Agreement to Sell and Purchase. The Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $_____ per Share (the "purchase price per share"), the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 10 hereof). The Company also agrees, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company, at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of this Agreement (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to an aggregate of 450,000 Additional Shares. Additional Shares may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments as you may determine in order to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be purchased by the Underwriters as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 10 hereof) bears to the aggregate number of Firm Shares. 3. Terms of Public Offering. The Company has been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after this Agreement has become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 4. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on January __, 1996 (the "Closing Date"). [This date shall be the third full business day following the date of this Agreement or, if the pricing of the Firm Shares occurs after 4:30 P.M., New York City time, on the fourth business day thereafter]. The place of closing for the Firm Shares and the Closing Date may be varied by agreement between you and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement between you and the Company. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 1:00 P.M., New York City time, on the second business day preceding the Closing Date or any Option Closing Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor by certified or official bank check or checks payable in New York Clearing House (next day) funds to the order of the Company. 5. Agreements of the Company. The Company agrees with the several Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for a post-effective amendment to the registration statement to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in the first sentence in subsection (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act or the regulations thereunder to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge, (i) six signed copies of the registration statement and any Rule 462(b) Registration Statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits to the registration statement and Rule 462(b) Registration Statement, (ii) such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iii) such number of copies of the Incorporated Documents, without exhibits, as you may request, and (iv) six copies of the exhibits to the Incorporated Documents. (d) The Company will not file any amendment to the Registration Statement (including any filing under Rule 462(b)) or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in the first sentence in subsection (f) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you, as Representatives of the several Underwriters, agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve-month period commencing after the effective date of this Agreement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (i) During the period of three years hereafter, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 10 hereof or by notice given by you terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Representatives for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Shares substantially in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) Except as provided in this Agreement, the Company will not sell, contract to sell or otherwise dispose of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or grant any options or warrants to purchase Common Stock, for a period of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (except that the Company may at anytime grant options or warrants to purchase Common Stock in connection with the grant of options to certain employees, officers and directors under the Company's stock option plans or the issuance of Common Stock upon exercise of such options). (n) The Company has furnished to you "lock-up" letters, in form and substance satisfactory to you, signed by James M. Seneff, Jr. and Robert A. Bourne. (o) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (p) The Company will use its best efforts to have the shares of Common Stock which it agrees to sell under this Agreement listed, subject to notice of issuance, on the New York Stock Exchange on or before the Closing Date. (q) The Company will comply and will cause its tenants to comply in all material respects with all applicable Environmental Laws (as hereinafter defined). (r) The Company will use its best efforts to continue to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), and to continue to have each of its subsidiaries comply with all applicable laws and regulations necessary to maintain a status as a "qualified REIT subsidiary" under the Code. (s) If the Company elects to rely upon Rule 462(b), the Company shall both file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) and pay the applicable fees in accordance with Rule 111 of the Act by the earlier of (i) 10:00 P.M. New York City time on the date of this Agreement, and (ii) the time confirmations are sent or given, as specified by Rule 462(b)(2). 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) The Basic Prospectus and each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. To the Company's knowledge, the Commission has not issued any order preventing or suspending the use of the Basic Prospectus or any Prepricing Prospectus. (b) The Company and the transactions contemplated by this Agreement meet the requirements for using Form S-3 under the Act. The Registration Statement has become effective for the registration under the Act of the Shares; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. The Registration Statement meets the requirements set forth in Rule 415(a)(1)(x) under the Act and complies in all other material respects with such Rule. The registration statement in the form in which it became effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the Prospectus and any supplement or amendment thereto when filed with the Commission under Rule 424(b) under the Act, complied or will comply in all material respects with the provisions of the Act and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the registration statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (d) All the outstanding shares of Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; and the capital stock of the Company conforms to the description thereof in the registration statement and the Prospectus. (e) Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and its subsidiaries. Neither the Company nor any of its subsidiaries does any business in Cuba. (f) The Company has no subsidiary or subsidiaries other than Net Lease Realty I, Inc. and Net Lease Realty II, Inc. (each of which is wholly- owned by the Company), and does not control, directly or indirectly, any corporation, partnership, joint venture, association or other business association. The issued shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned legally and beneficially by the Company free and clear of any security interests, liens, encumbrances, equities or claims. (g) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company or either of its subsidiaries, or to which the Company or any properties of the Company or either of its subsidiaries is subject, that are required to be described in the Registration Statement or the Prospectus but are not described as required, and there are no statutes, regulations, capital expenditures, contingencies or agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as an exhibit to the Registration Statement or any Incorporated Document that are not described, filed or incorporated as required by the Act or the Exchange Act. (h) Neither the Company nor its subsidiaries is (A) in violation of (i) its respective articles of incorporation or by-laws or (ii) to the best of the Company's knowledge, any law, ordinance, administrative or governmental rule or regulation applicable to the Company or its subsidiaries, which violation would have a material adverse effect on the Company and its subsidiaries, or (iii) any decree of any court or governmental agency or body having jurisdiction over the Company or its subsidiaries, or (B) in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or its subsidiaries is a party or by which the Company or its subsidiaries or any of their respective properties may be bound. (i) (A) To the best of the Company's knowledge, neither the Company nor either of its subsidiaries is in violation of any municipal, state or federal law, rule or regulation concerning any of the Properties (as defined in the Prospectus) or the Acquisition Properties set forth in Part A of Schedule II hereto which would have a material adverse effect on the Company and its subsidiaries; (B) to the best of the Company's knowledge, each of the Properties and the Acquisition Properties set forth in Part A of Schedule II hereto complies with all applicable zoning laws, ordinances and regulations in all material respects and, if and to the extent there is a failure to comply, such failure does not materially impair the value of any of such properties and will not result in a forfeiture or reversion of title thereof; (C) neither the Company nor either of its subsidiaries has received from any governmental authority any written notice of any condemnation of or zoning change affecting any of the Properties or the Acquisition Properties set forth in Part A of Schedule II hereto, and the Company does not know of any such condemnation or zoning change which is threatened and which if consummated would have a material adverse effect on the Company or any of such properties; (D) the leases under which the Company leases the Properties and the Acquisition Properties set forth in Part A of Schedule II hereto as lessor (the "Leases") are in full force and effect and have been entered into in the ordinary course of business of the Company; (E) the terms of the Advisory Agreement, dated as of April 1, 1993 and effective as of January 1, 1995, between the Company and CNL Realty Advisors, Inc. (the "Advisory Agreement") are fair and reasonable to the Company; (F) the Company and each of its subsidiaries have complied with respective obligations under the Leases and the Advisory Agreement in all material respects and the Company does not know of any default by any other party to the Leases and Advisory Agreement which, alone or together with other such defaults, would have a material adverse effect on the Company and its subsidiaries or any of the properties subject to a Lease; and (G) all liens, charges, encumbrances, claims or restrictions on or affecting the properties and assets (including the Properties and the Acquisition Properties set forth in Part A of Schedule II hereto) of the Company and its subsidiaries that are required to be disclosed in the Prospectus are disclosed therein. (j) Neither the issuance and sale of the Shares, the execution, delivery or performance of this Agreement by the Company, nor the consummation by the Company of the transactions contemplated hereby (i) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and the Exchange Act and compliance with the securities or Blue Sky laws of various jurisdictions) or conflicts or will conflict with or constitutes or will constitute a breach or violation of, or a default under, the articles of incorporation or by-laws of the Company or either of its subsidiaries or (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or either of its subsidiaries is a party or by which the Company or any properties of the Company or either of its subsidiaries may be bound (other than the piggyback registration rights granted pursuant to the CNL Transaction (as defined in the Prospectus), all of which have been waived in connection with the transactions contemplated by this Agreement), or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or either of its subsidiaries or any properties of the Company or either of its subsidiaries, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or either of its subsidiaries pursuant to the terms of any agreement or instrument to which the Company or either of its subsidiaries is a party or by which the Company or either of its subsidiaries may be bound or to which any property or assets of the Company or either of its subsidiaries is subject. (k) To the Company's knowledge, the accountants, KPMG Peat Marwick LLP, who have certified or shall certify the financial statements included or incorporated by reference in the Registration Statement and the Prospectus (or any amendment or supplement thereto) are independent public accountants as required by the Act. The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and its subsidiaries; and the pro forma financial statements and other pro forma financial information included or incorporated by reference in the Registration Statement and the Prospectus were prepared on the basis of reasonable assumptions and comply in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X and the pro forma adjustments have been properly applied to the historical amounts in the compilation of that data. (l) The execution and delivery of, and the performance by the Company of its obligations under, this Agreement have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. (m) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), the Company and its subsidiaries have not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company and its subsidiaries, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company and its subsidiaries, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, net worth or results of operations of the Company and its subsidiaries. (n) The Company and each of its subsidiaries have good and marketable title to all property (real and personal) described in the Prospectus as being owned by each of them (including the Properties and the Acquisition Properties set forth in Part A of Schedule II hereto), free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus or in a document filed as an exhibit to the Registration Statement and all the property described in the Prospectus as being held under lease by the Company or either of its subsidiaries is held by it under valid, subsisting and enforceable leases. (o) The purchase of the Acquisition Properties has been duly authorized by the Board of Directors of the Company and each of the agreements pursuant to which the Company has acquired the Acquisition Properties set forth in Part A of Schedule II hereto, or will acquire any of the Acquisition Properties set forth in Part B of Schedule II hereto (each, a "Purchase Agreement" and together, the "Purchase Agreements") has been duly authorized, executed and delivered by the Company and gives the Company the unconditional right, upon payment of the amount provided in the applicable Purchase Agreement, to acquire the applicable Acquisition Property. (p) The Company has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the Act. The Company has not, directly or indirectly, (i) taken any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or (ii) since the filing of the Registration Statement (A) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, the Shares or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company. (q) The Company and its subsidiaries have such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own their respective properties and to conduct their respective businesses in the manner described in the Prospectus, subject to such qualifications as may be set forth in the Prospectus; the Company and its subsidiaries have fulfilled and performed all their respective material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Company and its subsidiaries. (r) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to the financial and corporate books and records and assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (s) To the Company's knowledge, neither the Company and its subsidiaries nor any employee or agent of the Company and its subsidiaries has made any payment of funds of the Company or its subsidiaries or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (t) No labor dispute with the employees of the Company and its subsidiaries exists or is threatened or imminent that could result in a material adverse change in the condition (financial or other), business, net worth or results of operations of the Company and its subsidiaries. (u) The Company has filed all tax returns required to be filed, which returns are complete and correct, and the Company is not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto. No holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement which has not been waived in connection with the transactions contemplated by this Agreement. (w) The Company and its subsidiaries own or possess all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and its subsidiaries with respect to the foregoing. (x) The Company is not now, and after sale of the Shares to be sold by the Company hereunder and application of the net proceeds from such sale as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (y) (i) The Company, its subsidiaries, the Properties, the Acquisition Properties and, to the best of the Company's knowledge, the operations conducted thereon comply and heretofore have complied with all applicable Environmental Laws, except as disclosed in the Environmental Reports and not likely to have a material adverse effect on the relevant Property or Acquisition Property. (ii) There are no judicial or administrative proceedings of an environmental nature pending, or to the best of the Company's knowledge, threatened against the Company or its subsidiaries. (iii) The Company and its subsidiaries have not at any time and, to the best of the Company's knowledge, no other party has at any time handled, buried, stored, retained, refined, transported, processed, manufactured, generated, produced, spilled, allowed to seep, leak, escape or leach, or be pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or otherwise disposed of or dealt with, Hazardous Materials (as defined below) on, to, under or from the Properties or the Acquisition Properties, except as disclosed in the environmental site assessment reports obtained by the Company on or before the date hereof in connection with the purchase of any of the Properties and the Acquisition Properties and provided to the Underwriters or their counsel (collectively, the "Environmental Reports") and not likely to have a material adverse effect on the relevant Property or Acquisition Property. Neither the Company nor either of its subsidiaries intends to use the Properties, the Acquisition Properties or any subsequently acquired properties for the purpose of handling, burying, storing, retaining, refining, transporting, processing, manufacturing, generating, producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping, transferring or otherwise disposing of or dealing with Hazardous Materials. (iv) To the best of the Company's knowledge, no seepage, leak, escape, leach, discharge, injection, release, emission, spill, pumping, pouring, emptying or dumping of Hazardous Materials into waters on or adjacent to the Properties or the Acquisition Properties has occurred, is occurring or is reasonably expected to occur, except as disclosed in the Environmental Reports and not likely to have a material adverse effect on the relevant Property or Acquisition Property. (v) Neither the Company nor either of its subsidiaries has received notice from any Governmental Authority or other person of, and does not have knowledge of, any occurrence or circumstance which, with notice, passage of time, or failure to act, would give rise to, any claim under or pursuant to any Environmental Law or under common law pertaining to Hazardous Materials on or originating from the Existing Properties or the Acquisition Properties or arising out of the conduct of any party with respect to the Existing Properties or the Acquisition Properties, except as disclosed in the Environmental Reports. (vi) The Properties and the Acquisition Properties are not included nor, to the best of the Company's knowledge, proposed for inclusion on any federal, state, or local lists of sites which require or might require environmental cleanup, including, but not limited to, the National Priorities List or CERCLIS List issued pursuant to CERCLA (as defined below) by the United States Environmental Protection Agency. (vii) There are no matters of an environmental nature that are required to be disclosed in the Registration Statement or the Prospectus or related documents by the Act or the Exchange Act that are not disclosed in such documents. As used herein, "Hazardous Material" shall include, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials, asbestos, polychlorinated biphenyls ("PCBs"), petroleum products and by-products and substances defined or listed as "hazardous substances," "toxic substances," "hazardous waste," or "hazardous materials" in any Federal, state or local Environmental Law. As used herein, "Environmental Law" shall mean all laws, regulations or ordinances of any Federal, state or local governmental authority having or claiming jurisdiction over any of the Properties or the Acquisition Properties (a "Governmental Authority") that are designed to protect public health and the environment or regulate the handling of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Hazardous Material Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et seq.), and the Clear Air Act, as amended (42 U.S.C. Section 7401 et seq.), and any and all analogous future federal or present or future state or local laws. As used in this paragraph 6(y), "to the best of the Company's knowledge" shall, with respect to the Acquisition Properties set forth in Part B of Schedule II hereto, be based solely on the information contained in the Environmental Reports.] (z) The Company is organized in conformity with the requirements for qualification as a real estate investment trust under Sections 856 through 860 of the Code and the rules and regulations thereunder; as of the close of any taxable year, the Company has had no earnings and profits accumulated in a non-REIT year within the meaning of Section 857(a)(3)(B) of the Code; and the Company's past and proposed method of operation have enabled it, and will enable it, to meet the requirements for taxation as a real estate investment trust under the Code for all years of its taxable operations ending on or before December 31, 1996. (aa) Each of the Company's subsidiaries is in compliance with all requirements applicable to a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code and all applicable regulations under the Code, and the Company is not aware of any fact that would negatively impact such qualifications. (bb) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged and the value of their properties; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for, and the Company does not have any reason to believe that the Company and each of its subsidiaries will not be able to renew its respective existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its respective businesses at a cost that would not materially and adversely affect the condition (financial or otherwise), business prospects, net worth or results of operations of the Company and its subsidiaries. (cc) The Company and its subsidiaries have title insurance on each of the Properties and the Acquisition Properties set forth in Part A of Schedule II hereto in an amount at least equal to the greater of (a) the cost of acquisition of such property and (b) the replacement cost of the improvements located on such property. (dd) No subsidiary of the Company is currently prohibited directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring and of such subsidiary's assets or property to the Company or any other subsidiary of the Company, except as described in or contemplated by the Prospectus. 7. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Basic Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) to the extent that any such loss, claim, damage, liability or expense results from the fact that such Underwriter sold Shares to any person as to whom it shall be established that a copy of the Prospectus as then amended or supplemented (excluding documents incorporated by reference) was not delivered or sent to such person within the time required by the Act and the regulations thereunder and such loss, claim, damage, liability or expense of such Underwriter results from an untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus which was identified to such Underwriter and was corrected in the Prospectus (excluding documents incorporated by reference), provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company, such Underwriter or such controlling person shall promptly notify the Company and the Company shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company has failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the Company and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and the Company by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Company shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Company shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The Company shall not be liable for any settlement of any such action, suit or proceeding effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Company agrees to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which the Underwriters may otherwise have. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule I hereto (or such numbers of Firm Shares increased as set forth in Section 10 hereof) and not joint. (f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers, or any person controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) (i) If, at the time this Agreement is executed and delivered, it is necessary for a post-effective amendment to the registration statement to be declared effective before the offering of the Shares may commence, such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you; if the Company has elected to rely on Rule 462(b), the Rule 462(b) Registration Statement shall have become effective not later than the earlier of (x) 10:00 P.M., New York City time, on the date hereof, or (y) at such later date and time as shall be consented to in writing by you; and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; (ii) no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission; and (iii) any request of the Commission for additional information (to be included in the registration statement or the Prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company and its subsidiaries not contemplated by the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), which in your opinion, as Representatives of the several Underwriters, would materially adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company and its subsidiaries or any officer or director of the Company and its subsidiaries which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, as Representatives of the several Underwriters, adversely affect the market for the Shares. (c) You shall have received on the Closing Date, an opinion of Shaw, Pittman, Potts & Trowbridge, counsel for the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) Each of the Company and each of its subsidiaries is a corporation duly incorporated and validly existing in good standing under the laws of the State of Maryland with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and, based solely on certificates of public officials and officers of the Company and its subsidiaries, is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and its subsidiaries; (ii) To the knowledge of such counsel, the Company has no subsidiaries other than Net Lease Realty I, Inc. and Net Lease Realty II, Inc. and does not control, directly or indirectly, any corporation, partnership, joint venture, association or other business association. The issued shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned legally and beneficially by the Company free and clear of any security interests, liens, encumbrances, equities or claims; (iii) The authorized and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Common Stock"; (iv) All the shares of capital stock of the Company outstanding prior to the issuance of the Shares have been duly authorized and validly issued, and are fully paid and nonassessable; (v) The Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive rights under Maryland General Corporation Law; (vi) To the knowledge of such counsel, based upon such inquiry as such counsel deems appropriate, (a) the Shares, when issued and delivered in accordance with the terms hereof, will be free of any contractual preemptive right or other similar rights that entitle or will entitle any person to acquire any Shares upon the issuance thereof by the Company and (b) no holder of securities of the Company is entitled to have such securities registered under the Registration Statement which right has not been waived in connection with the transactions contemplated by this Agreement; (vii) The form of certificates for the Shares conforms to the requirements of the Maryland General Corporation Law; (viii) The Registration Statement and all post-effective amendments, if any, and the Rule 462(b) Registration Statement, if any, have become effective under the Act and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b); (ix) The Company has the corporate power and authority to enter into this Agreement and the Purchase Agreements and to issue, sell and deliver the Shares to the Underwriters as provided herein, and this Agreement and the Purchase Agreements have been duly authorized, executed and delivered by the Company and are valid, legal and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Company's obligations hereunder and thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally, and by general equitable principles when applied by a court of law or equity; (x) To the knowledge of such counsel, neither the Company nor either of its subsidiaries is (a) in violation of its respective articles of incorporation or by-laws or (b) in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness set forth on Schedule A attached to such opinion, except as may be disclosed in the Prospectus; (xi) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance by the Company of this Agreement, compliance by the Company with the provisions hereof nor consummation by the Company of the transactions contemplated hereby (a) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, (1) the articles of incorporation or by-laws of the Company or either of its subsidiaries or (2) any agreement, indenture, lease or other instrument to which the Company or either of its subsidiaries is a party or by which the Company or any properties of the Company or either of its subsidiaries is bound (A) that is an exhibit to the Registration Statement or (B) which is known to such counsel (other than the piggyback registration rights granted pursuant to the CNL Transaction (as defined in the Prospectus), all of which have been waived in connection with the transactions contemplated by this Agreement); or (b) results or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or its subsidiaries, pursuant to any agreement, indenture, lease or other instrument to which the Company or either of its subsidiaries is a party or by which the Company or any properties of the Company or either of its subsidiaries is bound (1) that is incorporated by reference or an exhibit to the Registration Statement or (2) which is known to such counsel; or (c) violates or will violate (1) any existing federal or Maryland law, regulation or ruling (assuming compliance with all applicable state securities and Blue Sky laws, regulations, rulings and orders) or (2) to the knowledge of such counsel, any judgment, injunction, order or decree applicable to the Company or its subsidiaries or any properties of the Company or either of its subsidiaries; (xii) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency, or official is required on the part of the Company (except as have been obtained under the Act and the Exchange Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters as contemplated by this Agreement; (xiii) (a) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act; and (b) each of the Incorporated Documents (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which counsel need not express any opinion) complies as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder; (xiv) To the knowledge of such counsel, based upon such inquiry as such counsel deems appropriate, (A) other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or either of its subsidiaries, or to which the Company or either of its subsidiaries or any properties of the Company and either of its subsidiaries is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) and (B) there are no statutes, regulations, capital expenditures, contingencies or agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed or incorporated by reference as an exhibit to the Registration Statement or any Incorporated Document that are not described, filed or incorporated as required, as the case may be; (xv) To the knowledge of such counsel, neither the Company nor either of its subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or its subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or its subsidiaries; (xvi) Such counsel is not aware of any certificates, authorizations, licenses or permits required by any federal regulatory authority which are necessary for the Company and its subsidiaries to conduct their respective businesses; to the knowledge of such counsel, neither the Company nor either of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any certificate, authorization, license or permit issued by any federal, state, municipal or foreign regulatory authority which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company or its subsidiaries; (xvii) The Company is not subject to registration as an investment company under the Investment Company Act of 1940, as amended, and the transactions contemplated by this Agreement will not cause the Company to become an investment company subject to registration under the Investment Company Act of 1940, as amended; (xviii) Commencing with the Company's initial taxable year, the Company has qualified as a real estate investment trust under the Code for all taxable years ending on or before December 31, 1994, and its past and proposed method of operation will enable it to qualify as a real estate investment trust under the Code for its taxable year ending on December 31, 1996; and each of the Company's subsidiaries is a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code; (xix) To the knowledge of such counsel, (a) neither the Company nor either of its subsidiaries is in violation of any federal law or regulation relating to occupational safety and health or to the environment, including, without limitation, the storage, handling, transportation or disposal of hazardous or toxic materials, (b) the Company and its subsidiaries have received all permits, registrations, licenses and other approvals required of them under applicable federal occupational safety and health and environmental laws and regulations to conduct their respective businesses, (c) the Company and its subsidiaries are in compliance with all terms and conditions of any such permit, registration, license or approval, except any such violation of law or regulation, failure to receive required permits, registrations, licenses or other approvals or failure to comply with the terms and conditions of such permits, registrations, licenses or approvals which would not, singly or in the aggregate, result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company or its subsidiaries, (d) there are no occurrences or circumstances of an environmental nature which, with notice, passage of time, or failure to act, would result in material liability under applicable federal environmental laws or regulations or result in a material adverse change in the condition (financial or otherwise), business prospects, net worth or results of operations of the Company or its subsidiaries and (e) there are no matters of an environmental nature required by the Act or the Exchange Act to be disclosed in the Registration Statement or the Prospectus or related documents that are not disclosed in such documents; (xx) The Shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance; (xxi) The statements in the Prospectus, insofar as they are descriptions of contracts or agreements or constitute statements of law or legal conclusions, are accurate and present fairly the information required to be shown in all material respects; and (xxii) Although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently, and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement, such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof (including review and discussion of the contents of all Incorporated Documents), and nothing has come to the attention of such counsel that has caused them to believe that the Registration Statement (including the Incorporated Documents) at the time the Registration Statement became effective, or the Prospectus, as of its date and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of the Closing Date or the Option Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial data included in the Registration Statement or the Prospectus or any Incorporated Document). (d) You shall have received on the Closing Date an opinion of Willkie Farr & Gallagher, counsel for the Underwriters, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to the matters referred to in clauses (viii) and (xiii)(a) of the foregoing paragraph (c) and such other related matters as you may request. (e) You shall have received letters addressed to you, as Representatives of the several Underwriters, and dated the date hereof and the Closing Date from KPMG Peat Marwick LLP, independent certified public accountants, substantially in the forms heretofore approved by you. (f) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company and its subsidiaries (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or supplement thereto); (iii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and its subsidiaries; (iv) the Company and its subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and its subsidiaries, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 8(f) and in Section 8(g) hereof. (g) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (h) Prior to the Closing Date the Shares shall have been listed, subject to notice of issuance, on the New York Stock Exchange. (i) The Company shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company and delivered to you, as Representatives of the Underwriters, or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 8, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (g) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c) and (d) shall be revised to reflect the sale of Additional Shares. 9. Expenses. The Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by the Company of its obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the New York Stock Exchange; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Shares; and (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. 10. Effective Date of Agreement. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for a post-effective amendment to the registration statement to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. Any notice under this Section 10 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 11. Termination of Agreement. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Florida shall have been declared by either federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 12. Information Furnished by the Underwriters. The statements set forth in the last paragraph on the cover page, the stabilization legend on the inside front cover, and the statements in the first and third paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 6(b) and 7 hereof. 13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and 11 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 400 East South Street, Suite 500, Orlando, Florida 32801, Attention: James M. Seneff, Jr., Chairman and Chief Executive Officer; or (ii) if to you, as Representatives of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 7 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. 14. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, COMMERCIAL NET LEASE REALTY, INC. By --------------------------- Chairman of the Board Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule I hereto. SMITH BARNEY INC. GOLDMAN, SACHS & CO. LEGG MASON WOOD WALKER INCORPORATED J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. As Representatives of the Several Underwriters By SMITH BARNEY INC. By ------------------------- Managing Director SCHEDULE I COMMERCIAL NET LEASE REALTY, INC. Number of Underwriter Firm Shares - ----------- ----------- Smith Barney Inc. Goldman, Sachs & Co. Legg Mason Wood Walker Incorporated J.C. Bradford & Co. The Robinson-Humphrey Company, Inc. --------- Total 3,000,000 ========= SCHEDULE II ACQUISITION PROPERTIES Location Retailer (street address) City State - -------- ---------------- ---- ----- A. [Acquired 9/30 - Closing] B. [To be Acquired] EX-2 3 [LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE] January 19, 1996 Commercial Net Lease Realty, Inc. 400 East South Street Suite 500 Orlando, Florida 32801 Ladies and Gentlemen: We have acted as counsel to Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"), in connection with the Registration Statement on Form S-3, Registration No. 33-61165 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, and declared effective by the Commission on October 18, 1995. Pursuant to the Registration Statement, the Company proposes to issue and sell 3,450,000 shares of common stock, par value $0.01 per share (the "Common Stock") (including the underwriters' over-allotment option, if exercised), to the public through certain underwriters pursuant to the terms set forth in the prospectus supplement filed on January 5, 1996 (the "Prospectus Supplement") to the prospectus filed as part of the Registration Statement. Based upon our examination of the originals or copies of such documents, corporate records, certificates of officers of the Company and other instruments as we have deemed necessary and upon the laws as presently in effect, we are of the opinion that the Common Stock has been duly authorized for issuance by the Company, and that upon issuance and delivery in accordance with the purchase agreement referred to in the Prospectus Supplement, the Common Stock will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Prospectus Supplement. We also consent to the reference to Shaw, Pittman, Potts & Trowbridge under the caption "Legal Matters" in the Prospectus Supplement. Very truly yours, /s/ SHAW, PITTMAN, POTTS & TROWBRIDGE SHAW, PITTMAN, POTTS & TROWBRIDGE EX-3 4 [LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE] January 19, 1996 Commercial Net Lease Realty, Inc. 400 E. South Street Suite 500 Orlando, Florida 32801 Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Gentlemen: On July 20, 1995, Commercial Net Realty, Inc. ("CNL Realty") filed a registration statement on Form S-3, file number 33-61165 (the "Registration Statement"), with the Securities and Exchange Commission, which was declared effective on October 18, 1995. In connection with the filing of a prospectus supplement on January 5, 1996 (the "Prospectus Supplement") to the prospectus contained in the Registration Statement (the "Prospectus"), you have asked us to render an opinion with respect to the qualification of CNL Realty* as a real estate investment trust ("REIT") under sections 856 through 860 of the Internal Revenue Code and with respect to the matters discussed under the heading "Federal Income Tax Considerations" in the Prospectus. (Our references herein to "the Code" are to the Internal Revenue Code of 1986, as amended, with respect to taxable years ending on or after January 1, 1987, and to the Internal Revenue Code of 1954, as amended, with respect to taxable years ending on or before December 31, 1986.) We have served as special counsel for CNL Realty in connection with the filing of the Prospectus and the Prospectus Supplement and from time to time in the past have represented CNL Realty on specific matters as requested by CNL Realty. Specifically for the purpose of this opinion, we have examined and relied upon the following: copies of CNL Realty's Articles of Incorporation and any amendments thereto; its Federal Forms 1120 for its taxable years 1984 through 1994 (in which tax returns we observe that CNL Realty has elected to be treated as a real estate investment trust); the Registration Statement; the Prospectus; the Prospectus Supplement; copies of executed leases covering real property owned by CNL Realty; and its Form S-11 Registration Statement as filed with the Securities and Exchange Commission on August 15, 1984. We have not served as general counsel to CNL Realty and have not been involved in decisions regarding the day-to-day operation of CNL Realty and its properties. We have, however, discussed the mode of operation of CNL Realty with its officers with a view to learning information relevant to the opinions expressed herein and have received and relied upon a certificate from CNL Realty with respect to certain matters. A copy of the certificate is attached. We have discussed with management of CNL Realty arrangements relating to the management of its properties, the relationships of CNL Realty with tenants of such properties, and certain terms of leases of such properties to tenants, with a view to assuring that at the close of each quarter of the taxable years covered by this opinion it met the asset composition requirements set forth in section 856(c)(5), and with a view to assuring that, with respect to years covered by this opinion (and as projected by CNL Realty management for all of 1996), it satisfied (or will satisfy for 1996) the 95%, 75%, and 30% gross income tests set forth in sections 856(c)(2), (3), and (4), respectively. We have further reviewed with management of CNL Realty the requirements that the beneficial ownership of a REIT be held by 100 or more persons for at least 335/365ths of each taxable year and that a REIT must satisfy the diversity of ownership requirements of section 856(h) as such requirements existed in the years covered by this opinion, and we have been advised by management that at all times during the years covered by this opinion (and specifically on each record date for the payment of dividends during 1984 through the date hereof) CNL Realty has had more than 1,000 shareholders of record, that CNL Realty maintains the records required by section 1.857-8 of the Treasury Regulations, that no later than January 30 of each year it sent the demand required by section 1.857-8(d) of the Treasury Regulations to each shareholder of record owning one percent or more of the outstanding shares of CNL Realty on the appropriate date required by said regulation, and that the actual ownership of CNL Realty shares was such that, to the best knowledge of its management (based upon responses to the aforesaid demands, any filing of a Schedule 13D under the Securities Exchange Act of 1934, as amended, or any other sources of information), CNL Realty satisfied the applicable requirements of section 856(h). Further, we have examined various property leases and lease supplements relating to the properties that CNL Realty owns, and although leases relating to certain properties which CNL Realty owns have not been made available to us, CNL Realty has represented with respect to such leases that they will conform in all material respects to a form of lease agreement provided to us. On the basis of discussions with management of CNL Realty, we are not aware that CNL Realty's election to be a REIT has been terminated or challenged by the Internal Revenue Service or any other party or that CNL Realty has revoked its election to be a REIT for any such prior year so as to make CNL Realty ineligible to qualify as a REIT for the years covered by this opinion. In rendering the opinions set forth herein, we are assuming that copies of documents examined by us are true copies of originals thereof and that the information concerning CNL Realty set forth in CNL Realty's Federal income tax returns, and in the Prospectus Supplement, as well as the information provided us by CNL Realty's management are true and correct. We have no reason to believe that such assumptions are not warranted. Based upon the foregoing, we are of the opinion that: (a) CNL Realty was a "real estate investment trust" as defined by section 856(a) for its taxable years ended December 31, 1984 through December 31, 1995, and its proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 1996 and for all future taxable years, and (b) CNL Realty's wholly owned subsidiaries, Net Lease Realty I, Inc. and Net Lease Realty II, Inc., were each "qualified REIT subsidiaries" as defined by section 856(i) for CNL Realty's taxable year ending December 31, 1995, and their proposed ownership will enable them to meet the requirements for treatment as qualified REIT subsidiaries for CNL Realty's taxable year ending December 31, 1996 and for all future taxable years. However, with respect to the 1996 year and all future years, we note that CNL Realty's status as a real estate investment trust at any time is dependent among other things upon its meeting the requirements of section 856 throughout the year and for the year as a whole. In addition, we have participated in the preparation of the material under the heading "Federal Income Tax Considerations" in the Prospectus, and we are of the opinion that the matters described therein are accurate and we consent to your filing of this opinion as an exhibit to the Prospectus Supplement and the Registration Statement. This opinion is based upon the existing provisions of the Code (or predecessor provisions, as applicable), rules and regulations (including proposed regulations) promulgated thereunder, and reported administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. This opinion is limited to the specific matters covered hereby and should not be interpreted to imply that the undersigned has offered its opinion on any other matter. Very truly yours, SHAW, PITTMAN, POTTS & TROWBRIDGE By: --------------------------- Charles B. Temkin, P.C. * Unless otherwise noted, all references to CNL Realty herein refer to CNL Realty and its wholly owned subsidiaries, Net Lease Realty I, Inc. and Net Lease Realty II, Inc. ** All section references herein are to the Code or to the regulations issued thereunder. EX-4 5 SECOND AMENDED AND RESTATED REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT AMONG COMMERCIAL NET LEASE REALTY, INC., NET LEASE REALTY I, INC., NET LEASE REALTY II, INC., THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF, and FIRST UNION NATIONAL BANK OF FLORIDA, as the Agent TABLE OF CONTENTS SECTION 1. DEFINITIONS 2 1.1 Defined Terms. 2 1.2 Other Definitional Provisions 10 SECTION 2. THE CREDIT 10 2.1 The Revolving Credit Facility 10 2.2 Advance Requests and Funding Mechanics 11 2.3 Letters of Credit 14 2.4 Use of Proceeds 16 2.5 Note 16 2.6 Interest 16 2.7 Repayment 17 2.8 Fees 18 2.9 Extension of Revolving Credit Maturity Date 18 2.10 Single Loan 18 2.11 Payments and Computations 19 2.12 Prepayments 20 2.13 LIBOR Rate Compensation 21 2.14 Sharing of Payments, Etc. 22 2.15 Conversion and Continuation of Advances; Failure to Select Interest Period 23 2.16 Increased Costs, Illegality, Etc. 24 2.17 Letters of Credit Obligations 25 SECTION 3. SECURITY DOCUMENTS 27 3.1 Security Agreement 27 3.2 Ownership and Encumbrance of Property 28 3.3 Additional Security Documents 28 3.4 Release of Property 29 SECTION 4. REPRESENTATIONS AND WARRANTIES 30 4.1 Corporate Existence of Borrower; Compliance with Law 31 4.2 Authorization 31 4.3 Enforceable Obligations 31 4.4 Financial Condition of the Borrowers 31 4.5 No Litigation 32 4.6 Disclosure and No Untrue Statements 32 4.7 Title to Assets; Leases in Good Standing 32 4.8 Payment of Taxes 32 4.9 Agreement or Contract Restrictions 33 4.10 Patents, Trademarks, Etc. 33 4.11 Racketeer Influenced and Corrupt Organization(s) Act 33 4.12 Investment Company Act; Regulation 33 4.13 Labor Matters 34 4.14 ERISA Requirement 34 4.15 Compliance With Environmental Requirements 34 4.16 Compliance with REIT Requirements 35 4.17 Principal Office/Corporate Name 35 4.18 Use of Credit 35 SECTION 5. CONDITIONS OF LENDING 36 5.1 Request for Borrowing; Security Documents and Information 36 5.2 Continuing Accuracy of Representations and Warranties 36 5.3 No Default 36 5.4 Loan Documents 36 5.5 Supporting Documents 36 5.6 Opinion of the Borrowers' Counsel 37 SECTION 6. AFFIRMATIVE COVENANTS 38 6.1 Financial Reports and Other Data 38 6.2 Financial Covenants of the Borrowers 40 6.3 Payment and Performance of the Borrowers Obligations 40 6.4 Depository Account 40 6.5 Conduct of Business; Maintenance of Existence 40 6.6 Right of Inspection; Discussions 40 6.7 Notices 41 6.8 Payment of Taxes; Liens 42 6.9 Maintenance of Property, Leases 42 6.10 ERISA Benefit Plans 42 6.11 Insurance of Property 43 6.12 True Books 43 6.13 Observance of Laws 43 6.14 Further Assurances 43 6.15 Change of Name, Principal Place of Business, Office, or the Agent 44 6.16 Status 44 6.17 Syndication of Credit 44 6.18 Use of Proceeds from Mortgage Loans 44 SECTION 7. NEGATIVE COVENANTS 44 7.1 Other Indebtedness 44 7.2 Limitations on Mortgages, Liens, Etc. 45 7.3 No Guaranties 45 7.4 Merger, Sale of Assets, Dissolution, Etc. 45 7.5 Limitations on Loans, Advances, and Investments 46 7.6 Regulation U 46 7.7 Insider Transactions 46 7.8 Changes in Governing Documents, Accounting Methods, Fiscal Year 47 7.9 Management 47 SECTION 8. EVENTS OF DEFAULT 47 8.1 Payment of Obligations to the Banks 47 8.2 Representation or Warranty 47 8.3 Covenants 47 8.4 Any Borrower's Liquidation; Dissolution; Bankruptcy; Etc. 47 8.5 Order of Dissolution 48 8.6 Reports and Certificates 48 8.7 Judgments 48 8.8 Liens Imposed by Law 48 8.9 Corporate Existence 48 8.10 Invalidity of Security Interest and Liens 48 SECTION 9. THE AGENT 49 9.1 Appointment, Authorization, and Action 49 9.2 Delegation of Duties 50 9.3 Exculpatory Provisions 50 9.4 Reliance by the Agent 51 9.5 Agent and Affiliates 51 9.6 Notice of Default 51 9.7 Non-Reliance on the Agent and Other Lenders 52 9.8 Enforcement by the Agent 52 9.9 Indemnification 52 9.10 Failure to Act 53 9.11 Successor Agent 53 SECTION 10. INDEMNIFICATION BY BORROWERS 53 SECTION 11. MISCELLANEOUS 54 11.1 Course of Dealing; Amendments 54 11.2 Payment of Expenses, Including Attorneys' Fees and Taxes 54 11.3 Successors and Assigns 55 11.4 Assignments and Participations 55 11.5 Confidential Information 57 11.6 Liens; Set-Off 58 11.7 Notices 59 11.8 Waiver of Default 59 11.9 No Waiver; Cumulative Remedies 59 11.10 Venue and Jurisdiction 59 11.11 Governing Law 60 11.12 Title and Headings; Table of Contents 60 11.13 Complete Agreement 60 11.14 Legal or Governmental Limitations 60 11.15 Counterparts 60 11.16 Additional Banks 60 11.17 WAIVER OF JURY TRIAL BY BORROWERS 62 SECOND AMENDED AND RESTATED REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT ----------------------------------------------- THIS SECOND AMENDED AND RESTATED REVOLVING LINE OF CREDIT AND SECURITY AGREEMENT is made and entered into as of this _____ day of December, 1995, by and among COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation ("CNLR"), NET LEASE REALTY I, INC., a Maryland corporation ("Net I") and NET LEASE REALTY II, INC., a Maryland corporation ("Net II") (CNL, Net I and Net II are hereinafter sometimes individually referred to as a "Borrower" and collectively referred to as the "Borrowers"), FIRST UNION NATIONAL BANK OF FLORIDA, a national banking association, as the Agent (the "Agent") and the financial institutions which are, or may from time to time become, listed on the signature pages hereof (together with their successors and assigns, individually a "Bank" and collectively the "Banks"). BACKGROUND ---------- CNLR and First Union National Bank of Florida entered into a Revolving Line of Credit and Security Agreement dated as of June 21, 1994 (the "Prior Credit Agreement"), which provided for a revolving line of credit in the amount of $30,000,000.00 in favor of CNLR (the "Prior Credit"), evidenced by a promissory note in the principal amount of $30,000,000.00 (the "Prior Note"), Collateral Assignments of Leases, Rents, and Profits and Security Agreements, Agreements Not to Encumber or Transfer Property, and other related instruments (the "Prior Security Documents"). Subsequently, CNLR, the Agent and certain Banks entered into a Revolving Line of Credit and Security Agreement dated as of July 25, 1994 (the "1994 Credit Agreement"), which provided for a revolving line of credit in the amount of $100,000,000.00 in favor of CNLR (the "Existing Credit") pursuant to which First Union National Bank of Florida assigned the Prior Credit (including but not limited to the Prior Note and the Prior Security Documents) to the Banks and evidenced by a Promissory Note in the principal amount of $100,000,000.00 (the "Existing Note"), Collateral Assignments of Leases, Rents and Profits and Security Agreements, Agreements Not to Encumber or Transfer Property, and other related instruments (the "Existing Security Documents"). The 1994 Credit Agreement superseded and replaced the Prior Credit Agreement and provided for an increased line of credit. CNLR, the Agent and the Banks subsequently agreed to amend and restate the 1994 Credit Agreement to reflect certain changes in the terms of the Credit pursuant to the terms of an Amended and Restated Revolving Line of Credit and Security Agreement dated as of April 13, 1995 (the "Existing Agreement") which superseded the 1994 Credit Agreement. CNLR has now requested certain additional amendments to the Existing Agreement to permit (i) CNLR to incur mortgage loans from Principal Mutual Life Insurance Company, or an affiliate thereof, in the total amount of not more than $52,600,000.00 with respect to certain properties currently identified in the Existing Security Documents and (ii) to allow it to place certain properties to be acquired in its wholly-owned subsidiaries, Net I and Net II. The Agent and the Banks have agreed to CNLR's request so long as: (i) all proceeds from Principal Mutual Life Insurance Company's, or an affiliate thereof, mortgage loans to CNLR are used to prepay outstanding Advances under the Credit, as hereinafter defined and (ii) Net I and Net II agree to become co- borrowers under the Credit, and pursuant to the terms and conditions of this Agreement which supersedes the Existing Agreement and is evidenced by a Renewal and Modification Promissory Note in the principal amount of $100,000,000.00 and the Existing Security Documents. NOW, THEREFORE, in consideration of the premises and the mutual agreements, covenants, and conditions herein, the Existing Agreement is hereby amended and restated and the Borrowers, the Agent, and the Banks agree as follows: SECTION I. DEFINITIONS 1.1 DEFINED TERMS. Except as otherwise expressly provided in this Agreement, the following capitalized terms shall have the respective meanings ascribed to them for all purposes of this Agreement: "Advance" means a Revolving Credit Advance. "Agent" means First Union National Bank of Florida, acting as agent for the Banks hereunder, together with any successor agent appointed pursuant to the provisions hereof. "Agreement" means this Second Amended and Restated Revolving Line of Credit and Security Agreement (which supersedes the Existing Agreement), as the same may be amended, supplemented, restated, replaced, or otherwise modified from time to time. "Banks" means First Union National Bank of Florida, SouthTrust Bank of Alabama National Association, Creditanstalt Corporate Finance, Inc., Comerica Bank, AmSouth Bank of Florida, and the other lending institutions which are, or from time to time may become, signatories hereto, and any other lending institution which becomes an assignee or successor of any rights of a Bank pursuant to Subsection 11.4 hereof. "Borrower" means Commercial Net Lease Realty, Inc., a Maryland corporation, and its successors, Net Lease Realty I, Inc., a Maryland corporation, and its successors, or Net Lease Realty II, Inc., a Maryland corporation, and its successors. "Borrowers" means Commercial Net Lease Realty, Inc., a Maryland corporation, and its successors, Net Lease Realty I, Inc., a Maryland corporation, and its successors, and Net Lease Realty II, Inc., a Maryland corporation, and its successors. "Business Day" means a day that is not a Saturday, a Sunday, or a day on which either the Agent or First Union National Bank of North Carolina is closed pursuant to authorization or requirement of law. "Capital" means Funded Debt plus Tangible Net Worth. "Cash Flow Coverage Ratio" means Funds from Operations plus Interest divided by Interest. "Closing Date" means the date this Agreement is executed by the Borrowers, the Agent and the Banks. "CNLR" means Commercial Net Lease Realty, Inc., a Maryland corporation, and its successors. "Collateral" means all leases, rents, income, profits, and accounts receivable arising from any and every lease, rental, or occupancy agreement entered into with respect to property now owned or hereafter acquired by Borrowers, except as otherwise provided in this Agreement. "Consistent Basis" means, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the current period are comparable in all material respects to those applied in the preceding period. "Continue," "Continuation," and "Continued" refer to a continuation of Advances of the same Type from one Interest Period to the next Interest Period. "Convert," "Conversion," and "Converted" refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Subsection 2.15 or 2.16 hereof. "Credit" means the Revolving Credit Facility described in Section 2 below. "Debt Service" shall mean amortization of existing term debt of the Borrowers plus assumed fifteen year amortization of debt under the Credit, plus existing property capital expenditures. "Debt Service Coverage Ratio" means Funds from Operations plus existing property capital expenditures, divided by Debt Service. "Default Rate" has the meaning specified in Subsection 2.6(c)(iii) hereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be supplemented or amended from time to time. "Event of Default" means any of the events specified in Section 8 hereof. "Existing Credit" has the meaning specified in the Background section hereof. "Existing Credit Agreement" has the meaning specified in the Background section hereof. "Existing Note" has the meaning specified in the Background section hereof. "Existing Security Documents" has the meaning specified in the Background section hereof. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates per annum, rounded upward to the nearest one-hundredth of one percent (1/100%), on overnight federal funds transactions with members of the Federal Reserve System, arranged by federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Board of Governors of the Federal Reserve System in Publication H.15 (519), or, if such rate is not published for any day which is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three (3) federal funds brokers of recognized standing selected by the Agent. "Funded Debt" shall mean all interest bearing debt of Borrowers plus the maximum amounts of any outstanding letters of credit issued for the benefit of any Borrower. "Funds from Operations" shall mean net income plus depreciation and amortization plus capital lease payments less accrued rental income less earned income from direct financing leases in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Generally Accepted Accounting Principles" means those principles of accounting set forth in Opinions of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of any report required herein or as of the date of an application of such principles as required herein. "Governmental Acts" shall have the meaning specified in Section 2.17(b) hereof. "Governmental Authority" shall mean, as to any Person, any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over such Person or any of its business, operations or properties. "Interest" means with respect to any period the net interest expense of the Borrowers for such period, as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Interest Period" means, for each LIBOR Rate Advance comprising part of the same borrowing, the period commencing on the date such Advance is made, Converted from an Advance of another Type, or Continued as an Advance of the same Type, and ending on the numerically corresponding day one, two, three, or six months thereafter as the Borrowers may select, as provided in Subsections 2.2 or 2.15 hereof; provided however that: (a) Interest Periods commencing on the same date for LIBOR Rate Advances shall be of the same duration; (b) If an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (c) Any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (d) No Interest Period shall extend beyond the Revolving Credit Maturity Date. "Issuing Bank" means First Union National Bank of Florida, in its capacity as a Bank hereunder, for so long as it remains the Agent hereunder. Upon the appointment of a successor Agent, the "Issuing Bank" shall be the successor Agent, in its capacity as a Bank hereunder, for the purposes of all new Letters of Credit issued hereunder. "Late Fee" has the meaning specified in Subsection 2.7(c) hereof. "Letters of Credit" has the meaning specified in Subsection 2.3 hereof. "Letter of Credit Contingent Obligation" and "Letters of Credit Contingent Obligations" mean the amount available for drawings and remaining undrawn under the Letter of Credit or Letters of Credit, respectively. "LIBOR Rate Advance" means an Advance that bears interest at a rate determined by reference to the Reserve Adjusted LIBOR Rate, as provided in Subsection 2.6(a)(ii) hereof. "LIBOR Reserve Requirement" means, for any day, the rate at which reserves (including, without limitation, any marginal, supplemental, or emergency reserves) are required to be maintained by member banks of the Federal Reserve System on such day against Eurocurrency liabilities, expressed as a decimal. "Loan Documents" means the following documents: (a) This Second Amended and Restated Revolving Line of Credit and Security Agreement; (b) The Renewal and Modification Promissory Note made by the Borrowers in favor of the Agent for the benefit of the Banks in the amount of $100,000,000.00; (c) Assignments of Leases, Rents and Profits made by any Borrower to the Agent for the benefit of the Banks with respect to property now owned or hereafter acquired by any Borrower or any leasehold interest in property hereafter acquired by any Borrower, except as otherwise provided for in this Agreement; (d) Agreements Not To Encumber or Transfer Property made by any Borrower to the Agent for the benefit of the Banks with respect to property now owned or hereafter acquired by any Borrower or any leasehold interest in property hereafter acquired by any Borrower, except as otherwise provided for in this Agreement; (e) Agreements between the Agent on behalf of the Banks, a Borrower and the landlord with respect to any leasehold interest hereinafter acquired by any Borrower, except as otherwise provided for in this Agreement; (f) Anti-Coercion Statements with respect to property now owned or hereafter acquired by any Borrower; (g) UCC-1 Financing Statements covering all leases, rents, income, profits, and accounts receivable arising from any and every lease, rental, or occupancy agreement entered into with respect to property now owned by or hereafter acquired by any Borrower, except as otherwise provided for in this Agreement, and such other documents as will ensure the Agent, as Agent for the benefit of the Banks, a first perfected security interest in and to such personal property; and (h) all other documents executed and delivered by any Borrower in connection with the Credit closing, and thereafter from time to time as contemplated by this Agreement, including any modifications, amendments, or restatements of the foregoing. "Net I" means Net Lease Realty I, Inc., a Maryland corporation, and its successors. "Net II" means Net Lease Realty II, Inc., a Maryland corporation, and its successors. "1994 Credit Agreement" has the meaning specified in the Background section hereof. "Note" means the Renewal and Modification Promissory Note (which supersedes the Existing Note), as may be amended, renewed, increased, restated, or replaced from time to time. "Notice of Borrowing" means a Notice of Borrowing in the form attached hereto as Exhibit "B". "Person" means any natural person, corporation, unincorporated organization, trust, joint venture, association, company, partnership, or government, or any agency or political subdivision of any government. "Prime Rate" means, for the purposes hereof, the rate of interest announced by the Agent from time to time as its Prime Rate. The Agents' Prime Rate is a reference rate used by the Agent in determining interest rates on certain loans. The Agent loans at rates both above and below the Agent's Prime Rate, and the Borrowers acknowledge that the Agent's Prime Rate is not represented or intended to be the lowest or most favorable rate of interest offered by the Agent. "Prime Rate Advance" means an Advance that bears interest at a rate determined with reference to the Prime Rate, as provided in Subsection 2.6(a)(i) hereof. "Prior Credit" has the meaning specified in the Background section hereof. "Prior Credit Agreement" has the meaning specified in the Background section hereof. "Prior Note" has the meaning specified in the Background section hereof. "Prior Security Documents" has the meaning specified in the Background section hereof. "Pro Rata Portion" means, with respect to any Bank, the quotient obtained by dividing the Revolving Credit Commitment of the Bank by the aggregate Revolving Credit Commitments of all the Banks. "Qualified REIT Subsidiary Status" means Net I's and Net II's status as a qualified REIT subsidiary as defined in Section 856(i) of the Internal Revenue Code, as amended. "REIT Status" means each Borrower's status as a real estate investment trust as defined in Section 856(a) of the Internal Revenue Code, as amended. "Related Entities" means any "affiliated person" as defined under the provisions of the United States Internal Revenue Code. "Required Banks" means at any time the Banks owning or holding in the aggregate at least 66 2/3% of the aggregate unpaid principal amount of the Advances or, in the event that no Advances are outstanding, the Banks having at least 66 2/3% of the aggregate Revolving Credit Commitments. "Reserve Adjusted LIBOR Rate" means, for any Interest Period, an interest rate per annum obtained by dividing (i) the rate quoted on the Telerate page 3750 as of 11:00 a.m. London time, on the day that is two London banking days prior to the first day of the Interest Period, in an amount substantially equal to the LIBOR Rate Advance and with a term substantially equal to such Interest Period, by (ii) an amount equal to 1 minus the LIBOR Reserve Requirement for such Interest Period. In the event the rate quoted by Telerate is discontinued or the rate otherwise cannot be identified, the Agent shall determine the LIBOR Rate on the basis of quotes by major banks in the London interbank Eurodollar market for dollar deposits in an amount substantially equal to the LIBOR Rate Advance for a term substantially equal to the Interest Period selected. "Revolving Credit Advance" has the meaning specified in Subsection 2.1(a) hereof. "Revolving Credit Commitment" means $35,000,000 in the case of First Union National Bank of Florida, $20,000,000 in the case of SouthTrust Bank of Alabama National Association, $20,000,000 in the case of Creditanstalt Corporate Finance, Inc., $20,000,000 in the case of Comerica Bank, $5,000,000 in the case of AmSouth Bank of Florida, and in the case of any other Bank, that amount set forth next to the name of the Bank on the signature pages hereto or, if there has been a full or partial assignment of a Revolving Credit Commitment pursuant to the provisions of Subsection 11.4 hereof, as may be reflected on the records of the Agent with respect to such assignment. "Revolving Credit Facility" means the commitments of the Banks to make Revolving Credit Advances to and issue Letters of Credit in favor of the Borrowers pursuant to Subsection 2.1 hereof. "Revolving Credit Maturity Date" shall mean June 30, 1997 (as such date may be extended pursuant to the provisions hereof) or if such date is not a Business Day, the next succeeding Business Day, or such earlier date on which the Credit shall be due and payable pursuant to the terms hereof. "Revolving Credit Note" has the meaning specified in Subsection 2.5 hereof. "Security Documents" has the meaning specified in Subsection 3.3 hereof. "Tangible Net Worth" means an amount equal to the total assets of the Borrowers minus the Total Intangible Assets of the Borrowers, minus the total liabilities of the Borrowers, calculated in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Term Credit" shall have the meaning specified in Subsection 7.1 hereof. "Total Intangible Assets" of the Borrowers shall be determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, but in any event shall be deemed to include the excess of costs over the assets of acquired businesses, formulae, trademarks, patents, patent rights, and deferred expenses (including, but not limited to, unamortized debt discount and expense, organization expense, experimental and developmental expenses, but excluding prepaid expenses). "Total Liabilities" means the total liabilities of the Borrower (including, without limitation, all obligations or indebtedness of any other Person which the Borrower has assumed, guaranteed, or endorsed or in connection with which the Borrower has otherwise become directly or contingently liable and the amount of any outstanding Letters of Credit) computed in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Type" refers to the distinction among Advances bearing interest based on the Prime Rate and the Reserve Adjusted LIBOR Rate. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The terms "material" and "materially" shall have the meanings ascribed to such terms under Generally Accepted Accounting Principles as such would be applied to the business of the Borrowers, except as the context shall clearly otherwise require; (b) all of the terms defined in this Agreement shall have such defined meanings when used in other documents issued under, or delivered pursuant to, this Agreement unless the context shall otherwise require; (c) all terms defined in this Agreement in the singular shall have comparable meanings when used in the plural, and vice versa; (d) accounting terms to the extent not otherwise defined shall have the respective meanings given them under, and shall be construed in accordance with, Generally Accepted Accounting Principles; (e) terms defined in, or by reference to, Article 9 of the Uniform Commercial Code as adopted in Florida to the extent not otherwise defined herein shall have the respective meanings given to them in Article 9 with the exception of the word "document" unless the context clearly requires such meaning; (f) the words "hereby," "hereto," "hereof," "herein," "hereunder," and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) the masculine and neuter genders are used herein and whenever used shall include the masculine, feminine, and neuter as well; and (h) wherever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such parties unless the context shall expressly provide otherwise. SECTION 2. THE CREDIT 2.1 THE REVOLVING CREDIT FACILITY. (a) Each Bank severally agrees, on the terms and conditions set forth herein, that prior to the Revolving Credit Maturity Date and so long as there exists no Event of Default or circumstance which with the giving of notice or passage of time would become an Event of Default, it will make advances to the Borrowers (all such advances and the Bank's Pro Rata Portion of any unreimbursed amounts paid under Letters of Credit referred to herein as "Revolving Credit Advances" and "Advances") in an aggregate amount which, when aggregated with Advances comprised of the Bank's Pro Rata Portion of unreimbursed amounts paid under Letters of Credit and with the Bank's Pro Rata Portion of Letter of Credit Contingent Obligations, does not exceed at any time such Bank's Revolving Credit Commitment, subject to the terms and conditions of this Agreement. During the aforesaid period, the Borrowers may borrow, repay, and reborrow, and request the issuance of Letters of Credit in accordance with the terms hereof. The Borrowers acknowledge that the amount outstanding at any time pursuant to the Credit is as reflected in the books and records of the Agent and shall be conclusive and binding absent manifest error. Agent will, upon request, furnish the Borrowers with a statement of the amount outstanding pursuant to the Credit as reflected in the books and records of the Agent at the time of any such request. (b) If at any time the principal amounts outstanding under any Bank's Revolving Credit Advances (including Advances in respect of unreimbursed amounts paid under Letters of Credit), together with the aggregate amount of the Bank's Pro Rata Portion of the Letter of Credit Contingent Obligations, exceed such Bank's Revolving Credit Commitment, the Borrowers shall prepay the Bank's Revolving Credit Advances so as to cause the aggregate outstanding amounts thereunder to be equal to or less than such Bank's Revolving Credit Commitment. (c) Subject to the further terms and limitations of this Agreement, the Borrowers may designate Advances requested under the Revolving Credit Facility and Advances made pursuant to draws under Letters of Credit issued under the Revolving Credit Facility to be LIBOR Rate Advances or Prime Rate Advances, and the Borrowers may Convert Advances of one Type into Advances of another Type (as provided in Subsection 2.15 hereof), or Continue Advances of one Type as Advances of the same Type (as provided in Subsection 2.15 hereof). All Advances shall be made, Converted, or Continued by the Banks simultaneously and proportionately to their Pro Rata Portion of the aggregate Commitments. (d) On the Closing Date, the aggregate outstanding principal amount under the Existing Agreement shall be automatically converted to an equivalent principal amount of Revolving Credit Advances hereunder (which shall be Prime Rate Advances unless otherwise specified by the Borrowers in accordance with the procedures contained in Subsection 2.15 hereof), allocated to the then existing Banks pro rata in accordance with their Pro Rata Portions, and shall be deemed to be Revolving Credit Advances and Advances and included in the Banks' Revolving Credit Commitments for all purposes hereof. 2.2 ADVANCE REQUESTS AND FUNDING MECHANICS. (a) The Revolving Credit Advances (other than Advances made by honoring a draft drawn under a Letter of Credit) shall be made upon irrevocable notice from the Borrowers to the Agent (effective upon receipt) no later than 10:00 a.m. (Eastern Time) three (3) Business Days prior to the date of any proposed LIBOR Rate Advances and no later than 10:00 a.m. (Eastern Time) one (1) Business Day prior to the date of any proposed Prime Rate Advances. Each such notice shall be in writing, or shall be by telephone or telecopier, confirmed immediately in writing, specifying the proposed (i) date of borrowing, (ii) aggregate amount of borrowing, (iii) Type of Advances, (iv) in the case of LIBOR Rate Advances, the initial Interest Period for such Advances, and (v) manner of receipt of the funds, and shall be evidenced by an executed Notice of Borrowing. Each request for such Advances shall be in the aggregate minimum amount of $100,000.00 or an integral multiple thereof, except that with respect to LIBOR Rate Advances, each request shall be in the aggregate minimum amount of $1,000,000.00 and in integral multiples of $100,000.00. (b) Notwithstanding the foregoing, the Borrowers may not select any LIBOR Rate Advances if (i) the obligation of any of the Banks to make LIBOR Rate Advances is suspended pursuant to Subsections 2.15(b)(iii) or 2.16(c) or (d) hereof, or (ii) after giving effect to the Advances, the aggregate number of different Interest Periods for outstanding LIBOR Rate Advances from the Banks is greater than ten (10) (for purposes of this clause, Interest Periods of the same duration, but commencing on different dates, shall be treated as different Interest Periods). (c) Neither the Agent nor any Bank shall incur any liability to the Borrowers in acting upon any telephonic notice referred to herein that the Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrowers or for otherwise acting in good faith under this Subsection, and, upon funding of Advances by the Bank in accordance with this Agreement pursuant to any telephonic notice, the Borrowers shall be deemed to have received Advances hereunder. (d) Each notice of a proposed borrowing shall be irrevocable and binding on the Borrowers. In the case of LIBOR Rate Advances, the Borrowers shall indemnify each Bank against any loss, costs, or expense incurred by such Bank as a result of any failure of the Borrowers to fulfill on or before the date specified for such Advance all conditions for such borrowing set forth in Section 5 hereof, or as a result of any purported revocation of such Advance request or any other reason for nonfunding of such Advance, including, without limitation, any loss (including loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Bank to fund the Advance, when such Advance is not made on such date, as more fully described in Subsection 2.13 hereof. (e) The Agent shall give each Bank notice of each request for Advances in writing or by telephone or telecopier not later than 12:00 p.m. (Eastern Time) on the date of receipt of such request, provided that if the request was not received prior to 10:00 a.m. (Eastern Time), the Agent shall give such notice no later than 9:00 a.m. (Eastern Time) on the following Business Day. Not later than 2:00 p.m. (Eastern Time) on the date specified in such notice, each Bank shall make available to the Agent, at its Lending Office specified on the signature pages hereof, in immediately available funds, the Bank's Pro Rata Portion of such borrowing. After the Agent's receipt of such funds, the Agent will make such funds available to the Borrowers at the Agent's office referred to above no later than 2:00 p.m. (Eastern Time) on the date specified in the notice. (f) Unless the Agent shall have received notice from a Bank prior to the date of any proposed borrowing that such Bank will not make available to the Agent such Bank's Pro Rata Portion of the borrowing, the Agent may assume that the Bank has made such portion available to the Agent on the date of such borrowing in accordance with the provisions hereof. The Agent may, in reliance upon such assumption (but shall not be required to), make available to the Borrowers a corresponding amount. If and to the extent that the Bank shall not have so made such Pro Rata Portion available to the Agent, the Bank and the Borrowers severally agree to repay to the Agent forthwith upon demand, to the extent not collected from the other, such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Agent at (i) in the case of the Borrowers, the interest rate applicable at the time to the Advances comprising the borrowing, and (ii) in the case of the Bank, the Federal Funds Rate; provided, however, that the Borrowers shall not be required to so repay such amount if and to the extent that the Agent, in its capacity as a Bank, has availability therefor under its Revolving Credit Commitment. In such circumstances, the Agent, in its capacity as a Bank, may, but shall not be required to, make an Advance under its Revolving Credit Commitment in respect of such amount. If the delinquent Bank shall repay to the Agent (in its capacity as Agent or Bank, as appropriate) such amount (with interest), the amount so repaid shall constitute the Bank's Advance as part of such borrowing for purposes of this Agreement. If the Borrowers shall repay to the Agent such corresponding amount, or if the Agent, in its capacity as a Bank, makes an Advance therefor, such payment or Advance shall not relieve the delinquent Bank of its obligations hereunder. (g) The failure of any Bank to make an Advance to be made by it as part of any borrowing, when required to do so by the provisions hereof, shall not relieve any other Bank of its obligation hereunder to make its Advance on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Advance to be made by such other Bank. Nothing herein shall prejudice any rights or remedies that the Borrowers may have against any Bank as a result of any failure by such Bank to make an Advance hereunder if such failure is in breach of its obligations hereunder. 2.3 LETTERS OF CREDIT. (a) Subject to the terms and conditions hereof, including but not limited to the limitations set forth in Subsection 2.1(a) and 2.4 hereof, the Revolving Credit Commitments may be utilized, upon the request of the Borrowers, for the issuance of standby letters of credit by the Issuing Bank ("Letters of Credit"). Each Letter of Credit issued hereunder shall be in such form, contain such terms, and support such transactions as shall be satisfactory to the Issuing Bank in its sole discretion. No Letter of Credit shall have a term extending beyond the earlier of (i) one year after the date of issuance or (ii) the Revolving Credit Maturity Date. (b) Each Letter of Credit shall be requested by the Borrowers by irrevocable notice (effective upon receipt) from the Borrowers to the Issuing Bank and the Agent (which shall promptly give notice thereof to the Banks) no later than 10:00 a.m. (Eastern Time) three (3) Business Days prior to the date of the proposed issuance of the Letter of Credit. Each such notice from the Borrowers shall be in writing, or shall be by telephone or telecopier, confirmed immediately in writing, specifying the proposed (i) date of issuance of the Letter of Credit, (ii) maximum amount of such Letter of Credit, (iii) expiration date of the Letter of Credit, (iv) name and address of the beneficiary of such Letter of Credit, (v) form of such Letter of Credit, and (vi) description of transaction supported by the Letter of Credit, and shall be evidenced by an executed Notice of Borrowing. The request shall be accompanied by such other applications, agreements, information, and documents as the Agent or the Issuing Bank shall require, and the payment of the fees and commissions described in Subsection 2.8 hereof. (c) If the form of the Letter of Credit and transaction supported by the Letter of Credit is satisfactory to the Issuing Bank in its sole discretion, and subject to the other terms and conditions of this Agreement, the Issuing Bank will make such Letter of Credit available to the Borrower designated in the Notice of Borrowing at the Issuing Bank's Lending Office described in the signature pages hereof or as otherwise agreed with the Borrowers in connection with such issuance. (d) Upon the issuance of any Letter of Credit by the Issuing Bank, the Issuing Bank shall be deemed, irrevocably and without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, irrevocably and without further action by any party hereto, to have purchased from the Issuing Bank, an undivided interest and participation in, to the extent of such Bank's Pro Rata Portion, the Letter of Credit and the related Letter of Credit Contingent Obligation. The Issuing Bank shall notify the Agent of the issuance of any Letter of Credit, and the Agent shall promptly notify each Bank of such Bank's Pro Rata Portion of the amount of the Letter of Credit and the related Letter of Credit Contingent Obligation. Each Bank's Pro Rata Portion of the Letter of Credit Contingent Obligation shall be deemed to utilize the Bank's Revolving Credit Commitment and reduce the availability thereunder, until such time as the Letter of Credit Contingent Obligation terminates by virtue of expiration of or payment under the Letter of Credit. (e) The payment by the Issuing Bank of a draft drawn under a Letter of Credit shall constitute for all purposes hereunder the making by the Issuing Bank of a Revolving Credit Advance (which shall be a Prime Rate Advance unless otherwise specified by the Borrowers in accordance with the procedures contained in Subsection 2.15 hereof), in the amount of such payment (but without any requirement for compliance with the requirements for the making of a Revolving Credit Advance contained in Subsections 2.1 and 2.2 and Section 5 hereof). (f) The Issuing Bank shall give the Agent prompt notice of any presentation of a draw under a Letter of Credit in writing or by telephone or telecopier, and the Agent shall give prompt notice thereof to the Banks. Each Bank shall, on the date of receipt of such notice, either (i) make a Revolving Credit Advance (which shall be a Prime Rate Advance unless otherwise specified by the Borrowers in accordance with the procedures contained in Subsection 2.15 hereof) in an amount equal to its Pro Rata Portion of the payment under the Letter of Credit, subject to the requirements for the making of a Revolving Credit Advance contained in Subsection 2.1 and 2.2 and Section 5 hereof), and shall simultaneously make available to the Issuing Bank at its Lending Office specified in the signature pages hereof, in immediately available funds, the proceeds of such Revolving Credit Advance, or (ii) if for any reason Borrowers is not entitled on such day to receive a Revolving Credit Advance each Bank shall pay to the Issuing Bank such Bank's Pro Rata Portion of such draw, whereupon such Bank shall acquire a participation, to the extent of such Pro Rata Portion, in the claim of the Issuing Bank against Borrowers in respect of such draw. (g) If and to the extent that any Bank shall not have so made the proceeds of such a Revolving Credit Advance available to the Issuing Bank, the Bank and the Borrowers severally agree to repay to the Issuing Bank forthwith upon demand, to the extent not collected from the other, such corresponding amount together with interest thereon, for each day from the date of receipt of notice of the draw until the date the Bank's Pro Rata Portion thereof is paid to the Issuing Bank at (i) in the case of the Borrowers, the interest rate applicable at the time to the Advances, and (ii) in the case of the Bank, the Federal Funds Rate, provided, however, that the Borrowers shall not be required to so repay such amount if and to the extent that the Agent, in its capacity as a Bank, has availability therefor under its Revolving Credit Commitment. In such circumstances, the Agent, in its capacity as a Bank, may, but shall not be required to, make an Advance under its Revolving Credit Commitment in respect of such amount. If the Borrowers shall repay to the Agent such corresponding amount, or if the Agent, in its capacity as a Bank, makes an Advance therefor, such payment or Advance shall not relieve the delinquent Bank of its obligations hereunder. 2.4 USE OF PROCEEDS. The Revolving Credit Facility and the proceeds thereof shall be used by the Borrowers solely for the purpose of acquiring income producing commercial restaurant and retail properties, either existing or to be built, which construction must be completed within twelve (12) months after acquisition of the fee simple estate, and which in any event, are subject to long term lease agreements and, in an aggregate amount not to exceed Ten Million Dollars ($10,000,000.00) at any time, for working capital purposes and the issuance and funding of standby Letters of Credit; provided, however, that Borrowers may also acquire income producing unsubordinated ground leases which are intended to support income producing commercial restaurant and retail properties upon completion and said completion occurs within a reasonable period of time after acquisition of such ground lease so long as the total number of such ground leases does not exceed five percent (5%) of the total number of properties in the Borrowers' portfolio at any time. From time to time and upon the Agent's request, the Borrowers shall furnish to the Agent evidence satisfactory to the Agent that such proceeds are being used according to the terms of this Subsection. 2.5 NOTE. The aggregate indebtedness of the Borrowers to each of the Banks resulting from the Revolving Credit Advances shall be evidenced by a single promissory note of the Borrowers payable to the Agent for the benefit of the Banks, in a principal amount equal to One Hundred Million Dollars ($100,000,000.00) in substantially the form of Exhibit "A" hereto (as may be amended, renewed, increased, restated, replaced, or otherwise modified from time to time, the "Revolving Credit Note"). The Revolving Credit Note constitutes a renewal and modification of the Existing Note which is replaced and superseded in its entirety by the Revolving Credit Note. 2.5 INTEREST. (a) The Borrowers shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) during such periods as an Advance is a Prime Rate Advance, a rate equivalent to the Prime Rate in effect from time to time, which rate shall be adjusted daily to reflect changes in the Prime Rate, with each adjustment to be effective on the day the change occurs; (ii) during such periods as an Advance is a LIBOR Rate Advance, a rate equivalent to the Reserve Adjusted LIBOR Rate for the Interest Period for such Advance plus one and 70/100 percent (1.70%) per annum; and (iii) after the maturity or due date of the Advance (whether by acceleration or otherwise), a rate equivalent to five percent (5%) per annum above the rate per annum required to be paid on such Advance pursuant to paragraphs (i) or (ii) above (the "Default Rate"). (b) The Borrowers shall pay interest, on demand, on all other amounts in respect of any other obligations of the Borrowers under the Loan Documents not paid when due at a rate per annum equal to five (5%) per annum above the Prime Rate in effect from time to time, which rate shall be adjusted daily to reflect changes in the Prime Rate, with each adjustment to be effective on the day the change occurs. 2.7 REPAYMENT. (a) Interest on the Revolving Credit Advances shall be paid to the Agent for the account of the Banks as follows: (i) Interest on each Prime Rate Advance shall be paid quarterly in arrears on the last day of March, June, September, and December of each year, and on the Revolving Credit Maturity Date. (ii) In respect of any LIBOR Loan, interest shall be payable at the relevant Elected Rate, in arrears, on the last day of the applicable Interest Period, provided that interest on LIBOR Loans shall additionally be payable on the 90th day of any Interest Period that exceeds 90 days in duration. (iii) In addition to the interest due and payable under (i) and (ii) above, and as provided elsewhere in the Agreement, all accrued interest shall be due and payable on each date when all of the unpaid principal balance of the Credit shall be due (whether by maturity, acceleration or otherwise). (b) Principal under the Revolving Credit Advances, if not sooner paid, shall be paid to the Agent on the Revolving Credit Maturity Date for the account of the Banks. (c) If any payment of principal or interest or both is more than ten (10) days late, the Borrowers will pay to the Agent, for the account of the Banks, a late charge equal to five percent (5%) of the payment (the "Late Fee"). The provisions herein for a Late Fee shall not be deemed to extend the time for any payment or to constitute a "grace period" giving the Borrowers a right to cure such default. 2.8 FEES. (a) As consideration for making the Revolving Credit Facility available, the Borrowers shall pay to the Agent, for the pro rata account of the Banks based on the amounts of the then existing Revolving Credit Commitments, a fee from the date hereof to the Revolving Credit Maturity Date (as may be extended hereunder) equal to twenty (20) basis points per annum of the unused portion of the aggregate Revolving Credit Commitments. Such fee shall be computed on the basis of the average daily unused portion of the Banks' then existing Revolving Credit Commitments and shall be payable quarterly in arrears on each quarterly interest payment date described in Subsection 2.7 hereof. Notwithstanding the foregoing, no additional fees shall be payable pursuant to this Subsection in the event (i) the Banks cease to offer LIBOR Rate Advances pursuant to Subsection 2.16 hereof and (ii) all borrowings hereunder have been repaid in full by the Borrowers. (b) The Borrowers shall pay the Issuing Bank a fee of 1% per annum of the face amount of each Letter of Credit for any Letters of Credit issued hereunder, payable quarterly in advance. One-eighth (1/8) of such fee shall be retained by the Issuing Bank as issuing bank and the remaining seven-eighths (7/8) of such fee shall be shared by the Banks (including the Issuing Bank) based on the Pro Rata Portion of each. In addition, the Borrowers shall pay the Issuing Bank such additional fees and charges as are customarily changed by the Issuing Bank in respect of Letters of Credit. (c) The Borrowers shall also pay to the Agent such agency and other fees as the Agent and the Borrowers shall separately agree. 2.9 EXTENSION OF REVOLVING CREDIT MATURITY DATE. Upon the written request of the Borrowers, which request shall be received by the Agent at least sixty (60) days prior to the then existing Revolving Credit Maturity Date, the Revolving Credit Maturity Date shall be extended a single time for a period of twelve (12) months beyond the then existing Revolving Credit Maturity Date, provided that the Borrowers have fully complied with all of the financial covenants pursuant to Subsection 6.2 of this Agreement and materially complied with all other covenants, terms, conditions and provisions of this Agreement for the six (6) quarters preceding the then existing Revolving Credit Maturity Date. In such event, the Borrowers may be required by the Agent, in its discretion, to execute and deliver to the Banks, not later than the earlier Revolving Credit Maturity Date, new Revolving Credit Notes, with appropriate inserts therein as to date, date of payments, and any appropriate recitals. 2.10 SINGLE LOAN. The Advances and all other obligations arising under this Agreement and the other Loan Documents shall constitute one general obligation of the Borrowers and shall be secured by the Collateral. Recourse by the Agent and the Banks to the Collateral will not be required at any time. 2.11 PAYMENTS AND COMPUTATIONS. (a) The Borrowers shall make each payment due under the Note or otherwise due hereunder not later than 12:00 p.m. (Eastern Time) on the day when due to the Agent in immediately available funds. Any such payment received later than 12:00 p.m. (Eastern Time) shall be deemed received by the Agent on the following Business Day. In the event any such payment is received by the Agent not later than 12:00 p.m. (Eastern Time), the Agent will thereafter on the date such payment is received cause to be distributed like funds ratably to the Banks, in each case to be applied in accordance with the terms of this Agreement. If any such payment is received by the Agent after 12:00 p.m. (Eastern Time), the Agent will thereafter on the following Business Day cause to be distributed like funds ratably to the Banks, in each case to be applied in accordance with the terms of this Agreement. In the event the Agent does not so distribute such funds to the Banks, it shall pay interest thereon, for each day from the Business Day following the date such amount is payable to the Banks to the date the Agent repays such amount to the Banks, at the Federal Funds Rate. (b) If the Agent receives funds for application to the Advances under circumstances for which the Loan Documents or the Borrowers (to the extent permitted by the Loan Documents) do not specify the Advances to which, or the manner in which, such funds are to be applied, the Agent shall distribute such funds for application to the Advances to each Bank ratably in accordance with such Bank's Pro Rata Portion of all outstanding Advances, in repayment or prepayment of such of the outstanding Advances of such Bank, and for application to such principal installments or interest. (c) Unless the Agent shall have received notice from the Borrowers prior to the date on which any payment is due to any Banks hereunder that the Borrowers will not make such payment in full, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date. The Agent may, in reliance upon such assumption, cause to be distributed to each Bank on the Business Day following the date when due an amount equal to the amount then due to such Bank. If and to the extent the Borrowers shall not have made such payment in full to the Agent, each such Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. (d) Each payment and prepayment by the Borrowers of principal or interest shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debt. If any installment of principal or interest becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day (except as otherwise provided with respect to LIBOR Advances in the definition of "Interest Period"), and, in the case of principal, interest shall be payable during the extension at the annual rate specified in the note for the payment of interest before maturity. (e) Unless otherwise specified herein, or unless otherwise determined by the Required Banks in their sole discretion, all payments (other than prepayments) of a particular Advance shall be applied pro rata among the Banks first to interest and lawful charges then accrued and then to principal. The Borrowers shall, at the time of making payments of Advances, specify to the Agent (which shall so notify the Banks) of the Advances to be paid. (f) Each Borrower hereby authorizes the Agent and each Bank, if and to the extent that any payments owed hereunder are not made when due, to charge such payments from time to time against any or all of such Borrower's accounts with the Agent or the Bank, in which event the Agent or the Bank will give prompt notice to such Borrower of such charge; provided, however, that the failure to give such notice shall not affect the validity of such charge. Any such Bank will give notice to the Agent thereof. (g) Interest and any fees hereunder shall be computed on the basis of a year of 360 days, but charged for the actual number of days elapsed. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (h) Notwithstanding anything contained herein to the contrary, in no event shall any interest rate provided for herein exceed the maximum rate of interest allowed by applicable law, as amended from time to time. Neither the Banks nor the Agent intend to charge any amount of interest or other fees or charges in the nature of interest that exceeds the maximum amount allowed by applicable law. If any payment of interest or in the nature of interest would cause the foregoing interest rate limitation to be exceeded, then such excess payment shall be credited as a payment of principal, unless the Borrowers notify the Agent in writing that the excess payment must be returned to the Borrowers, together with interest at the rate specified in Section 687.04(2), Florida Statutes, or any successor statute. 2.12 PREPAYMENTS UNDER REVOLVING CREDIT FACILITY. (a) The Borrowers shall be entitled to prepay Prime Rate Advances in whole or in part, at any time, without premium or penalty, upon notice to the Agent no later than 10:00 a.m. (Eastern Time) on the proposed date of the prepayment, each notice stating the proposed date, Advances to be prepaid, and aggregate principal amount of the prepayment. (b) Notwithstanding the provisions of Subsection 2.13 hereof, the Borrowers shall be entitled to pay LIBOR Rate Advances only on the last days of the applicable Interest Periods, without premium or penalty, upon notice to the Agent no later than 10:00 a.m. (Eastern Time) at least three (3) Business Days prior to the proposed date of the prepayment, each notice stating the proposed date, Advances to be paid, and aggregate principal amount of the payment. (c) Any prepayment of Prime Rate Advances shall be in the aggregate principal amount of $100,000.00 or an integral multiple thereof, and any payment of LIBOR Rate Advances shall be in the full amount of the LIBOR Rate Advances so paid. (d) On or prior to the Revolving Credit Maturity Date, any prepayment of Revolving Credit Advances (whether optional or required, but not including any payment after default or acceleration) shall be applied first to principal and then to interest and lawful charges, unless otherwise specified by the Borrowers. In the event of a prepayment after default or acceleration, any prepayment of Revolving Credit Advances shall be applied first to interest accrued on the principal amount prepaid (to be allocated among the Advances according to amount of interest accrued) and other lawful charges, and then to principal. The Borrowers shall, at the time of making prepayments of Advances, specify to the Agent (which shall so notify the Banks) of the Advances to be prepaid. 2.13 LIBOR RATE COMPENSATION. Notwithstanding the provisions of Subsection 2.12(b) hereof, which prohibit prepayment of LIBOR Rate Advances prior to the end of the applicable Interest Period, in the event that all or any portion of any LIBOR Rate Advances are repaid, prepaid, or Converted prior to the end of the applicable Interest Period, regardless of whether such payment or Conversion is optional or obligatory, or in the event that any LIBOR Rate Advances are not borrowed or Converted as specified in a notice given pursuant to Subsection 2.2 or 2.15 hereof for any reason, including the failure of any conditions precedent, the Borrowers shall be required to pay to the Agent, for the account of the Banks, compensation as follows. The Borrowers shall be required to pay an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the portion of the LIBOR Rate Advances repaid, prepaid, Converted, or not borrowed or Converted from and after the date of such payment, prepayment, Conversion, failure to borrow, or failure to Convert, to the last day of the applicable Interest Period (or, in the case of a failure to borrow or Convert, to the last day of the Interest Period which would have commenced) at the applicable rate of interest for such Advances specified herein, minus (ii) the amount of interest which would have accrued on such LIBOR Rate Advances or portion thereof from and after the date of such payment, prepayment, Conversion, failure to borrow, or failure to Convert, to the last day of the applicable Interest Period at the applicable rate of interest for such Advances specified herein, but calculated with respect to a LIBOR Rate based on an amount substantially equal to the amount paid, prepaid, Converted, or not borrowed or Converted, and an Interest Period substantially equal to the number of days remaining in the applicable Interest Period. Whether or not the foregoing calculation results in a charge to be paid by the Borrowers, the Borrowers shall also pay all actual out-of-pocket expenses other than those taken into account in the foregoing calculation incurred by the Banks and the Agent (excluding any internal expenses) and reasonably attributable to such payment, prepayment, Conversion, or failure to borrow or Convert. The Borrowers acknowledge that the Banks are relying in the LIBOR Rate Advances remaining outstanding or being borrowed or Converted for the entire Interest Periods selected, and that the foregoing compensation represents reasonable liquidated damages and is not a penalty. The foregoing compensation shall apply with respect to all payments, prepayments, and Conversions of LIBOR Rate Advance and all failures to borrow and failures to Convert into LIBOR Rate Advances, whether optional or obligatory (including any required principal installments and any required Conversions pursuant to the provisions of Subsections 2.15 and 2.16 hereof), and shall include any prepayment, repayment, or Conversion after default or acceleration of the Note. 2.14 SHARING OF PAYMENTS, ETC. (a) If any Bank shall obtain from any Borrower payment of any principal of or interest on any Advance owing to it or payment of any other amount under this Agreement or any other Loan Document through the exercise of any right of set-off, banker's lien, counterclaim, similar right, or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Bank shall have received a greater percentage of the principal of or interest on the Advances or other amounts then due hereunder by Borrowers to such Bank than the percentage received by any other Banks, it shall promptly purchase from such other Banks participations in (or, if, and to the extent specified by such Bank, direct interests in) the Advances or such other amounts, respectively, owing to such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and interest on the Advances or such other amounts, respectively, owing to each of the Banks. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sole or otherwise) if such payment is rescinded or must otherwise be restored. (b) Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Borrower. If, under any applicable bankruptcy, insolvency, or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Subsection applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a matter consistent with the rights of the Banks entitled under this Subsection to share in the benefits of any recovery on such secured claim. 2.15 CONVERSION AND CONTINUATION OF ADVANCES; FAILURE TO SELECT INTEREST PERIOD. (a) The Borrowers may, upon notice given to the Agent (effective upon receipt) no later than 10:00 a.m. (Eastern Time) at least three (3) Business Days prior to the date of a proposed Conversion into or Continuation of LIBOR Rate Advances and not later than 10:00 a.m. (Eastern Time) at least one (1) Business Day prior to the date of a proposed Conversion into Prime Rate Advances, and subject to the provisions hereof, Convert Advances of one Type into Advances of the other Type or Continue Advances of one Type as Advances of the same Type at any time and from time to time on any Business Day; provided, however, that (i) any Conversion or Continuation of LIBOR Rate Advances shall be made on, and only on, the last day of the Interest Period for the LIBOR Rate Advances being Converted or Continued, (ii) any Conversion or Continuation of any Advances into LIBOR Rate Advances shall be in amounts not less than the minimum aggregate amounts specified in Section 2.2(a), and (iii) no Conversion or Continuation of Advances shall result in a greater number of different Interest Periods for LIBOR Rate Advances than is permitted under Section 2.2(b). Each such notice of Conversion or Continuation shall be in writing or shall be by telephone or telecopier, confirmed immediately in writing, specifying, within the restrictions specified above, the date of such Conversion or Continuation, the Advances to be Converted or Continued, the portion thereof to be Converted or Continued, and the Type of Advances into which they will be Converted or Continued, and if such Conversion or Continuation is into LIBOR Rate Advances, the duration of the Interest Periods for such Advances. Each notice of Conversion or Continuation shall be irrevocable and binding on the Borrowers. (b) (i) Whenever the unpaid principal amount of LIBOR Rate Advances comprising a borrowing shall be reduced, by payment or prepayment or otherwise, to less than $1,000,000.00, such Advances shall automatically Convert into Prime Rate Advances on the last day of the then current Interest Period with respect to such Advances. (ii) If the Borrowers shall fail to give a notice of Conversion or Continuation in respect of LIBOR Rate Advances prior to the end of the Interest Period applicable thereto as provided in paragraph (a) hereof, or to select the duration of any Interest Period for any LIBOR Rate, such LIBOR Rate Advances will automatically, on the last day of the then existing Interest Period therefor, convert into Prime Rate Advances. (iii) Upon the occurrence and during the continuance of any Event of Default, (i) all LIBOR Rate Advances will automatically, on the last days of the then existing Interest Periods therefor, Convert into Prime Rate Advances and (ii) the obligation of the Banks to make, Continue, or Convert Advances into LIBOR Rate Advances shall be suspended. (iv) LIBOR Rate Advances may be subject to automatic Conversion into Advances of other Types, as provided in Section 2.16(c) and (d). 2.16 INCREASED COSTS, ILLEGALITY, ETC. (a) If either (i) the introduction of or any change in any law or regulation or in the interpretation or administration of any law or regulation by any court or administrative or governmental authority charged with the interpretation of administration thereof from the date hereof or (ii) the compliance with any guideline or request from any such governmental authority, including, without limitation, any central bank (whether or not having the force of law), (x) subjects any Bank or any corporation controlling any Bank to any tax of any kind whatsoever with respect to this Agreement or any Advance, or changes the basis of taxation of payments to such Bank or corporation of principal, commissions, fees, interest, or any other amount payable hereunder (except for (A) taxes on or measured by the overall net income of such Bank or branch, office, or agency through which such Bank is acting for purposes of this Agreement or (B) changes in the rate of such taxes); (y) imposes, modifies, or holds applicable any reserve, special deposit, compulsory loan, or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit or commitment therefor extended by, or any other acquisition of funds by, any office of such Bank which are not otherwise included in any determination of the Reserve Adjusted LIBOR Rate or other interest payable hereunder; or (z) imposes on any Bank or the corporation controlling the Bank any other condition, and as a result there shall be any increase in the cost to the Bank or the corporation of agreeing to make or making, funding, or maintaining Advances by an amount deemed by the Bank to be material, then the Borrowers shall from time to time, upon demand by the Bank, pay directly to the Bank additional amounts sufficient to compensate the Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by the Bank, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Bank determines that compliance with any law or regulation or with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) concerning capital adequacy or otherwise has or would have the effect of reducing the rate of return on the capital of the Bank or the corporation controlling the Bank, as a consequence of, or with reference to, the facilities hereunder, or its making or funding or maintaining Advances below the rate which the Bank or such other corporation could have achieved but for such compliance (taking into account the policies of the Bank of such corporation with regard to capital) by an amount deemed by the Bank to be material, the Borrowers shall from time to time, upon demand by the Bank, pay to the Bank additional amounts sufficient to compensate the Bank or such other corporation for such reduction. A certificate as to such amounts, submitted to the Borrowers by the Bank, shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any LIBOR Rate Advances, the Required Banks notify the Agent that the Reserve Adjusted LIBOR Rate for any Interest Period for such Advances will not adequately reflect the cost to the Banks of making, funding, or maintaining the LIBOR Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrowers whereupon (i) each such LIBOR Rate Advance, will automatically, on the last day of the then existing Interest Period therefor, Convert into a Prime Rate Advance, and (ii) the obligation of the Banks to make, Continue, or Convert Advances into LIBOR Rate Advances shall be suspended until the Agent notifies Borrowers that the Required Banks have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful or any central bank or other governmental authority shall assert that it is unlawful for any Bank to perform its obligations hereunder to make LIBOR Rate Advances or to continue to fund or maintain LIBOR Rate Advances hereunder, then, on notice thereof and demand therefor by the Bank through the Agent, (i) each LIBOR Rate Advance of the Banks will automatically, upon such demand, Convert into a Prime Rate Advance and (ii) the obligation of the Banks to make, Continue, or Convert Advances into LIBOR Rate Advances shall be suspended until the Agent shall notify the Borrowers that the Bank has determined that the circumstances causing such suspension no longer exist. 2.17 LETTERS OF CREDIT OBLIGATIONS. (a) The payment obligations of the Borrowers under this Agreement with respect to the Letters of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of the Letters of Credit; (ii) any amendment or waiver of or any consent to departure from all or any of the Letters of Credit; (iii) the existence of any claim, set-off, defense or other right which the Borrowers may have at any time against any beneficiary, or any transferee, of the Letters of Credit (or any Person for whom any such beneficiary or transferee may be acting), the Agent, the Issuing Bank, any of the other Banks, or any other person or entity, whether in connection with this Agreement, the transactions contemplated herein or in the Letters of Credit, or any unrelated transaction; (iv) any statement or any other document presented under the Letters of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under the Letters of Credit against presentation of a draft or certificate which does not comply (other than on its face) with the terms of the Letters of Credit; or (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (b) In addition to (but without duplication of) the amounts payable as elsewhere provided in this Agreement, or any obligation arising out of Letters of Credit, the Borrowers hereby agree to protect, indemnify, pay, and save the Agent, the Issuing Bank, and each other Bank harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges, and expenses (including reasonable attorneys' fees) which such party may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of the Letters of Credit, or (ii) the failure by the Issuing Bank to honor, or to make payment on, a drawing under the Letters of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority (all such acts or omissions herein called "Governmental Acts"). (c) As among the Borrowers, the Issuing Bank, the other Banks, and the Agent, the Borrowers assume all risks of the acts and omissions of, or misuse of the Letters of Credit. In furtherance, and not in limitation of the foregoing, none of the Agent or the Banks shall be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness, or legal effect of any document submitted by any party as beneficiary or transferee or otherwise in connection with a drawing under the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign the Letters of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) for failure of the beneficiary or transferee to comply fully with conditions required in order to draw upon the Letters of Credit, other than conditions expressly stated in the Letters of Credit; (D) for errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise, whether or not they be in cipher; (E) for errors in interpretation of technical terms; (F) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under the Letters of Credit or of the proceeds thereof; (G) for the misapplication by the beneficiary of the Letters of Credit; and (H) for any consequences arising from causes beyond the control of the Agent, the Issuing Bank, or the other Banks including, without limitation, any Governmental Acts. None of the above shall affect, impair, or prevent the vesting of any of the Agent's, Issuing Bank's, or any other Bank's rights or powers hereunder. (d) In furtherance and extension, and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Agent, the Issuing Bank, or any other Bank under or in connection with the Letters of Credit or the related certificates, if taken or omitted in good faith, shall not result in any liability of the Agent, the Issuing Bank, or any other Bank to the Borrowers. The Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or any information to the contrary. (e) Notwithstanding anything to the contrary contained in this Subsection, the Borrowers shall have no obligation to indemnify the Issuing Bank, any other Bank, or the Agent in respect of any liability incurred by the Borrowers arising solely out of the bad faith, gross negligence or willful misconduct of the Agent, the Issuing Bank, or any other Bank, as determined by a court of competent jurisdiction. (f) Without prejudice to the survival of any other obligation of the Borrowers under this Agreement, the indemnities and obligations of the Borrowers under this Subsection shall survive the payment in full of all other amounts payable under this Agreement and the termination of the Letters of Credit. SECTION 3. SECURITY DOCUMENTS. Payment of the Credit shall be secured as provided in this Section 3. 3.1 SECURITY AGREEMENT. To secure payment of the Credit, including but not limited to contingent obligations under Letters of Credit, and all other obligations of the Borrowers under the Loan Documents, the Borrowers hereby grant the Agent and the Banks and this Agreement shall be deemed to create, grant, give, and convey to the Agent and the Banks a first priority lien and encumbrance upon, and a first priority security interest in, the Collateral. This Agreement shall also serve as a "Security Agreement" within the meaning of that term as used in the Uniform Commercial Code as adopted and in force from time to time in the State of Florida, and shall be operative and effective as a Security Agreement in addition to, and not in substitution for, any other Security Agreement executed by the Borrowers in connection with the extension of credit or loan transaction secured hereby. The Borrowers agree to and shall, upon the request of the Agent, execute and deliver to the Agent, in form satisfactory to the Agent, such "Financing Statements," descriptions of property and such further assurances as the Agent, in its sole discretion, may from time to time consider necessary to create, perfect, continue, and preserve the lien and encumbrances hereof and the security interest granted herein upon and in such Collateral. The Agent, at the expense of the Borrowers, may or shall cause such statements, descriptions, and assurances to be recorded and re-recorded, filed and re-filed, at such times and in such places as may be required or permitted by law to so create, perfect, and preserve the lien and encumbrances hereof upon all of said Collateral. In addition to any other rights and remedies contained in the Loan Documents, the Agent and the Banks shall have all the rights and remedies of a secured party under the Uniform Commercial Code as adopted and in force from time to time in the State of Florida or other applicable law, all of which rights shall be cumulative and non-exclusive, to the extent permitted by law. 3.2 OWNERSHIP AND ENCUMBRANCE OF PROPERTY. Subject to any mortgages permitted pursuant to Section 7.2 hereof, each Borrower hereby agrees and represents to the Agent and the Banks that the properties now owned by such Borrower are not subject to any mortgage, lien, charge, encumbrance, or security interest. Subject to Sections 7.1 and 7.2 hereof, no Borrower shall, without the prior written consent of Required Banks, permit or suffer to exist any mortgage, lien, charge, encumbrance, or security interest in or upon any properties now owned or hereafter acquired by such Borrower. 3.3 ADDITIONAL SECURITY DOCUMENTS. The Borrowers further agree to prepare, execute, and deliver to the Agent the following documents (together, the "Security Documents") each of which shall be properly completed with all pertinent information and otherwise satisfactory to the Agent: (a) a Notice of Borrowing, in the form attached as Exhibit "B" to this Agreement at the time of each request for an Advance under the Credit; (b) an Agreement Not To Encumber for each property now owned by any Borrower, except as otherwise provided for in this Agreement, which includes a correct legal description of such property in the form attached hereto as Exhibit "C" at closing and subsequently at the time any real property is hereafter acquired by any Borrower or an Agreement Not to Encumber which includes a correct legal description of such property in the form attached hereto as Exhibit "G" for each property pursuant to which any Borrower hereafter acquires a leasehold interest permitted pursuant to Section 2.4 hereof; (c) a Collateral Assignment of Leases, Rents, and Profits of, from or pertaining to each property owned by any Borrower, in the form attached hereto as Exhibit "D" at closing and subsequently at the time any real property is hereafter acquired by any Borrower executed by such Borrower or a Collateral Assignment of Leases, Rents, and Profits, of, from or pertaining to each property in which Borrowers hereafter acquires a leasehold interest permitted pursuant to Section 2.4 hereof in the form attached hereto as Exhibit "H" and such Borrower shall use its best efforts to obtain an acknowledgement of lessee thereon or on a form satisfactory to Agent in its sole discretion; (d) an Agreement between the Agent on behalf of the Banks, any Borrower and the landlord with respect to any leasehold interest hereafter acquired by any Borrower in substantially the form attached hereto as Exhibit "I", which form must be acceptable to Agent in its sole discretion; (e) UCC Financing Statements, for filing with the Secretary of State and the local recording office of the State and County where the property of any Borrower is located, in the form required by such State and County, reflecting the Banks' security interest in the Collateral at closing and subsequently at the time any real property is hereafter acquired by any Borrower; provided, however, that the Agent, in its sole discretion, may prepare any such Financing Statements upon receipt of the other documents provided for in this Section 3.3 and forward such completed Financing Statements to any Borrower for execution; (f) an Anti-Coercion Statement for each property owned by any Borrower in the form attached hereto as Exhibit "E" at closing and subsequently at the time any real property is hereafter acquired by any Borrower; (g) evidence of Owner's Title Insurance Policy or commitment binder therefor for each property owned by any Borrower at closing and subsequently at the time any real property is hereafter acquired by any Borrower; (h) evidence that each property owned by any Borrower at closing and any property hereafter acquired by any Borrower is insured with fire and extended coverage to the full insurable value of the requirements on any such property, and each Borrower hereby agrees that any proceeds from such insurance coverage will be applied by such Borrower to (i) repair or rebuild the property for which such proceeds are being received, (ii) replace such property with a substantially equivalent property with a substantially equivalent stream of rent payments of similar credit quality, or (iii) repay any borrowings hereunder; (i) copies of lease agreements applicable to each property owned by any Borrower at closing and subsequently at the time any real property is hereafter acquired by any Borrower; and (j) an M.A.I. or state certified appraisal or an appraisal in compliance with the Appraisal Standards for Federally Regulated Transactions, as required by the Federal Financial Institution Reform Recovery and Enforcement Act of 1989, as amended from time to time, and related or subsequent regulations for any real property hereafter acquired by any Borrower, prepared by an appraiser approved by the Agent and otherwise in form and substance satisfactory to the Agent. 3.4 RELEASE OF PROPERTY. (a) Upon the request of the Borrowers, the Agent on behalf of the Banks will, so long as there exists no Event of Default or circumstance which with the giving of notice or passage of time would become an Event of Default, execute releases of property from the lien and encumbrance of the Security Documents, provided that (a) each property to be released is being sold in the ordinary course of business to bona fide unrelated third parties, (b) either (i) each such property is being replaced with substantially equivalent property with a substantially equivalent stream of rent payments of similar credit quality, or (ii) the sale of such property is for cash and the proceeds of the sale, net only of reasonable seller's closing costs, are applied by the Borrowers as a prepayment of the Revolving Credit Facility, (c) the property to be released consists of the entire parcel or parcels of property acquired and is not a mere portion thereof, and (d) the Borrowers shall submit to the Agent properly prepared release documents in a form satisfactory to Agent, and with respect to any new parcel described in clause (b)(i) hereof, properly prepared Security Documents for such parcel, the warranty deed and closing statement for such property or properties, and such other information as the Agent shall reasonably request. The Banks hereby authorize the Agent to execute such releases and accept the substitution of such Security Documents under the foregoing conditions without the necessity of notice to or consent or agreement of the Banks or the Required Banks. If required by any title company, any Bank will furnish then current confirmation of the Agent's continued authority to execute and deliver release documents in connection with any property as provided for in this Subsection. (b) Notwithstanding anything to the contrary in this Agreement, Agent agrees, on behalf of Banks, to execute releases of those properties of CNLR listed on Schedule I attached hereto from the lien and encumbrance of the Existing Security Documents in the form of the Release of Collateral Assignment of Leases, Rents, and Profits and Security Agreement and UCC-1 Financing Statement attached hereto as Exhibit "J" or in a form otherwise required by a title insurance company in connection with Principal Mutual Life Insurance Company's, or an affiliate thereof, mortgages on such properties. Upon such execution, such properties shall no longer be included as part of the Collateral hereunder. These releases of liens and encumbrances are being given to facilitate CNLR's securing of mortgage loans from Principal Mutual Life Insurance Company, or an affiliate thereof, totaling not more than $52,600,000.00 on the properties listed on Schedule I attached hereto. Pursuant to Section 6.18 hereof, all net proceeds from any such loans shall be applied by CNLR to prepay outstanding Advances hereunder. SECTION 4. REPRESENTATIONS AND WARRANTIES. To induce the Agent and the Banks to enter into this Agreement and to establish the Credit provided for herein, each Borrower represents and warrants to the Agent and Banks (which representations and warranties shall survive the delivery of the documents mentioned herein and the establishment of the Credit contemplated hereby) as follows: 4.1 CORPORATE EXISTENCE OF BORROWER; COMPLIANCE WITH LAW. The Borrower is a corporation duly incorporated and organized, validly existing, and in good standing under the laws of the State of Maryland. The Borrower has the corporate power to own its properties and assets, and to carry on its business as now being conducted. The Borrower is in compliance with all other requirements of law applicable to it and to its business. 4.2 AUTHORIZATION. The Borrower has the corporate power and authority, and the legal right to execute, deliver, and perform the Loan Documents, and to borrow thereunder, and has taken all action necessary to authorize the execution, delivery, and performance of the Loan Documents, and to authorize the borrowings contemplated thereby. The execution, delivery, and performance of the Loan Documents by the Borrower is made by individuals of legal capacity; will not conflict with, result in the breach of, or constitute a violation of or default under, any applicable law, rule, regulation, writ, or decree or the charter or bylaws of the Borrower, or any agreement or instrument to which the Borrower is a party; or result in the creation of any lien, charge, or encumbrance upon any property or assets of the Borrower pursuant to any indenture or other agreement or instrument to which the Borrower is a party, or by which the Borrower or its Collateral may be bound or affected. No consent, license, or authorization of, or filing with, any Person or entity (including, without limitation, any Governmental Authority), is required in connection with the execution, delivery, performance, validity, or enforceability of the Loan Documents and the borrowings as contemplated thereunder, except for consents, licenses, approvals, and filings referred to or disclosed in the Loan Documents. 4.3 ENFORCEABLE OBLIGATIONS. The Loan Documents when executed and delivered to the Agent will constitute legal, valid, and binding agreements enforceable against the respective parties thereto and any property described therein in accordance with their respective terms, except (i) as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforceability of creditor's rights; and (ii) as enforceability may be limited or qualified by general principles of equity, whether raised in a proceeding at law or in equity. 4.4 FINANCIAL CONDITION OF THE BORROWERS. (a) The consolidated financial statements of the Borrowers as of __________________, 1995, a copy of which has been furnished to the Agent, are materially correct, complete, and fairly present the financial condition of the Borrowers as at the date of the financial statements and fairly present the results of the operations of the Borrowers for the period covered thereby. (b) The Borrowers have no material direct or contingent liabilities, liabilities for taxes, long-term leases, or unusual forward or long-term commitments as of the date of the Agreement which are not disclosed by, provided for, or reserved against in the financial statements or referred to in notes thereto, and at such date there are no material unrealized or anticipated losses from any unfavorable commitments of the Borrowers. The financial statements furnished to the Agent have been prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis maintained throughout the period involved. There has been no material adverse change in the business, properties or condition, financial or otherwise, of the Borrowers since the date of such financial statements. 4.5 NO LITIGATION. Except as disclosed in a Form 10-K or Form 10-Q filed by the Borrower with the Securities and Exchange Commission, there is no suit or proceeding at law or in equity (including proceedings, by or before any court, arbitrator, governmental or administrative commission, board or bureau, or other administrative agency) pending, or to the knowledge of the Borrower threatened, by or against or involving the Borrower or against any of its properties, existence, or revenues which, if adversely determined, would have a material adverse effect on the property, assets, or business or on the condition, financial or otherwise, of the Borrowers or which would be required to be disclosed in notes to any balance sheet as of the date hereof of the Borrowers prepared in reasonable detail in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. 4.6 DISCLOSURE AND NO UNTRUE STATEMENTS. No representation or warranty made by the Borrower in the Loan Documents or which will be made by the Borrower from time to time in connection with the Loan Documents (a) contains or will contain any misrepresentation or untrue statement of fact; or (b) omits or will omit to state any material fact necessary to make the statements therein not misleading, unless otherwise disclosed in writing to the Agent. There is no fact known to the Borrower or any of its executive financial officers which adversely affects, or which might in the future adversely affect, the business, assets, properties, or condition, financial or otherwise, of the Borrower. 4.7 TITLE TO ASSETS; LEASES IN GOOD STANDING. The Borrower has good and marketable title to its properties and assets, including the properties and assets reflected in the financial statements and notes thereto described in Section 4.4 hereof, except for such assets as have been disposed of in the ordinary course of business, and all such properties and assets are free and clear of all liens, mortgages, pledges, security interests, charges, title retention agreements, or other encumbrances of any kind, except as otherwise permitted pursuant to this Agreement. The Borrower enjoys peaceful and undisturbed possession under all leases under which it is now operating, none of which contain any unusual provisions which may adversely affect its operations, and all said leases are valid, subsisting, and in full force and effect, and the Borrower is not in violation of any material term of any such lease. 4.8 PAYMENT OF TAXES. The Borrower has filed or caused to be filed all federal, state, and local tax returns which are required to be filed by it and has paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due, except as otherwise permitted by the provisions hereof, and no controversy in respect of additional income taxes of the Borrower is pending, or, to the knowledge of the Borrower, threatened. The Borrower has set up reserves which are believed by its officers to be adequate for the payment of all taxes for which a notice of assessment has been received and for the payment of such taxes for the years that have not been audited by the respective tax authorities. 4.9 AGREEMENT OR CONTRACT RESTRICTIONS. The Borrower is not a party to, nor is it bound by, any agreement, contract, or instrument or subject to any charter or other corporate or partnership restriction which materially adversely affects the business, properties, assets, operations, or condition, financial or otherwise, of the Borrower except as disclosed in the financial statements and notes thereto described in Subsection 4.4 hereof. The Borrower is not in default in the performance, observance, or fulfillment of any obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, which would have a material adverse affect on Borrower performing hereunder. 4.10 PATENTS, TRADEMARKS, ETC. The Borrower owns, possesses, or has the right to use all necessary patents, patent rights, licenses, trademarks, trademark rights, trade names, trade name rights, and copyrights to conduct its business as now conducted, without known conflict with any patent, patent right, license, trademark, trademark right, trade name, trade name right, or copyright of any other Person or entity. 4.11 RACKETEER INFLUENCED AND CORRUPT ORGANIZATION(S) ACT. The Borrower has never been nor is it now engaged, nor will the Borrower engage, directly or indirectly, in any pattern of "racketeering activity" or in any "collection of any unlawful debt," as each of the quoted terms or phrases is defined or used by the Racketeer Influenced and Corrupt Organization(s) Act of either the United States or the State of Florida, Title 18, United States Code, Section 1961 et seq.; Chapter 895, Florida Statues, respectively, as each act now exists or is hereafter amended (the "RICO Lien Acts"). No real property of the Borrower, no interest or interests of any kind, including beneficial interest or interests, mortgages, and leases, in or on real property of the Borrower, and no personal property, including money, of the Borrower, has ever been, is now, or is in any way reasonably anticipated by the Borrower to become, subject to any lien, notice, civil investigative demand, action, suit, or any proceeding pursuant to the RICO Lien Acts. 4.12 INVESTMENT COMPANY ACT; REGULATION. (a) The Borrower is not an "investment company," an "affiliated person" of any investment company," or a company "controlled" by an "investment company," and the Borrower is not an "investment advisor" or an "affiliated person" of an "investment advisor" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). (b) The Borrower is not subject to regulation under any state or local public utilities code or federal, state, or local statute or regulation limiting the ability of the Borrower to incur indebtedness for money borrowed or to pledge assets of the type contemplated hereunder. 4.13 LABOR MATTERS. There are no strikes or other labor disputes against the Borrower pending or, to the Borrower's knowledge, threatened. Hours worked by and payment made to employees of the Borrower has not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from the Borrower on account of employee health and welfare insurance have been paid or accrued as a liability on its books. 4.14 ERISA REQUIREMENT. Except as previously disclosed to Agent in writing, the Borrower does not have in force any written or oral bonus plan, stock option plan, employee welfare, pension or profit sharing plan, or any other employee benefit arrangement or understanding. In addition, the Borrower and any predecessor of the Borrower is not now or was not formerly during the five year period immediately preceding the effective date of this Agreement a participating employer in any multi-employer or "multiple employer" plans within the meaning of Sections 4001(1)(a)(3), 4063, and 4064 of ERISA. Each employee benefit plan subject to the requirements of ERISA complies with all of the requirements of ERISA and those plans which are subject to being "qualified" under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended from time to time, have since their adoption been "qualified" and have received favorable determination letters from the Internal Revenue Service so holding. There is no matter which would adversely affect the qualified tax exempt status of any such trust or plan, and except as previously disclosed to the Agent, there are no deficiencies or liabilities for any such plan or trust. No employee benefit plan sponsored by the Borrower has engaged in a non-exempt "prohibited transaction" as defined in ERISA. 4.15 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. The Borrower warrants and represents to the Agent and the Banks that to the best of Borrower's knowledge, the Property described herein is now and at all times hereafter will continue to be in full compliance with all federal, state and local environmental laws and regulations as they now exist or are hereafter enacted and/or amended, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, and the Hazardous and Solid Waste Amendments of 1984, as amended. The Borrowers shall indemnify and hold the Agent and the Banks harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including cleanup costs), judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Agent or the Banks as a direct or indirect result of any warranty or representation made by the Borrower in this paragraph being false or untrue in any material respect or any requirement under any law, regulation or ordinance, whether local, state or federal, which requires the elimination or removal of any hazardous materials, substances, wastes or other environmentally regulated substances. The Borrower's obligations hereunder shall not be limited to any extent by the term of the Indebtedness secured hereby, and, as to any act or occurrence prior to payment in full and satisfaction of the Indebtedness which gives rise to liability hereunder, shall continue, survive and remain in full force and effect notwithstanding payment in full and satisfaction of the Indebtedness. 4.16 COMPLIANCE WITH REIT REQUIREMENTS. CNLR is in compliance with all requirements applicable to a Real Estate Investment Trust imposed by the Internal Revenue Code of 1986, as amended, and all applicable regulations thereunder, Net I and Net II are in compliance with all requirements applicable to a Qualified REIT Subsidiary imposed by the Internal Revenue Code of 1986, as amended, and all applicable regulations thereunder and the Borrower is not aware of any fact that would negatively impact such qualifications. 4.17 PRINCIPAL OFFICE/CORPORATE NAME. The principal office, chief executive office, and principal place of business of the Borrower is at 400 East South Street, Suite 500, Orlando, Florida 32801. The Borrower maintains its principal records and books at such address. 4.18 USE OF CREDIT. The Revolving Credit Advances shall be used exclusively for the purposes specified in Section 2.4 hereof. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying "margin stock" (within the meaning of Regulation U, Regulation X or Regulation G of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance hereunder will be used to purchase or carry any "margin stock," to extend credit to others for the purpose of purchasing or carrying any "margin stock," or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation U, Regulation X, or Regulation G. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause the Note or any other Loan Documents, including this Agreement, to violate Regulation U, Regulation X, or Regulation G or any other regulation of the Board of Governors of the Federal Reserve system or violate Section 8 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect as the same may hereinafter be in effect. The Borrower owns no "margin stock" except for that described in the financial statements referred to in Section 4.4 hereof and, as of the date hereof, the aggregate value of all "margin stock" owned by the Borrower does not exceed twenty-five percent (25%) of the value of all of the Borrower's assets. In connection with the Credit, the Borrower will upon request of the Agent deliver to the Agent a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation. SECTION 5. CONDITIONS OF LENDING. The obligation of the Agent and the Banks to establish the Credit or to permit any borrowing or issue Letters of Credit hereunder is conditioned upon the performance of all agreements by the Borrowers contained herein, as well as satisfaction of the following conditions precedent: 5.1 REQUEST FOR BORROWING; SECURITY DOCUMENTS AND INFORMATION. Each request for a borrowing or the issuance of a Letter of Credit hereunder shall be evidenced by a Notice of Borrowing in substantially the form of Exhibit "B" hereto and, if a borrowing is for the purpose of acquiring restaurant or retail properties pursuant to the Agreement, the Security Documents described in Section 3.3 above. At least five (5) business days prior to requesting such Advance, the Borrower must deliver to the Agent all of the information as may be reasonably requested by the Agent in response to the Borrowers' request for a borrowing or the issuance of a Letter of Credit. Any Advance of funds by the Banks without obtaining all such Security Documents and information shall not constitute a waiver by the Agent or any Bank of its right to receive such Security Documents and information and a failure of the Borrowers to deliver the same to the Agent upon demand shall constitute a default hereunder. 5.2 CONTINUING ACCURACY OF REPRESENTATIONS AND WARRANTIES. At the time of each borrowing or issuance of a Letter of Credit hereunder, the representations and warranties set forth in this Agreement shall be true, correct, and complete on and as of the date of such borrowing or Letter of Credit issuance hereunder with the same effect as though the representations and warranties had been made on and as of the date of the borrowing or Letter of Credit issuance. 5.3 NO DEFAULT. At the time of each borrowing or issuance of a Letter of Credit hereunder, the Borrowers shall be in compliance with all terms and conditions set forth herein, and no Event of Default, nor any event which upon notice or lapse of time or both would constitute an Event of Default, shall have occurred and be continuing at the time of such borrowing or Letter of Credit issuance. 5.4 LOAN DOCUMENTS. On or prior to the Closing Date, the Agent shall have received, duly executed this Agreement and the other Loan Documents, all in form and substance satisfactory to the Agent and counsel for the Agent. 5.5 SUPPORTING DOCUMENTS. On or prior to the Closing Date, the Agent shall have received the following documents satisfactory in form and substance to the Agent and counsel for the Agent and, as requested by the Agent, certified by appropriate corporate or governmental authorities: (a) a certificate of good standing of each Borrower certified by the Secretary of State, or other appropriate governmental authority, of the State of Maryland; (b) a certificate of qualification of each Borrower to transact business in the State of Florida certified by the Secretary of State of the State of Florida; (c) a copy of the articles of incorporation of each Borrower certified by the Secretary of State, or other appropriate governmental authority, of the State of Maryland, accompanied by a certificate from an appropriate officer of such Borrower that the copy is complete and that the articles of incorporation have not been amended, annulled, rescinded, or revoked since the date of the certificate of the Secretary of State or other appropriate governmental authority; (d) a copy of the bylaws of each Borrower in effect on the date of this Agreement, accompanied by a certificate from an appropriate officer of such Borrower that the copy is true and complete, and that the bylaws have not been amended, annulled, rescinded, or revoked since the date of the bylaws or the last amendment reflected in the copy, if any; (e) a copy of resolutions of the Board of Directors of each Borrower authorizing the execution, delivery, and performance of the Loan Documents and the borrowing thereunder, and specifying the officer or officers of such Borrower authorized to execute the Loan Documents, accompanied by a certificate from an appropriate officer that the resolutions are true and complete, were duly adopted at a duly called meeting in which a quorum was present and acting throughout, or were duly adopted by written action, and have not been amended, annulled, rescinded, or revoked in any respect and remain in full force and effect on the date of the certificate; (f) an incumbency certificate containing the names, titles, and genuine signatures of all duly elected officers and directors of each Borrower as of the date of this Agreement, accompanied by a certificate from an appropriate officer of such Borrower that the information is true and complete; (g) such additional supporting documents as the Agent may request. 5.6 OPINION OF THE BORROWERS' COUNSEL. On or prior to the Closing Date, and to the extent required by the Agent at the time of any borrowing or Letter of Credit issuance hereunder, the Agent shall have received the favorable opinion of counsel for Borrowers, in form and substance satisfactory to the Agent. SECTION 6. AFFIRMATIVE COVENANTS. The Borrowers covenant and agree that, from the date of this Agreement until payment in full and termination of the Credit and expiration of all Letters of Credit issued thereunder, unless the Agent shall otherwise consent in writing, the Borrowers will fully comply with the following provisions: 6.1 FINANCIAL REPORTS AND OTHER DATA. (a) Quarterly Reports. The Borrowers shall deliver to the Agent and the Banks within sixty (60) days after the end of each of the Borrower's fiscal quarters: (i) The Borrowers' Profit and Loss Statement and Cash Flow Statement for such quarter and the Borrower's Balance Sheet as at the last day of such quarter, all in reasonable detail and satisfactory in scope to the Agent and certified by each Borrower's chief financial officer as to the fairness and accuracy of such financial statements and that the same have been prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; and (ii) a Quarterly Advance Compliance Certificate including a listing of each Borrower's properties and information on leases, stating that each Borrower is in compliance with all covenants made pursuant to the Loan Documents and including a schedule of computations in reasonable detail demonstrating compliance with the financial covenants contained in Subsection 6.2 of this Agreement. Such certificate shall be executed by the chief financial officer of each Borrower stating that to the best of the officer's knowledge, such Borrower has kept, observed, performed, and fulfilled each and every agreement binding on it contained in the Loan Documents, and is not at the time in default of the keeping, observance, performance, or fulfillment of any of the terms, provisions, and conditions thereof, and that none of the Events of Default or events which upon notice or the lapse of time or both would constitute Events of Default has occurred (or specifying all such defaults and events of which officer may have knowledge and what actions such Borrower is taking or proposes to take with respect thereto). (b) Annual Reports. The Borrowers shall annually furnish to the Agent and the Banks within ninety (90) days after the end of each fiscal year financial statements of the Borrowers which must be acceptable to the Agent in the Agent's sole discretion. Such statements shall include, but not be limited to, a statement of profit and loss, and reconciliation of surplus statement for such year, and a balance sheet as of the end of such year, all in reasonable detail and satisfactory in scope to the Agent. All financial statements shall be prepared in accordance with Generally Accepted Accounting Principles, applied on a Consistent Basis, accompanied by an unqualified opinion of independent certified public accountants of recognized national standing selected by the Borrowers and satisfactory to the Agent. Together with each delivery of financial statements as required by this subsection 6.1(b), the Borrowers shall deliver to the Agent a certificate of the independent certified accountants stating that in making the examination necessary to said certification of the financial statements, they obtained no knowledge of any condition or event pertaining to financial or accounting matters, of the Borrowers that constitutes an Event of Default or event which after notice by the Agent or lapse of time, or both, would constitute an Event of Default; or if the accountants have obtained knowledge of any Event of Default or other such event, a statement specifying the nature and period of existence thereof. In addition, such accountants' certificate shall state that with respect to the fulfillment of any of the terms, covenants, provisions, or conditions of the Loan Documents, other than those relating to financial or accounting matters, they have obtained no knowledge of any default or Event of Default, or if the accountants have obtained knowledge of any such default or Event of Default they shall make disclosure thereof, but the accountants shall not be liable to the Agent or the Banks for any failure to obtain knowledge of any default or Event of Default referred to in this sentence. (c) Additional Data. With reasonable promptness, the Borrowers will deliver such additional information respecting the business, operations, and financial condition of any Borrower as the Agent or any Bank may from time to time reasonably request, including, without limitation, (i) any and all correspondence with any auditors and/or regulatory agencies which request changes in or require alterations in the procedures used in administering or reporting in any Borrower's operations, (ii) any and all financial statements, reports, notices, and proxy statements sent or made available by any Borrower to its security holders, all regular and periodic reports, and all registration statements and prospectuses filed by any Borrower with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions, and (iii) all press releases and other statements made available generally by any Borrower to the public concerning material developments in the business of such Borrower. (d) Sharing of Financial Information. The Agent and the Banks are hereby authorized to deliver a copy of any financial statements or any other information relating to the business operations or financial condition of any Borrower which may be furnished to them or come to their attention pursuant to the Loan Documents or otherwise, to any regulatory body or agency having jurisdiction over Agent or any Bank or to any Person which shall, or shall have the right or obligation to, succeed to all or any part of the Agent's or any Bank's interest in the Loan Documents. 6.2 FINANCIAL COVENANTS OF THE BORROWERS. During the term of the Credit, the Borrowers will maintain the following financial covenants and such computations shall be made on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis: (a) the ratio of Total Liabilities to Tangible Net Worth of the Borrower shall not be more than .85 to 1 at any time. (b) the ratio of Funded Debt to the Banks to Capital, but excluding the book value and mortgage debt for those properties to be mortgaged by CNLR to Principal Mutual Life Insurance Company, or an affiliate thereof, as provided in this Agreement, at the end of any fiscal quarter shall not be more than .40 to 1. (c) the ratio of Funded Debt to Capital at the end of any fiscal quarter shall not be more than .46 to 1. (d) the Cash Flow Coverage Ratio defined as Funds from Operations plus Interest divided by Interest, shall not be less than 2.5 to 1 at any time. (e) the Debt Service Coverage Ratio shall not be less than 1.8 to 1. This ratio shall be calculated at the end of each quarter on a rolling twelve month basis beginning September 30, 1994. 6.3 PAYMENT AND PERFORMANCE OF THE BORROWERS OBLIGATIONS. The Borrowers will make full and timely payment of the principal of and interest on the indebtedness owed hereunder. The Borrowers will duly comply with all the terms and covenants contained in the Loan Documents. 6.4 DEPOSITORY ACCOUNT. Until the Note and the other Loan Documents are paid in full, each Borrower shall maintain a depository account with the Agent. 6.5 CONDUCT OF BUSINESS; MAINTENANCE OF EXISTENCE. Each Borrower will do or cause to be done all things necessary to preserve and to keep in full force and effect its corporate existence and rights and its franchises, trade names, patents, trademarks, and permits which are necessary for the continuance of its business; maintain management satisfactory to Required Banks; and continue to engage principally in the business currently operated by such Borrower. 6.6 RIGHT OF INSPECTION; DISCUSSIONS. Each Borrower will permit any person designated by the Agent or any Bank, at such Borrower's expense, to visit and inspect any of the property, books, records, papers, and financial reports of such Borrower, including the making of any copies thereof and abstracts therefrom, and to discuss its affairs, finances, and accounts with its principal officers, all at such reasonable times and as often as the Agent or any Bank may reasonably request. Each Borrower will also permit the Agent or any Bank, or its designated representative, to audit or appraise any of its assets or financial and business records. Without limiting the foregoing in any way, each Borrower also agrees to allow the Agent and any Bank or certified public accountants satisfactory to the Agent or such Bank to review such Borrower's financial statements, books, and records regarding depreciation and reserves accounting. Each Borrower further agrees to permit the Agent and the Banks to review each registration statement and any other offering documents (including any amendments thereto) (collectively the "Offering Documents") prepared by such Borrower or at the direction of such Borrower for the purpose of effecting an offering of an equity interest in such Borrower. The Agent and each Bank shall have the right to approve any reference to the Agent or such Bank and to the Credit in such Offering Documents. 6.7 NOTICES. Each Borrower will promptly give notice to the Agent and the Banks of: (a) the occurrence of any default or Event of Default (or event which would constitute a default or Event of Default but for the requirement that notice be given or time elapse or both) hereunder or under any other obligation of any Borrower, in which case such notice shall specify the nature thereof, the period of existence thereof, and the action that the Borrowers propose to take with respect thereto; (b) the occurrence of any material casualty to any property of any Borrower or any other force majeure (including, without limitation, any strike or other labor disturbance) materially affecting the operation or value of any Borrower (specifying whether or not such casualty or force majeure is covered by insurance); and (c) the occurrence of any event of default pursuant to any lease pledged as Collateral hereunder, or the commencement of any material litigation, dispute, investigation or proceeding that may involve a claim for damages, injunctive relief, enforcement of other relief pending, being instituted, or threatened by, against or involving a lessee under a lease pledged as Collateral hereunder or any filing or commencement by or against any such lessee of a petition, case, proceeding or other action seeking reorganization, arrangement or readjustment of its debt, or any relief under any existing or future law relating to bankruptcy, insolvency, reorganization or relief of debtors, or any adverse change which might impair the conduct of such lessee's business or might materially affect financially or otherwise its business, operations, assets, properties, prospects or condition of which any Borrower has notice or knowledge. (d) the commencement or any material change in the nature or status of any litigation, dispute, investigation, or proceeding that may involve a claim for damages, injunctive relief, enforcement, or other relief pending, being instituted, or threatened by, against or involving any Borrower, or any attachment, levy, execution, or other process being instituted by or against any assets of any Borrower, or any other adverse change which might impair the conduct of the business of the Borrowers or might materially affect financially or otherwise the business, operations, assets, properties, prospects, or condition of the Borrowers. 6.8 PAYMENT OF TAXES; LIENS. Each Borrower will promptly pay, or cause to be paid, all taxes, assessments and other governmental charges which may lawfully be levied or assessed (i) upon the income or profits of such Borrower, (ii) upon any property, real, personal or mixed, belonging to such Borrower, or upon any part thereof, or (iii) by reason of employee benefit plans sponsored by such Borrower, and also any lawful claims for labor, material, and supplies which, if unpaid, might become a lien or charge against any such property; provided, however, no Borrower shall be required to pay any such tax, assessment, charge, levy, or claim so long as the validity thereof shall be actively contested in good faith by proper proceedings; but provided further that any such tax, assessment, charge, levy, or claim shall be paid forthwith upon the commencement of proceedings to foreclose any lien securing the same. 6.9 MAINTENANCE OF PROPERTY, LEASES. Each Borrower will maintain its property in good condition and repair and, from time to time, make all necessary and proper repairs, renewals, replacements, additions and improvements thereto, so that any business carried on may be properly and advantageously conducted at all times in accordance with prudent business management. Each Borrower will maintain all leases on its property and ground leases to which it is a party in good standing, will perform all of its obligations thereunder when due, and the Borrowers, in the aggregate, will not amend, alter, modify, or change the terms of more than ten percent (10%) of the total number of such leases, or terminate, cancel, or permit any surrender of more than ten percent (10%) of the total number of such leases (other than because the lease term has expired) without the advance written approval of the Agent. To the extent that any leases have terminated by their own terms or because of defaults of the tenants, each Borrower will replace such leases with leases containing comparable provisions and with tenants of similar quality, credit and otherwise. 6.10 ERISA BENEFIT PLANS. Each Borrower will comply with all requirements of ERISA applicable to it and will not materially increase its liabilities under or violate the terms of any present or future benefit plans maintained by it without the prior approval of the Agent. Each Borrower will furnish to the Agent as soon as possible and in any event within 10 days after the Borrower or a duly appointed administrator of a plan (as defined in ERISA) knows or has reason to know that any reportable event, funding deficiency, or prohibited transaction (as defined in ERISA) with respect to any plan has occurred, a statement of the chief financial officer of such Borrower describing in reasonable detail such reportable event, funding deficiency, or prohibited transaction and any action which such Borrower proposes to take with respect thereof, together with a copy of the notice of such event given to the Pension Benefit Guaranty Corporation or the Internal Revenue Service or a statement that said notice will be filed with the annual report of the United States Department of Labor with respect to such plan if such filing has been authorized. 6.11 INSURANCE OF PROPERTY. Each Borrower will keep its business and its property insured at all times for full replacement value or otherwise in amounts acceptable to Agent by commercially reasonable insurance companies against the risks for which provision for such insurance is usually made by other Persons engaged in a similar business similarly situated (including without limitation insurance for fire and other hazards and insurance against liability on account of damage to persons or property and insurance under all applicable workmen's compensation laws) and to the same extent thereto and carry such other types and amounts of insurance as are usually carried by Persons engaged in the same or a similar business similarly situated, and upon request deliver to the Agent, on behalf of the Banks, a certificate from the insurer setting forth the nature of the risks covered by such insurance, the amount carried with respect to each risk, and the name of the insurer. Each Borrower hereby agrees that any proceeds from such insurance coverage shall be applied to either (i) repair or rebuild the property for which such proceeds are being received, (ii) acquire a substantially equivalent property with a substantially equivalent lease stream of similar credit quality or (iii) repay any borrowings hereunder. 6.12 TRUE BOOKS. Each Borrower will keep proper and true books of record and account, reasonably satisfactory to the Agent, in which full, true, and correct entries will be made of all of its dealings and transactions, and establish on its books such reserves as may be required by Generally Accepted Accounting Principles with respect to all taxes, assessments, charges, levies, and claims referred to in Section 6.8 hereof, and with respect to its business in general, and will include such reserves in any interim as well as year-end financial statements. 6.13 OBSERVANCE OF LAWS. Each Borrower will conform to and duly observe all laws, regulations, and other valid requirements of any Governmental Authority with respect to the conduct of its business, including but not limited to, applicable ERISA, environmental and transportation laws. 6.14 FURTHER ASSURANCES. At its cost and expense, upon request of the Agent, each Borrower will duly execute and deliver or cause to be duly executed and delivered to the Agent, such further instruments or documents and do and cause to be done such further acts as may be reasonably necessary or proper in the opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement. 6.15 CHANGE OF NAME, PRINCIPAL PLACE OF BUSINESS, OFFICE, OR THE AGENT. Each Borrower will notify the Agent of any change in the name of such Borrower, the principal place of business of such Borrower, the office where the books and records of such Borrower are kept, or any change in the registered agent of such Borrower for the purposes of service of process. No Borrower will change the chief executive office of such Borrower from Orange County, Florida, without first notifying the Agent. 6.16 STATUS. CNLR shall at all times comply with all requirements of applicable laws and regulations necessary to maintain REIT Status. Net I and Net II shall at all times comply with all requirements of applicable laws and regulations necessary to maintain Qualified REIT Subsidiary Status. 6.17 SYNDICATION OF CREDIT. Each Borrower agrees to cooperate with the Agent in connection with its intended further syndication of the Credit, such cooperation to include, but not be limited to, attendance by management personnel of the Borrowers at meetings arranged by the Agent with representatives of potentially participating commercial lending institutions, provision of information regarding the Borrower's business operations and financial condition, and response to questions and inquiries regarding the Borrowers. 6.18 USE OF PROCEEDS FROM MORTGAGE LOANS. Each Borrower agrees to use all net proceeds from any mortgage loans hereafter secured from Principal Mutual Life Insurance Company, or an affiliate thereof, pursuant to the release of certain properties by Banks pursuant to subsection 3.4(b) hereof to prepay outstanding Advances hereunder. SECTION 7. NEGATIVE COVENANTS. The Borrowers covenant and agree that from the date of this Agreement until payment in full and termination of the Credit and expiration of all Letters of Credit issued thereunder, the Borrowers will fully comply with the following provisions: 7.1 OTHER INDEBTEDNESS. No Borrower will, directly or indirectly, create, incur, assume or permit to exist any indebtedness for borrowed money without the prior written consent of Required Banks, except (a) pursuant to the Loan Documents, (b) then existing debt assumed in connection with the acquisition of properties encumbered by existing mortgages, in an aggregate amount not to exceed Five Million Dollars ($5,000,000.00) outstanding at any time, (c) additional debt in the form of a private placement or term indebtedness (the "Term Credit"), so long as the Borrowers remains in compliance with all terms and conditions of this Agreement at all times, including, but not limited to, the financial covenants contained in Subsection 6.2 hereof, and (d) indebtedness to Principal Mutual Life Insurance Company, or an affiliate thereof, in an aggregate amount of not more than Fifty-Two Million Six Hundred Thousand and No/100 Dollars ($52,600,000.00) secured by mortgage loans on the properties to be released by Banks pursuant to subsection 3.4(b) hereof and listed on Schedule I hereto. 7.2 LIMITATIONS ON MORTGAGES, LIENS, ETC. No Borrowers will, directly or indirectly, create, incur, assume, or suffer or permit to exist any security interest, pledge, lien, or other charge or encumbrance (including the lien or retained security title of a conditional vendor or lessor) upon or with respect to any property of the Borrowers without the prior written consent of all of the Banks except (a) pursuant to the Loan Documents, (b) except workmen's, materialmen's, or other like liens arising in the ordinary course of business in respect of obligations which are not due or which are being contested in good faith, (c) liens for taxes not yet due or being contested in good faith by appropriate proceedings, (d) other similar encumbrances incurred in the ordinary course of business, and not interfering with the ordinary course of the business, (e) then existing mortgages securing indebtedness permitted under Subsection 7.1(b); (f) liens or security interests in the Collateral (but no other property of the Borrowers) securing indebtedness permitted under Subsection 7.1(c); provided however, that such liens or security interests shall be of equal priority and pari passu with the liens and security interests of the Banks hereunder pursuant to the provisions of an intercreditor agreement or similar arrangement in form and substance satisfactory to the Agent and all of the Banks in their reasonable discretion and (g) mortgages on those properties listed on Schedule I hereto securing indebtedness to Principal Mutual Life Insurance Company, or an affiliate thereof, permitted under Subsection 7.1(d) hereof. 7.3 NO GUARANTIES. No Borrower will, directly or indirectly, guarantee, assume, endorse, become a surety or accommodation party for, or otherwise in any way extend credit or become responsible for or remain liable or contingently liable in connection with any indebtedness or other obligations of any other Person or entity without the prior written consent of Required Banks except guaranties and endorsements made in connection with the deposit of negotiable instruments and other items for collection or credit in the ordinary course of business and except in the ordinary course of acquiring properties so long as no material effect on the operation or value of Borrowers results therefrom. 7.4 MERGER, SALE OF ASSETS, DISSOLUTION, ETC. No Borrower will, directly or indirectly, (a) enter into any transaction of merger or consolidation; or (b) allow any change in control of any Borrower; or (c) transfer, sell, assign, lease, or otherwise dispose of all or a substantial part of its properties or assets; or (d) transfer, sell, assign, lease, convey, or otherwise dispose of any of its real property (including but not limited to the property giving rise to the Collateral), except that a Borrower may, so long as there exists no Event of Default or circumstance which with the giving of notice or passage of time would become an Event of Default, sell real property in the ordinary course of business to bona fide unrelated third parties, which either is replaced with substantially equivalent properties with substantially equivalent lease streams of similar credit quality, or for which the sale is a cash sale and the proceeds of which, net only of reasonable seller's closing costs, are applied by the Borrowers as a prepayment of the Revolving Credit Facility; or (e) change the nature of its business; or (f) invest in, transfer any assets to, or do business through any subsidiary except wholly-owned subsidiaries engaged in the same business as the Borrower which agree to become borrowers hereunder upon formation; or (g) wind up, liquidate, or dissolve itself or its business; or (h) agree to any of the foregoing. 7.5 LIMITATIONS ON LOANS, ADVANCES, AND INVESTMENTS. No Borrower will, directly or indirectly, make or have outstanding a loan or advance to or an investment in, all or a substantial part of the assets or properties of, or own or acquire stock or other securities of, any Person, except (a) stock or other securities received in settlement of a debt that was created in the ordinary course of business, (b) travel advances in the ordinary course of business to its officers and employees, (c) readily marketable securities issued by the United States of America, and (d) certificates of deposit or repurchase agreements of a Bank or of any other financial institution of comparable standing; (e) investments in wholly owned subsidiaries engaged in the same business as the Borrower which agree to become borrowers hereunder upon formation; or (f) notes and mortgages in favor of the Borrower which secure the obligation of seller under a property acquisition contract to refund an earnest money deposit or portion thereof. 7.6 REGULATION U. No Borrower will permit any part of the proceeds of the Credit to be used to purchase or carry or to reduce or retire any loan incurred to purchase or carry, any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any such margin stock, or to be used for any other purpose which violates, or which would be inconsistent with, the provisions of Regulation U or other applicable regulation. Each Borrower covenants that it is not engaged and will not become engaged as one of its principal or important activities in extending credit for the purpose of purchasing or carrying such margin stock. If requested by the Agent, each Borrower will furnish to the Agent in connection with any loan or loans hereunder, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation. In addition, each Borrower covenants that no part of the proceeds of the Credit will be used for the purchase of commodity future contracts (or margins therefor for short sales) for any commodity not required for the normal raw material inventory of such Borrower. 7.7 INSIDER TRANSACTIONS. No Borrower will, directly or indirectly, purchase, acquire or lease any property or asset from, or sell, dispose of or lease any property or assets to, or otherwise deal with, in the ordinary course of business or otherwise, (i) any stockholder or (ii) any other related entity, except upon terms and conditions not less favorable to such Borrower than if no such relationship existed and upon approval thereof by the independent members of such Borrower's board of directors, or except for transactions of which the Agent has been notified in writing by such Borrower and Required Banks have consented thereto, which consent will not be unreasonably withheld. 7.8 CHANGES IN GOVERNING DOCUMENTS, ACCOUNTING METHODS, FISCAL YEAR. No Borrower will amend in any respect its articles of incorporation or bylaws from that in existence on the date of this Agreement or change its accounting methods or practices, its depreciation or amortization policy or rates, or its fiscal year end from that in existence as of the date of the financial statements provided to the Agent pursuant to Section 6.1 hereof, except as required to comply with law or with Generally Accepted Accounting Principles or except as consented to in writing by the Agent, which consent shall not be unreasonably withheld. 7.9 MANAGEMENT. No Borrower will directly or indirectly permit a material change in the senior management of such Borrower. For purposes of this Section, senior management of each of the Borrowers shall be deemed to include the current officers of CNL Realty Advisors, Inc., a Florida corporation. SECTION 8. EVENTS OF DEFAULT. It shall be an Event of Default under the Credit if: 8.1 PAYMENT OF OBLIGATIONS TO THE BANKS. Any Borrower fails to make payment of any principal, interest, or other amount due on any indebtedness owed the Agent or the Banks hereunder, or fails to make any other payment to the Agent or the Banks as contemplated hereunder either by the terms hereof or otherwise. 8.2 REPRESENTATION OR WARRANTY. Any representation or warranty made or deemed made by any Borrower herein or in any writing furnished in connection with or pursuant to the loan application and loan commitment for the Credit or in connection with or pursuant to the Loan Documents shall be false in any material adverse respect on the date when made or when deemed made. 8.3 COVENANTS. Any Borrower defaults in the performance or observance of or breaches any agreement, covenant, term, or condition binding on it contained in the Loan Documents. 8.4 ANY BORROWER'S LIQUIDATION; DISSOLUTION; BANKRUPTCY; ETC. Any liquidation or dissolution of any Borrower, suspension of the business of any Borrower, or the filing or commencement by any Borrower of a voluntary petition, case, proceeding, or other action seeking reorganization, arrangement, readjustment of its debts; or commencement of an involuntary petition, case, proceeding or other action against Borrowers seeking reorganization, arrangement or readjustment of its debts, which is not vacated, discharged, stayed, bonded or dismissed within 60 days of its commencement; or the entry of an order for relief under any existing or future law of any jurisdiction, domestic or foreign, state or federal, relating to bankruptcy, insolvency, reorganization or relief of debtors, or any other action of any Borrower indicating its consent to, approval of, or acquiescence in, any such petition, case, proceeding, or other action seeking to have an order for relief entered with respect to it or its debts; the application by any Borrower for, or the appointment, by consent or acquiescence of, a receiver, trustee, custodian, or other similar official for any Borrower or for all or a substantial part of its property; the making by any Borrower of an assignment for the benefit of creditors; or the inability of any Borrower or the admission by any Borrower in writing of its inability to pay its debts as they mature. 8.5 ORDER OF DISSOLUTION. Any order is entered in any proceedings against any Borrower decreeing the dissolution or split-up of such Borrower, and such order remains in effect for more than sixty (60) days. 8.6 REPORTS AND CERTIFICATES. Any report, certificate, financial statement, or other instrument delivered to the Agent or the Banks by any Borrower is at any time false or misleading in any material adverse respect. 8.7 JUDGMENTS. The rendition of a final judgment against any Borrower for the payment of damages or money in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) if the same is not discharged, bonded off or transferred to other security or if a writ of execution or similar process is issued with respect thereto and is not stayed within the time allowed by law for filing notice of appeal of the final judgment. 8.8 LIENS IMPOSED BY LAW. The violation of any law or any act or omission by any Borrower that results in the imposition of a lien by operation of law on any of its property, if the lien is not discharged, bonded off or transferred to other security within sixty (60) days after it has attached and if the lien relates to a claim for the payment of damages or money in excess of Two Hundred Fifty Thousand Dollars ($250,000.00). 8.9 CORPORATE EXISTENCE. Any act or omission (formal or informal) of any Borrower or its officers, directors, shareholders, or partners leading to, or resulting in, the termination, invalidation (partial or total), revocation, suspension, interruption, or unenforceability of its existence, or the transfer or disposition (whether by sale, lease, or otherwise) to any Person of all or a substantial part of its property. 8.10 INVALIDITY OF SECURITY INTEREST AND LIENS. For any reason after the execution and delivery thereof, any document delivered pursuant hereto that creates, or was intended to create, a security interest or to provide collateral security for indebtedness created hereunder ceases to be in full force and effect or the liens intended to be created thereby cease to be or are not valid and perfected first priority liens contemplated thereby and the failure by any Borrower to cure such failure within a period of thirty (30) days. THEN (i) upon the occurrence of any Event of Default described in the foregoing Subsections 8.4 or 8.5, the unpaid principal amount of and accrued interest on the Credit and all other obligations under the Loan Documents shall automatically become immediately due and payable, without presentment, demand, protest, or other requirement of any kind, all of which are expressly waived by each Borrower and the commitments of each Bank to make Advances hereunder and the obligation of the Issuing Bank to issue Letters of Credit hereunder shall thereupon terminate; and (ii) upon the occurrence and during the continuance of any other Event of Default: (a) the Agent shall, upon the written request or with the written consent of the Required Banks take any one or more of the following actions: (1) declare all or any portion of the amounts described in (i) to be, and the same shall forthwith become, immediately due and payable, without presentment, demand, protest, or other requirement of any kind, all of which are expressly waived by each Borrower, and (2) declare all commitments to make Advances hereunder and the obligation of the Issuing Bank to issue Letters of Credit hereunder to be terminated, and (b) any Bank may give notice to the Borrowers and the Agent terminating its commitment to make further Advances hereunder. In any case the Borrowers shall be required to pay to the Agent a sum equal to the maximum amount available under any Letters of Credit, which sum the Agent will hold for reimbursement of any amounts drawn under Letters of Credit and the Issuing Bank may terminate any Letters of Credit providing for such termination by sending a notice of termination as provided therein. The Agent may immediately proceed to do all other things provided for by law or the Loan Documents to enforce the rights of the Agent, the Issuing Bank, and the Banks hereunder and to collect all amounts owing to the Agent, the Issuing Bank, and the Banks by the Borrowers. Without limiting the foregoing in any way, upon any Event of Default, the Agent and the Banks shall be entitled to the appointment of a receiver to take charge of the Collateral and each Borrower hereby waives any objection to the appointment of a receiver. No right, power, or remedy conferred upon the Agent, the Issuing Bank, or the Banks by the Loan Documents shall be exclusive of any other right, power, or remedy referred to therein or now or hereafter available at law or in equity. Notwithstanding the foregoing, an Event of Default under subsection 8.3, 8.6, 8.7 or 8.8 above shall not be deemed to have occurred if the matter described therein is cured within thirty (30) days after written notice thereof has been given by the Agent to the Borrowers, an Event of Default under subsections 8.1 or 8.2 above shall not be deemed to have occurred if the matter described therein is cured within five (5) days after written notice thereof has been given by the Agent to the Borrowers. SECTION 9. THE AGENT 9.1 APPOINTMENT, AUTHORIZATION, AND ACTION. (a) Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and take such action on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The relationship between the Agent and each Bank is and shall be that of agent and principal only and nothing herein or in any of the other Loan Documents shall be construed to constitute the Agent a trustee for any Bank or to establish a fiduciary relationship with any Bank or impose on the Agent any duties, responsibilities, or obligations other than those expressly set forth in this Agreement or the other Loan Documents. (b) The Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights or taking any actions which may be vested in it or which it may be able to take under or in respect of this Agreement and the other Loan Documents, unless this Agreement expressly otherwise provides or unless the Agent shall have been instructed by the Required Banks to exercise or refrain from exercising such rights or taking such actions (in which case it shall be required to so act or refrain from acting pursuant to the directions of the Required Banks); provided, however, that the Agent shall not be required to take any action or refrain from acting in any manner which in its judgment exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Bank prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. 9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys- in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by the Agent with reasonable care. 9.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, subsidiaries or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for actions occasioned solely by its or such Person's own bad faith, gross negligence or willful misconduct), or (b) responsible in any manner to any of the Banks for any recitals, statements, representations, or warranties made by any Borrower or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement, or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of this Agreement or the other Loan Documents or for any failure of any Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books, or records of any Borrower. 9.4 RELIANCE BY THE AGENT. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex, or teletype message, statement, order or other document or conversation believed by it to be genuine and correct, and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including without limitation, counsel to any Borrower), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 11.4 hereof. The Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Banks (or, when expressly required hereby or by the relevant other Loan Document, all the Banks) as it deems appropriate and it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action except for liabilities arising solely from its own gross negligence or willful misconduct. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Banks (or, when expressly required hereby, all the Banks), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Note. 9.5 AGENT AND AFFILIATES. With respect to its Revolving Credit Commitment and the Advances made by it, the Agent shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise indicated, include the Agent in its individual capacity. The Agent and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from, and generally engage in any kind of business with, any Borrower, and any Person who may do business with or own securities of any Borrower all as if it were not the Agent. The Agent and its affiliates may accept fees and other consideration from any Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 9.6 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default hereunder unless it has received written notice or telephonic notice confirmed immediately in writing from a Bank or any Borrower referring to this Agreement, describing such Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, it shall promptly give notice thereof to the Banks. The Agent shall take such action with respect to such Event of Default as shall be reasonably directed by the Required Banks; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interests of the Banks. 9.7 NON-RELIANCE ON THE AGENT AND OTHER LENDERS. Each Bank expressly acknowledges that neither the Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact, subsidiaries or affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of any Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrowers, and made its own decision to enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports, and other documents expressly required to be furnished to the Banks by the Agent hereunder or by the other Loan Documents, the Agent shall not have any duty or responsibility to provide any bank with any credit or other information concerning the business, operations, property, financial, and other condition or creditworthiness of the Borrowers which may come into the possession of the Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact, subsidiaries, or affiliates. 9.8 ENFORCEMENT BY THE AGENT. All rights of action under this Agreement and the other Loan Documents and all rights to any Collateral hereunder may be enforced by the Agent and any suit or proceeding instituted by the Agent in furtherance of such enforcement may be brought in its name as the Agent without the necessity of joining any Banks as plaintiffs or defendants, and the recovery of any judgment shall be for the benefit of the Banks, subject to the expenses of the Agent. Unless otherwise permitted by the Required Banks, no Bank (other than the Agent) shall attempt to enforce any rights of action under this Agreement and the other Loan Documents or the rights to any Collateral. 9.9 INDEMNIFICATION. The Banks agree to indemnify the Agent in its capacity as such and to the extent not promptly reimbursed by the Borrowers and without limiting the obligations of the Borrowers to do so, ratably according to the respective principal amounts of the Advances then owing to each of them (or if no Advances are at the time outstanding, ratably according to the respective amounts of their Revolving Credit Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements or any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any other Loan Documents or the transactions contemplated thereby, or any action taken or omitted by the Agent in connection therewith (including, without limitation, the costs and expenses payable by the Borrowers under Subsection 11.2); provided, however, that no Bank shall be liable for any of the foregoing to the extent they arise from the Agent's gross negligence, bad faith or willful misconduct. Without limiting the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for such Bank's ratable share of any costs and expenses payable by the Borrowers under Section 11.2, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrowers. The agreements contained in this Subsection shall survive the repayment of the Advances and termination of the facilities hereunder. 9.10 FAILURE TO ACT. Except for actions expressly required of the Agent hereunder and under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Banks of their indemnification obligations hereunder against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 9.11 SUCCESSOR AGENT. Subject to the appointment and acceptance of a successor as provided below, the Agent may resign at any time by giving written notice thereof to the Banks and the Borrowers. Upon any such resignation and after consultation with the Borrowers, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, and after consultation with the Borrowers, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation hereunder as the Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by its while it was the Agent under this Agreement. SECTION 10. INDEMNIFICATION BY BORROWERS. The Borrowers hereby jointly and severally agree to indemnify the Agent, the Issuing Bank, and each Bank and their respective officers, directors, employees, and agents (individually an "Indemnified Party" and collectively the "Indemnified Parties") against and agrees to hold the Indemnified Parties harmless from, any and all liabilities, losses, claims, damages, and expenses (including reasonable counsel fees and expenses) of any kind whatsoever arising out of, or in any way connected with, or as a result of (a) the transactions contemplated in the Loan Documents, (b) the use of proceeds of the Credit, (c) the execution and delivery of any subsequent credit documentation or other document contemplated hereby or thereby by the parties hereto or the performance of their respective obligations hereunder or thereunder or (d) any claim, action, suit, investigation, or proceeding relating to the foregoing or to any Borrower whether or not the Indemnified Party is a party thereto; provided that in no event shall any Borrower be liable for indemnity hereunder by reason of any act or omission caused by the bad faith, gross negligence, or willful misconduct of any Indemnified Party. The foregoing indemnity shall be effective regardless of any investigation made by or on behalf of the Agent, the Issuing Bank, any Bank, or any Borrower. SECTION 11. MISCELLANEOUS. 11.1 COURSE OF DEALING; AMENDMENTS; WAIVER. No course of dealing between the parties hereto shall be effective to amend, modify, or change any provision of this Agreement or any other Loan Document. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by all of the Banks, unless otherwise specifically provided, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; including, without limitation, any amendment, waiver, or consent which shall, unless otherwise specifically provided, do any of the following: (i) increase the Revolving Credit Commitment of any Bank or subject the Banks to any increased or additional obligations under the Loan Documents; (ii) reduce the principal of, or interest on, the Advances, or any fees or other amounts payable hereunder; (iii) postpone any date for any payment of principal of, or interest on, the Advances, or any fees, or extend the Revolving Credit Maturity Date; (iv) amend this Subsection or change the amount of Revolving Credit Commitments, unpaid Advance amounts, or number of Banks required for the Banks or any of them to take action hereunder; or (v) release all or substantially all of any Collateral or permit additional encumbrances thereon, other than as may be expressly permitted in this Agreement or the other Loan Documents; and provided further, that no amendment, waiver, or consent shall, unless in writing and signed by the Agent in addition to the Banks required to take such action, affect the rights or duties of the Agent under this Agreement. 11.2 PAYMENT OF EXPENSES, INCLUDING ATTORNEYS' FEES AND TAXES. The Borrowers agree (a) to pay or reimburse the Agent, the Issuing Bank, and each Bank for all of their reasonable and customary out-of-pocket costs and expenses incurred in connection with the preparation, negotiation, execution, and delivery of, and any amendment, supplement, or modification to, or waiver or consent under, the Loan Documents, and the consummation of the transactions contemplated thereby, including, without limitation, the reasonable and customary fees and disbursements of counsel for the Agent, the Issuing Bank, and each Bank, taxes, and all recording or filing fees, (b) to pay or reimburse the Agent, the Issuing Bank, and each Bank for all of their costs and expenses incurred in connection with the administration, supervision, collection, or enforcement of, or the preservation of any rights under, the Loan Documents or the Letters of Credit, including, without limitation, the fees and disbursements of counsel for the Agent, the Issuing Bank, and the Banks, including attorneys' fees out of court, in trial, on appeal, in bankruptcy proceedings, or otherwise, (c) without limiting the generality of provision (a) hereof, to pay or reimburse the Agent, the Issuing Bank, and the Banks for, and indemnify and hold the Agent, the Issuing Bank, and the Banks harmless against liability for, any and all documentary stamp taxes, annual and non-recurring intangible taxes, or other taxes, together with any interest, penalties, or other liabilities in connection therewith, that the Agent, the Issuing Bank, or any Bank now or hereafter determines are payable with respect to the Loan Documents, the obligations evidenced by the Loan Documents, any Advances, the Letters of Credit, and any guaranties or mortgages or other security instruments, and (d) to pay, indemnify, and hold the Agent, the Issuing Bank, and the Banks harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance, and administration of the Loan Documents or the Letters of Credit. The agreements in this Subsection shall survive repayment of all other amounts payable hereunder or pursuant hereto, now or in the future, and shall be secured by the Collateral. 11.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Agent, each Bank, each Borrower, and their respective successors and permitted assignees or transferees. 11.4 ASSIGNMENTS AND PARTICIPATIONS. (a) No Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) Each Bank may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment and the Advances owing to it; provided, however, that (i) the assignment shall be of a uniform, and not a varying, percentage of all of the assigning the Bank's rights and obligations under and in respect of the facility being assigned; (ii) the amount of the Revolving Credit Commitment being assigned pursuant to the assignment (determined as of the date of the assignment) shall not be less than Five Million Dollars ($5,000,000.00) and shall be an integral multiple of One Million Dollars ($1,000,000.00); (iii) the Borrowers and the Agent shall consent to the assignment, which consent, in either case, shall not be unreasonably withheld (except that no consent by the Borrowers or the Agent shall be required in the case of any assignment to another Bank and no consent by the Borrowers shall be required after an Event of Default shall have occurred and be continuing); and (iv) the parties to the assignment shall execute and deliver to the Agent an Assignment and Acceptance in the form attached hereto as Exhibit "F", together with an assignment fee of $2,500.00. (c) By executing and delivering an Assignment and Acceptance, the assigning Bank thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by any Borrower of any of its obligations or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 6.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Bank or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as the Agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (d) Each Bank may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Credit Commitment and the Advances owing to it); provided, however, that (i) each such participation shall be in an amount not less than Five Million Dollars ($5,000,000.00); (ii) the Bank's obligations under this Agreement (including, without limitation, its Revolving Credit Commitment) shall remain unchanged; (iii) the Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iv) the Borrowers, the Agent, and the other Banks shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement; and (v) the Bank may not agree with the participant to require the participant's consent or permit the participant to vote on whether to take or refrain from taking any action or to approve any amendment or waiver of any provision of any Loan Document, or any consent or any departure by any party therefrom, except that the Bank may agree with the participant that the Bank will not, without the consent or vote of the participant, agree to (1) increase the Revolving Credit Commitment of such Bank or subject such Bank to any additional obligations; (2) extend any revolving credit or line of credit termination or conversion date affecting the Bank; (3) reduce the principal of, or interest on, the Advances payable to the Bank or any fees or other amounts payable to the Bank; (4) postpone any date for any payment of principal of, or interest on, the Advances payable to the Bank or any fees or other amounts payable to the Bank; or (5) release all or substantially all of the Collateral; in each case if the rights of the participant are or would be affected thereby. (e) Notwithstanding any of the foregoing to the contrary, nothing herein is intended to prohibit the assigning, discounting, or pledging of all or any portion of a Bank's interest in the Advances or the Note to any Federal Reserve Bank as collateral security pursuant to regulations of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, and such Advances or interest in the Note shall be fully transferrable as provided therein. No such assignment shall release the assigning Bank from its obligations hereunder. (f) The Borrowers agree that any participants shall have the same rights of set-off against the Borrowers as granted the Banks in Subsection 11.6 hereof. Upon the written request of the Borrowers, the Banks will advise the Borrowers of the names of any participants and the extent of their interest herein. 11.5 CONFIDENTIAL INFORMATION. (a) The Agent and the Banks shall exercise their good faith efforts not to make any public disclosure of confidential information obtained pursuant to the Loan Documents; provided, that the foregoing shall not be construed to, now or in the future, apply to any information reflected in any recorded document, information obtained from sources other than the Borrowers, or otherwise in the public domain nor shall it be construed to prevent the Agent or any Bank from (i) making any disclosure of any information (A) if required to do so by any applicable law or regulation or accepted banking practice, (B) to any governmental agency or regulatory body having or claiming authority to regulate or oversee any aspect of the Agent's or such Bank's business or any of its subsidiaries or affiliates in connection with the exercise of such authority or claimed authority, (C) pursuant to subpoena, (D) to the extent the Agent or such Bank or their respective counsel deems necessary or appropriate to do so to effect or preserve the Collateral or to enforce any remedy provided for in the Loan Documents or otherwise available by law, (ii) subject to the immediately succeeding sentence, making such disclosures as such Bank reasonably deems necessary or appropriate to any bank or financial institution (and/or counsel thereto) which is a prospective assignee or participant under Subsection 11.4 (each such bank or financial institution, a "Prospective Bank") or (iii) making, on a confidential basis, such disclosures as the Agent or such Bank deems necessary or appropriate to the Agent's or such Bank's counsel or accountants (including outside auditors). (b) Each Bank agrees that prior to (a) disclosing to any Prospective Bank any information which the Banks have agreed hereunder to hold as confidential or (b) entering into an agreement granting to a Prospective Bank an interest in the Advances, the applicable Bank shall make a good faith effort to obtain an agreement executed by such Prospective Bank in form and substance similar to the provisions of this Subsection; provided, that in no event shall such Bank or the Agent be liable for any breach of such agreement by the Prospective Bank. 11.6 LIENS; SET-OFF. Each Borrower hereby grants to the Agent and the Banks (including any Banks added at a later time) a continuing lien to secure all indebtedness of the Borrowers to the Agent and the Banks created hereunder or pursuant to the Loan Documents upon any and all monies, securities, and other property of such Borrower and the proceeds thereof, now or hereafter held or received by or in transit to, the Agent or any Bank from or for the Borrowers, and also upon any and all deposits (general or special) and credits of the Borrowers, if any, at the Agent or any Bank, at any time existing. Upon the occurrence of any Event of Default, the Agent, and the Banks are hereby authorized at any time and from time to time, without notice to such Borrower, to set off, appropriate, and apply any or all items hereinabove referred to against indebtedness of the Borrowers owed to the Agent or the Banks under the Loan Documents, whether now existing or hereafter arising. The Agent or any Bank shall be deemed to have exercised such right of set-off and to have made a charge against such items immediately upon the occurrence of such Event of Default although made or entered on its books subsequent thereof. Notwithstanding the foregoing, any Bank exercising any right to set-off hereunder shall promptly thereafter deliver to the Agent and the Borrowers a written notice thereof, provided that any failure to deliver such notice shall not, in any event, limit such Bank's or any other Bank's right of set-off hereunder. 11.7 NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed, or sent by United States mail or courier service and shall be deemed to have been given when delivered in person, receipt of telecopy or telex or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Subsection 11.7) shall be as set forth under each party's name on the signature pages hereof. 11.8 WAIVER OF DEFAULT. The Banks may, in accordance with the provisions of Subsection 11.1, by written notice to the Borrowers, at any time and from time to time, waive any Event of Default and its consequences, or any default in the performance or observance of any condition, covenant, or other term hereof and its consequences. Any such waiver shall be for such period and subject to such conditions as shall be specified in any such notice. In the case of any such waiver, the Borrowers and the Banks shall be restored to their former positions prior to such Event of Default or default and shall have the same rights as they had thereto, and any Event of Default or default so waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Event of Default or default, or impair any right consequent thereto. 11.9 NO WAIVER; CUMULATIVE REMEDIES. No omission or failure of the Agent or the Banks to exercise and no delay in exercising by the Agent or the Banks of any power, or privilege, shall operate as a waiver thereof or be construed to be a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided in the Loan Documents are cumulative and not exclusive of any rights or remedies provided by law, and the warranties, representations, covenants, and agreements made therein shall be cumulative, except in the case of irreconcilable inconsistency, in which case the provisions of this Agreement shall control. 11.10 VENUE AND JURISDICTION. In any litigation in connection with or to enforce this Agreement or any of the other Loan Documents, each Borrower irrevocably consents to and confers personal jurisdiction on the courts of the State of Florida located in Orange County or the United States courts located within the Middle District of the State of Florida, expressly waives any objections as to venue in any of such courts, and agrees that service of process may be made on such Borrower by mailing a copy of the summons and complaint by registered or certified mail, return receipt requested, to the address set forth herein below the name of the Borrower on the signature page hereto (or otherwise expressly provided in writing). Nothing contained herein shall, however, prevent the Agent from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available by applicable law. 11.11 GOVERNING LAW. The validity, interpretation, and enforcement of this Agreement, of the rights and obligations of the parties hereto, and of the other documents delivered in connection herewith shall be governed by, and construed and interpreted in accordance with, the laws of the State of Florida, excluding those laws relating to the resolution of conflicts between laws of different jurisdictions. 11.12 TITLE AND HEADINGS; TABLE OF CONTENTS. The titles and headings preceding the text of the Sections and Subsections of this Agreement and the Table of Contents have been inserted and included solely for convenience of reference and shall neither constitute a part of this Agreement nor affect its meaning, interpretation, or effect. 11.13 COMPLETE AGREEMENT. The Loan Documents contain the final, complete, and exclusive expression of the understanding of the Borrowers, the Agent, and the Banks with respect to the transactions contemplated by the Loan Documents and supersede any prior or contemporaneous agreement or representation, oral or written, by or between the parties related to the subject matter hereof. 11.14 LEGAL OR GOVERNMENTAL LIMITATIONS. Anything contained in this Agreement to the contrary notwithstanding, the Banks shall not be obligated to extend credit or make any loans to the Borrowers in an amount in violation of any limitations or prohibitions provided by any applicable statute or regulation. 11.15 COUNTERPARTS. This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. 11.16 ADDITIONAL BANKS. (a) Agent may, upon the consent of the Borrowers, which consent shall not be unreasonably withheld, at any time add one or more banks to this Agreement by each such bank agreeing to be bound by the terms of this Agreement by virtue of executing a signature page hereto, which shall contain the amount of such bank's Revolving Credit Commitment. Upon the execution of a signature page hereto and the satisfaction of the conditions and other terms herein, such additional bank shall be deemed a "Bank" for the purposes of this Agreement and shall enjoy all rights and assume all obligations of a Bank as set forth in this Agreement. (b) Upon the execution of a signature page hereto by the additional Bank, the then existing Banks shall be deemed to sell and assign to the additional Bank, without representation, warranty, or recourse, and the additional Bank shall be deemed to purchase and assume from the existing Banks, a portion of the rights and obligations of the existing Banks with respect to the Credit such that after the sale and assignment each of the Banks (including the additional Bank) shall own a portion of the Credit, the Advances, and the Letter of Credit Contingent Obligations in an amount equal to its Pro Rata Portion (after adjustment to take into account the Revolving Credit Commitment of the additional Bank). Pursuant to such sale and assignment of a portion of the Credit, the existing Banks are entitled to payment of all amounts owing under the portions of the Credit sold and assigned, and the additional Bank shall pay to the Agent, for the benefit of the existing Banks, at its Lending Office specified in the signature pages hereof, in immediately available funds, an amount equal to the additional Bank's Pro Rata Portion of all amounts owing under the Credit. (c) By executing and delivering a signature page hereto, the additional Bank confirms to and agrees with the other parties hereto as follows: (i) the Banks and the Agent make no representation or warranty and assume no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) the Banks and the Agent make no representation or warranty and assume no responsibility with respect to the financial condition of the Borrowers or the performance or observance by any Borrower of any of its obligations or any other instrument or document furnished pursuant hereto; (iii) the additional Bank confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 6.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (iv) the additional Bank will, independently and without reliance upon the Agent or any of the Banks, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) the additional Bank appoints and authorizes the Agent to take such action as the Agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) the additional Bank agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. 11.17 WAIVER OF JURY TRIAL BY BORROWERS. EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RESPECTIVE RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON THE LOAN DOCUMENTS OR ARISING OUT OF, UNDER OR IN CONNECTION THEREWITH, OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO OR THERETO. FURTHERMORE, NO BORROWER SHALL SEEK TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY ACTION IN WHICH A JURY TRIAL CANNOT BE WAIVED. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE BANKS ACCEPTING AND ENTERING INTO THE CREDIT CONTEMPLATED BY THE LOAN DOCUMENTS (OR ANY AGREEMENT EXECUTED IN CONNECTION WITH THE LOAN DOCUMENTS) FROM, OR WITH, THE BORROWERS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. Signed, sealed and delivered in the presence of: COMMERCIAL NET LEASE REALTY, INC. a Maryland corporation /s/Kevin B. Habicht - ----------------------------------- ------------------------------------------- Kevin Habicht, Executive Vice President and Chief Financial Officer Address: 400 E. South Street, Suite 500 - ----------------------------------- Orlando, Florida 32801 TELECOPY NO. 407/423-2894 CONFIRMING TEL. NO. 407/422-1574 (SEAL) Wire Instructions: BANK: First Union National Bank of Florida CITY, STATE: Jacksonville, Florida Attn: Orlando Office ABA: 063000021 FOR CREDIT TO: Commercial Net Lease Realty, Inc. ACCOUNT NO.: 2090000573765 [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement Among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: NET LEASE REALTY I, INC. a Maryland corporation /s/Kevin Habicht - ----------------------------------- ------------------------------------------- Kevin Habicht, Executive Vice President and Chief Financial Officer Address: 400 E. South Street, Suite 500 - ----------------------------------- Orlando, Florida 32801 TELECOPY NO. 407/423-2894 CONFIRMING TEL. NO. 407/422-1574 (SEAL) Wire Instructions: BANK: First Union National Bank of Florida CITY, STATE: Jacksonville, Florida Attn: Orlando Office ABA: 063000021 FOR CREDIT TO: Net Lease Realty I, Inc. ACCOUNT NO.: 2090001569574 [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement Among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: NET LEASE REALTY II, INC. a Maryland corporation /s/Kevin Habicht - ----------------------------------- ----------------------------------------- Kevin Habicht, Executive Vice President and Chief Financial Officer Address: 400 E. South Street, Suite 500 - ----------------------------------- Orlando, Florida 32801 TELECOPY NO. 407/423-2894 CONFIRMING TEL. NO. 407/422-1574 Wire Instructions: BANK: First Union National Bank of Florida CITY, STATE: Jacksonville, Florida Attn: Orlando Office ABA: 063000021 FOR CREDIT TO: Net Lease Realty II, Inc. ACCOUNT NO.: 2090001569561 [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement Among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: FIRST UNION NATIONAL BANK OF FLORIDA, a national banking association, individually and as Agent - ----------------------------------- By:/s/Bart Bishop ---------------------------------------- Bart Bishop, Vice President - ----------------------------------- Address and Lending Office: 800 North Magnolia Avenue 7th Floor Orlando, Florida 32801 TELECOPIER NO. 407/649-5732 CONFIRMING TEL. NO. 407/649-5233 Revolving Credit Commitment: Wire Instructions: $35,000,000.00 ABA NO.: 063000021 First Union National Bank of Florida 214 Hogan Street Jacksonville, FL 32202 [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement Among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: SOUTHTRUST BANK OF ALABAMA NATIONAL ASSOCIATION, a national banking association - ------------------------------------ By:/s/John Herbert ---------------------------------------- John Herbert, Vice President - ------------------------------------ Address: 150 Second Avenue North Suite 450 St. Petersburg, Florida 33701 TELECOPIER NO. 813/898-5319 CONFIRMING TEL. NO. 813/898-4524 Lending Office: 420 N. 20th St. Birmingham, AL 35203 TELECOPIER NO. 1-205-254-4240 CONFIRMING TEL. NO. 1-800-239-2300 Ext. 5791 Revolving Credit Commitment: Wire Instructions: - --------------------------- $20,000,000.00 ABA: 062000080 ACCOUNT NO.: 515549 ATTN: Susan Dollar Southeastern Banking re: Commercial Net Lease Realty, Inc. [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement Among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: CREDITANSTALT CORPORATE FINANCE, INC. By:/s/Robert M. Biringer - ----------------------------------- ---------------------------------------- Robert M. Biringer, Sr. Vice President By:/s/Joseph P. Longosz - ----------------------------------- ---------------------------------------- Joseph P. Longosz, Vice President Address and Lending Office: Creditanstalt Corporate Finance, Inc. Two Greenwich Plaza, Second Floor Greenwich, CT 06830 TELECOPIER NO. 203/861-6594 TELEPHONE NO. 203/861-6588 With copy to: Creditanstalt Bankverein Two Ravinia Drive, Suite 1680 Atlanta, GA 30346 Attn: Joseph P. Longosz TELECOPIER NO. 404/390-1851 TELEPHONE NO. 404/390-1850 Revolving Credit Commitment: Wire Instructions: - --------------------------- $20,000,000.00 BANK: Chemical Bank CITY, STATE: New York, NY ABA: 021000128 ACCOUNT TITLE: Creditanstalt, NY ACCOUNT NO.: 544-7-73095 ATTN: 245 Park Avenue New York, NY 10167 Attn: Dennis O'Dowd With Copy To: Two Ravinia Drive Suite 1680 Atlanta, GA 30346 Attn: Joseph P. Longosz [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - ------------------------------------------------------------------------------- Witnesses: AMSOUTH BANK OF FLORIDA By:/s/John R. Gassie - ----------------------------------- ---------------------------------------- John R. Gassie, Vice President - ----------------------------------- Address and Lending Office: AmSouth Bank of Florida 65 North Orange Avenue Orlando, Florida 32801 Attn: John R. Gassie TELECOPIER NO. 407/649-8944 CONFIRMING TEL. NO. 407/649-8441 Revolving Credit Commitment: Wire Instructions: - --------------------------- $5,000,000.00 BANK: AmSouth Bank of Florida CITY, STATE: Orlando, Florida ABA: 063210112 ACCOUNT TITLE: AmSouth Bank of Florida ACCOUNT NO.: ATTN: 65 North Orange Avenue Orlando, Florida 32801 Attn: John R. Gassie [Signatures continued on next page] SIGNATURE PAGE -------------- Second Amended and Restated Revolving Line of Credit and Security Agreement among Commercial Net Lease Realty, Inc., Net Lease Realty I, Inc., Net Lease Realty II, Inc., First Union National Bank of Florida, as the Agent and the Banks Listed on the Signature Pages Thereof. - -------------------------------------------------------------------------------- Witnesses: COMERICA BANK - TEXAS By:/s/Michael Scott Gosslie - ----------------------------------- ---------------------------------------- Michael Scott Gosslie Corporate Banking Officer - ----------------------------------- Address and Lending Office: 1601 Elm Street, Second Floor Commercial Real Estate Dallas, Texas 75201 TELECOPIER NO. (214) 979-8383 CONFIRMING TEL. NO. (214) 979-8339 Revolving Credit Commitment: Wire Instructions: - --------------------------- $20,000,000.00 BANK: COMERICA BANK - TEXAS CITY, STATE: Dallas, Texas ABA: 111 000 753 LOAN TITLE: Commercial Net Lease Realty, Inc. LOAN NO.: --------------------------------- ATTN: 1601 Elm Street, Second Floor Commercial Real Estate Dallas, Texas 75201 Attn: Judy Weinrobe EX-5 6 SECURED PROMISSORY NOTE ----------------------- D- 750905 $13,150,000.00 December 14, 1995 Chicago, Illinois FOR VALUE RECEIVED, the undersigned, COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation, hereby promises to pay to the order of PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, at the Home Office of Principal Mutual Life Insurance Company at 711 High Street, Des Moines, Iowa 50392, or at such other place as the holder of this Note may designate, the principal sum of Thirteen Million One Hundred Fifty Thousand and No/100 Dollars ($13,150,000.00) or so much thereof as shall from time to time have been advanced, together with interest on the unpaid balance of said sum from the date of disbursement at the rate of six and seventy-five one hundredth percent (6.75%) per annum, computed on the basis of a 360 day year composed of twelve 30-day months, in installments as follows: Beginning on January 15, 1996, interest shall be due and payable in installments of Seventy-Three Thousand Nine Hundred Sixty-Eight and 75/100th Dollars ($73,968.75) with an installment in a like amount due and payable on the same day of each month thereafter except that all remaining principal and interest shall be due and payable on December 15, 1999 ("Maturity Date"). All such payments shall be made by wire transfer of immediately available funds to the registered holder hereof at Norwest Bank, Iowa, N.A., 7th and Walnut Streets, Des Moines, Iowa 50304, for credit to Principal Mutual Life Insurance Company, General Account No. 014752, RE: D-750905 with reference to the undersigned. If on the date of the first installment, interest is accrued for more or less than one installment period, the amount of said installment shall be increased or decreased by the amount that the interest accrued exceeds or is less than the interest for one installment period based on the actual number of days elapsed to the date of said installment. All principal and interest shall be paid in lawful money of the United States of America. No privilege is reserved by the undersigned to prepay any principal of this Note prior to the Maturity Date, except that anytime after the date hereof, so long as no default or Event of Default exists under this Note or any instrument by which it is secured, privilege is reserved, after giving sixty (60) days' prior written notice to the holder of this Note, to prepay in full, but not in part, all principal and interest to the date of payment, along with all sums, amounts, advances, or charges due under any instrument or agreement by which this Note is secured, upon the payment of a "Make Whole Premium." The "Make Whole Premium" shall be the greater of (a) one percent (1%) of the principal amount to be prepaid, or (b) the excess, if any, of: (i) the aggregate present value as of the date of payment or prepayment noticed as set forth above (hereinafter, the "Payment Date") of each dollar of principal being paid or prepaid (taking into account the application of such prepayment as set forth herein) and the amount of interest (exclusive of interest accrued to the Payment Date) that would have been payable in respect of such dollar of principal being paid or prepaid if such payment or prepayment had not been made, determined by discounting such amounts monthly at a rate which is equal to the "Treasury Rate" from the due date of this Note, plus fifty (50) basis points, over (ii) 100% of the principal amount being paid or prepaid. The "Treasury Rate" will be equal to the arithmetic mean of the yields to maturity converted to a monthly equivalent of United States Treasury obligations with a constant maturity (as compiled by and published in the United States Federal Reserve Bulletin [H.R. 15] (hereinafter "H.R. 15") or its successor publication for each of the two weeks immediately preceding the Payment Date) most nearly equal to the remaining "Weighted Average Life to Maturity" of this Note as of the Payment Date. If the yields referred to in the preceding sentence shall not have been so published, the yields corresponding to the Payment Date shall be calculated on the basis of the arithmetic mean of the arithmetic means of the secondary market ask rates, as of approximately 3:30 P.M., New York City time, on the last business days of each of the two weeks preceding the Payment Date, for the actively traded U.S. Treasury security or securities with a maturity or maturities most closely corresponding to the "Weighted Average Life to Maturity", as reported by three primary United States Government securities dealers in New York City of national standing selected in good faith by the holder of this Note. If no maturity exactly corresponding to such remaining "Weighted Average Life to Maturity" should appear therein, yields for the next longer and the next shorter published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated from such yields on a straight-line basis (rounding to the nearest month). The "Weighted Average Life to Maturity" with respect to this Note means, at the Payment Date, the number of years obtained by dividing the "Remaining Dollar-years" of this Note by the outstanding principal amount hereof. "Remaining Dollar-years" means the sum of the product obtained by multiplying (A) the amount of each then remaining required principal repayment (including repayment of any principal at the due date of this Note) by (B) the number of years (rounded to the nearest one-twelfth) which will elapse between the Payment Date and the date such required payment is due. The undersigned agrees that if the holder of this Note accelerates the whole or any part of the principal sum evidenced hereby, or applies any proceeds as if such application had been made as a result of such acceleration, pursuant to the provisions of those certain mortgages and/or deeds of trust of even date herewith between the undersigned and Principal Mutual Life Insurance Company (collectively, the Mortgage ), the undersigned waives any right to prepay said principal sum in whole or in part without premium and agrees to pay, as yield maintenance protection and not as a penalty, the "Make Whole Premium" defined herein. Time is of the essence with respect to the payment of this Note. If any payment of principal, interest or premium is not made when due, damages will be incurred by the holder of this Note, including additional expense in handling overdue payments, the amount of which is difficult and impractical to ascertain. The undersigned therefore agrees to pay, upon demand, the sum of four cents ($.04) for each one dollar ($1.00) of each said payment which becomes overdue as a reasonable estimate of the amount of said damages, subject, however, to the limitations contained in the second immediately succeeding paragraph. If any payment of principal, interest or premium is not made for a period exceeding ten (10) days after due, or if any Event of Default has occurred or is continuing under any instrument by which this Note is, or may hereafter be, secured, the entire principal balance, interest then accrued, and premium, whether or not otherwise then due, shall at the option of the holder of this Note, become immediately due and payable without demand or notice, and whether or not the holder of this Note has exercised said option, interest shall accrue on the entire principal balance, interest then accrued, and any premium then due, at a rate equal to the lesser of (i) four percent (4%) per annum above the then applicable rate of interest payable under this Note or (ii) the maximum rate allowed by applicable law until fully paid or if the holder of this Note has not exercised said option, for the duration of such Event of Default. Notwithstanding anything herein or in any of the Loan Documents (hereinafter defined) to the contrary, no provision contained herein or therein which purports to obligate the undersigned to pay any amount of interest or any fees, costs or expenses which are in excess of the maximum permitted by applicable law, shall be effective to the extent it calls for the payment of any interest or other amount in excess of such maximum. Any such excess shall, if inadvertently collected, be credited as a reduction of principal, effective as of the date inadvertently collected. Any payment of principal in excess of the then outstanding principal balance resulting from the inadvertent collection of interest shall be refunded to the undersigned, effective as of the date inadvertently collected, together with interest at the rate specified in Subsection 687.04(2) of the Florida Statutes or any successor statute. All agreements between the undersigned and the holder hereof, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand for payment or acceleration of the maturity hereof or otherwise, shall the interest contracted for, charged or received by the holder hereof exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to the holder hereof in excess of the maximum lawful amount, the interest payable to the holder hereof shall be reduced to the maximum amount permitted under applicable law; and if from any circumstance the holder hereof shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall, at the option of the holder hereof, be applied to the reduction of the principal hereof and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal hereof such excess shall be refunded to the undersigned. This paragraph shall control all agreements between the undersigned and the holder hereof. The undersigned and any endorsers or guarantors waive presentment, protest and demand, notice of protest, demand and dishonor and nonpayment and notice of acceleration and notice of intent to accelerate maturity, and agree the due date of this Note or any installment may be extended without affecting any liability hereunder, and further promise to pay all reasonable costs and expenses, including attorney's and paralegal s fees, incurred by the holder hereof in connection with any default or in any proceeding (whether incurred in any trial, appellate, bankruptcy, condemnation or any other proceeding) to interpret and/or enforce any provision of this Note or any instrument by which it is secured. No release of the undersigned from liability hereunder shall release any other maker, endorser or guarantor hereof. This Note is secured by instruments and agreements of even date herewith executed and delivered by the undersigned to Principal Mutual Life Insurance Company creating among other things legal and valid encumbrances on and an assignment of all of the undersigned's interest in any leases of certain Premises set forth on Schedule A attached hereto and made a part hereof (collectively, the Premises ). Terms used herein which are defined in such instruments or agreements and not otherwise defined herein have the same definition as in such instruments and agreements. In no event shall such documents be construed inconsistently with the terms of this Note, and in the event of any discrepancy between any such documents and this Note, the terms hereof shall govern. The proceeds of this Note are to be used for business, commercial, investment or other similar purposes, and no portion thereof will be used for any personal, family or household use. This Note shall be governed by and construed in accordance with the laws of the State of Florida. Notwithstanding any provision to the contrary in this Note, the Mortgage, or any other instrument or agreement by which this Note is secured (collectively referred to herein as the "Loan Documents"), and except as otherwise provided in this paragraph, the liability of the undersigned under the Loan Documents shall be limited to the interest of the undersigned in the Premises and the rents, issues, proceeds and profits thereof. In the event of foreclosure of the liens evidenced by the Loan Documents, no judgment for any deficiency upon the indebtedness evidenced by the Loan Documents shall be sought or obtained by the holder of this Note against the undersigned . Nothing contained in this paragraph shall: (a) prevent the failure of the undersigned to make any payment or to perform any obligation under any of the Loan Documents within the time periods provided therein from being an Event of Default thereunder; (b) be construed as limiting the obligations of the undersigned to any lessee under any lease of the Premises; (c) in any way limit or impair the lien or enforcement of the Loan Documents pursuant to the terms thereof; or (d) limit the obligations of any indemnitor or guarantor, if any, of obligations of the undersigned under the Loan Documents. Notwithstanding the foregoing paragraph, the undersigned, but not its shareholders, officers, directors, employees or agents, shall be personally liable to the holder of this Note for: (a) failure of the undersigned to comply with paragraphs 2 (taxes and assessments) and 3 (insurance) of the Mortgage with respect to amounts accruing prior to a Sale of the Premises, as defined below; (b) any event or circumstance for which the undersigned indemnifies the holder of this Note under paragraph 1(m) (environmental indemnity) of the Mortgage; (c) failure of the undersigned to pay utilities accruing prior to a Sale of the Premises, as defined below, on or before the date such payments are due; (d) operation and maintenance of the Premises applicable to the time period prior to a Sale of the Premises, as defined below; (e) any sums expended by the holder of this Note in fulfilling the obligations of the undersigned as lessor under any lease of the Premises prior to a sale of the Premises pursuant to foreclosure or power of sale, a bona fide sale (permitted by the terms of paragraph 1(l) of the Mortgage or consented to in writing by the holder of this Note) to an unrelated third party or upon conveyance to the holder of this Note of the Premises by a deed acceptable to the holder of this Note in form and content (each of which shall be referred to as a "Sale" for purposes of this paragraph) or expended by the holder of this Note after a Sale of the Premises for obligations of the undersigned which arose prior to a Sale of the Premises; (f) any rents or other income regardless of type or source of payment (including, but not limited to, CAM charges, lease termination payments, refunds of any type, prepayment of rents, settlements of litigation, or settlements of past due rents) from the Premises which the undersigned has received or has a right to receive after an Event of Default under the Loan Documents or an event which with the passage of time, the giving of notice or both would constitute an Event of Default, either or both of which has occurred and is continuing, and which are not applied to (A) expenses of operation and maintenance of the Premises and the taxes, assessments, utility charges and insurance of the Premises, taking into account sufficient reserves for the same and for replacements and recurring items, and (B) payment of principal, interest and other charges when due under the Loan Documents; provided that any payments to parties related to the undersigned shall be considered expenses of operation only if they are at market rates or fees consistent with market rates or fees for the same or similar services; (g) any security deposits of tenants not turned over to the holder of this Note upon conveyance of the Premises to the holder of this Note pursuant to foreclosure or power of sale or by a deed acceptable to the holder of this Note in form and content; (h) misapplication or misappropriation of tax reserve accounts, tenant improvement reserve accounts, security deposits, prepaid rents or other similar sums paid to or held by the undersigned or any other entity or person in connection with the operation of the Premises; (i) any waste committed or allowed by the undersigned with respect to the Premises prior to a Sale of the Premises,; (j) any insurance or condemnation proceeds or other similar funds or payments with respect to a casualty or condemnation occurring prior to a Sale of the Premises, applied by the undersigned in a manner other than as expressly provided in the Loan Documents; (k) any breach or violation of paragraph 1(l) (due on sale or encumbrance) of the Mortgage, other than the filing of a nonmaterial mechanic's lien affecting the Premises, the granting of any utility or other nonmaterial easement or servitude burdening the Premises, or any other transfer or encumbrance not in the nature of a transfer, reduction or impairment of any material economic interest in the Premises; and (l) any fraud or willful misrepresentation by the undersigned regarding the Premises, the making or delivery of any of the Loan Documents or in any materials or information provided by the undersigned in connection with the loan. Notwithstanding anything herein contained to the contrary, the undersigned, but not its shareholders, officers, directors, employees, or agents shall be personally liable to the holder of the Note for the amount set forth on Schedule B attached hereto and made a part hereof which is allocated to the respective portion of the Premises (the Applicable Portion of the Premises ), plus the Make Whole Premium calculated on such amount had such amount been prepaid as of the date of the occurrence set forth below: (a) in the event of any amendment, modification or termination by the undersigned of the particular Lease (as defined in the Mortgage or Deed of Trust with respect to the Applicable Portion of the Premises) for the Applicable Portion of the Premises without the prior written consent of the holder of the Note; (b) in the event the Lessee (as defined in the Mortgage or Deed of Trust with respect to the Applicable Portion of the Premises) under the particular Lease for the Applicable Portion of the Premises is not obligated to notify the holder of the Note of a default by the undersigned and the undersigned defaults under said Lease and the holder of the Note does not receive notice of said default following the occurrence thereof within a reasonable period of time to effect cure of said default; or (c) in the event the undersigned violates any exclusive use or non- compete provision granted to the Lessee under the particular lease for the Applicable Portion of the Premises. If more than one, all obligations and agreements of the undersigned are joint and several. This Note may not be changed or terminated orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. All of the rights privileges and obligations hereunder shall inure to the benefit of the heirs, successors and assigns of the holder hereof and shall bind the heirs, successors and assigns of the undersigned. The parties hereto intend and believe that each provision of this Note comports with all applicable law. However, if any provision in this Note is found by a court of law to be in violation of any applicable law, and if such court should declare such provision of this note to be unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such provision shall be given full force and effect to the fullest possible extent that it is legal, valid and enforceable, that the remainder of this Note shall be construed as if such unlawful, void or unenforceable provision were not contained herein, and that the rights, obligations and interests of the undersigned and the holder hereof under the remainder of this Note shall continue in full force and effect. AFTER CONSULTING WITH COUNSEL AND CAREFUL CONSIDERATION, THE UNDERSIGNED AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS NOTE OR ANY OTHER INSTRUMENT OR AGREEMENT BY WHICH THIS NOTE IS, OR MAY HEREAFTER BE, SECURED, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (ORAL OR WRITTEN), OR ACTIONS OF THE UNDERSIGNED OR THE HOLDER. THIS WAIVER IS A MATERIAL INDUCEMENT TO THE HOLDER'S ACCEPTANCE OF THIS NOTE. COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation By:/s/Kevin B. Habicht ------------------------------- Name: Kevin B. Habicht Title: Executive Vice President SCHEDULE A [LIST OF PREMISES] SEARS BARNES & NOBLE 15701 U.S. Highway 19 4136 N. Road 98 Clearwater, FL Lakeland, FL BEST BUY LINENS 'N THINGS 5625 S. Padre Island Drive 200 Trotters Way Corpus Christi, TX Freehold, NJ OFFICEMAX F/N/A BIZMART MARSHALL'S 5625 S. Padre Island Drive 200 Trotters Way Corpus Christi, TX Freehold, NJ FOOD LION 2303 Bedford Avenue Lynchburg, VA SCHEDULE B [ALLOCATED LOAN AMOUNTS] PREMISES ALLOCATED LOAN AMOUNT 1. Sears $3,431,523 15701 U.S. Highway 19 Clearwater, FL 2. Food Lion $1,666,804 2303 Bedford Avenue Lynchburg, VA 3. Best Buy $1,585,849 5625 S. Padre Island Drive Corpus Christi, TX 4. OfficeMax f/n/a Bizmart $1,799,500 5625 S. Padre Island Drive Corpus Christi, TX 5. Barnes & Noble $2,088,720 4136 N. Road 98 Lakeland, FL 6. Linens 'n Things $3,664,355 200 Trotters Way Freehold, NJ 7. Marshalls $4,289,470 200 Trotters Way Freehold, NJ EX-6 7 MORTGAGE AND SECURITY AGREEMENT D- 750905 THIS MORTGAGE AND SECURITY AGREEMENT made as of December 14, 1995, by and between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation, having a principal place of business at 400 E. South Street, Suite 500, Orlando, Florida 32801-2878, herein called Mortgagor, and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, having its principal place of business and post office address at 711 High Street, Des Moines, Iowa 50392, herein called Mortgagee, WITNESSETH: THAT Mortgagor is justly indebted to Mortgagee for money borrowed in the principal sum of Thirteen Million One Hundred Fifty Thousand and No/100 Dollars ($13,150,000.00) evidenced by Mortgagor's promissory note (herein called the Note) of even date herewith, made payable and delivered to Mortgagee, in which Note Mortgagor promises to pay to Mortgagee the said principal sum or so much thereof as may be advanced from time to time by Mortgagee, together with interest at the rate, at the times, and in installments as in the Note provided, until the entire principal and accrued interest have been paid, but in any event, the unpaid balance (if any) remaining due on the Note shall be due and payable on the 15th day of December, 1999 ("Maturity Date"). THAT Mortgagor has delivered this date, as security for the Note, deeds of trust, mortgages or similar instruments (collectively, Other Mortgages ) necessary to grant a mortgage lien on those certain properties more particularly described on Exhibit B attached hereto and made a part hereof ( Related Premises ). THAT the Mortgagor and Mortgagee intend for this mortgage and the Other Mortgages to be of equal priority. NOW, THEREFORE, to secure the payment of the said indebtedness in accordance with the terms and conditions hereof and of the Note, and all extensions, modifications and renewals thereof and the performance of the covenants and agreements contained herein, and also to secure the payment of any and all other indebtedness, including without limitation indebtedness arising under the Other Mortgages, direct or contingent, that may now or hereafter become owing from Mortgagor to Mortgagee, and in consideration of Ten Dollars in hand paid, receipt of which is hereby acknowledged, Mortgagor does by these presents give, grant, bargain, sell, alien, enfeoff, convey and confirm unto Mortgagee, its successors and assigns forever, that certain real estate and all of Mortgagor's estate, right, title and interest therein, located in the County of Monmouth, State of New Jersey, more particularly described in Exhibit A attached hereto and made a part hereof, which real estate, together with the following described property, rights and interests, is collectively referred to herein as the "Premises." Together with Mortgagor's interest as lessor in and to all leases of the said Premises, or any part thereof, heretofore or hereafter made and entered into by Mortgagor during the life of this mortgage or any extension or renewal hereof and all rents, issues, proceeds and profits accruing and to accrue from the Premises (which are pledged primarily and on a parity with the real estate and not secondarily). Together with all and singular the tenements, hereditaments, easements, appurtenances, passages, waters, water courses, riparian rights, rights in trade names, other rights, liberties and privileges thereof or in any way now or hereafter appertaining, including homestead and any other claim at law or in equity as well as any after-acquired title, franchise or license and the reversion and reversions and remainder and remainders thereof. Together with, the right in case of foreclosure hereunder of the encumbered property for Mortgagee to take and use the name by which the buildings and all other improvements situated on the Premises are commonly known and the right to manage and operate the said buildings under any such name and variants thereof. Together with all right, title and interest of Mortgagor in any and all buildings and improvements of every kind and description now or hereafter erected or placed on the said real estate and all materials intended for construction, reconstruction, alteration and repairs of such buildings and improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the Premises immediately upon the delivery thereof to the Premises, and all fixtures now or hereafter owned by Mortgagor and attached to or contained in and used in connection with the Premises including, but not limited to, all machinery, motors, elevators, fittings, radiators, awnings, shades, screens, and all plumbing, heating, lighting, ventilating, refrigerating, incinerating, air-conditioning and sprinkler equipment and fixtures and appurtenances thereto; and all items of furniture, furnishings, equipment and personal property owned by Mortgagor used or useful in the operation of the Premises; and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are or shall be attached to said buildings or improvements in any manner; it being mutually agreed, intended and declared that all the aforesaid property owned by Mortgagor and placed by it on the real estate or used in connection with the operation or maintenance of the Premises shall, so far as permitted by law, be deemed to form a part and parcel of the real estate and for the purpose of this mortgage to be real estate and covered by this mortgage, and as to any of the property aforesaid which does not so form a part and parcel of the real estate or does not constitute a "fixture" (as such term is defined in the Uniform Commercial Code) this mortgage is hereby deemed to be, as well, a Security Agreement under the Uniform Commercial Code for the purpose of creating hereby a security interest in such property which Mortgagor hereby grants to Mortgagee as Secured Party. Mortgagor agrees to execute any and all documents, including financing statements which may be required to perfect the security interest granted hereby. Together with all right, title and interest of Mortgagor, now or hereafter acquired, in and to any and all strips and gores of land adjacent to and used in connection with the Premises and all right, title and interest of Mortgagor, now owned or hereafter acquired, in, to, over and under the ways, streets, sidewalks and alleys adjoining the Premises. Together with all funds now or hereafter held by Mortgagee under any escrow security agreement or under any of the terms hereof, including but not limited to funds held under the provisions of paragraph 4 hereof. THIS IS A FIRST MORTGAGE. TO HAVE AND TO HOLD the same unto the Mortgagee, its successors and assigns forever, for the purposes and uses herein set forth. Mortgagor represents that it is the absolute owner in fee simple of the Premises described in Exhibit A, which Premises are free and clear of any liens or encumbrances except for Permitted Exceptions (as hereinafter defined), and except for taxes which are not yet due or delinquent. Permitted Exceptions , as used in this mortgage means those matters approved by Mortgagee in the Mortgagee s title insurance policy insuring the lien of this mortgage. Mortgagor shall forever warrant and defend the title to the Premises against all claims and demands of all persons whomsoever and will on demand execute any additional instrument which may be required to give Mortgagee a valid first lien on all of the Premises, except for Permitted Exceptions. Mortgagor further represents that: (i) the Premises is not subject to any casualty damage; (ii) except as disclosed in those certain Phase I Environmental Reports conducted by Ecolsciences, Inc. and dated November 27, 1995 and November 28, 1995, respectively (collectively, the "Report"), there is no Hazardous Material (as hereinafter defined) on the Premises, nor has any Hazardous Material been discharged from the Premises or penetrated any surface or subsurface rivers or streams crossing or adjoining the Premises or the aquifer underlying the Premises; and (iii) Mortgagor has complied or caused the Premises to comply with all statutes, laws, ordinances, rules and regulations of all local, state or federal authorities having jurisdiction over the Premises or its use relative to any Hazardous Material. "Hazardous Material" as used in this mortgage means any hazardous or toxic material, substance, pollutant, contaminant or waste which is defined by those or similar terms or is regulated as such under any statute, law, ordinance, rule or regulation of any local, state or federal authority having jurisdiction over the Premises or its use, including but not limited to (a) the Federal Water Pollution Control Act (33 U.S.C. Section 1251) as amended; (b) the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.) as amended; (c) the Comprehensive Environmental Response, Compensation and Liability Act, (42 U.S.C. Section 9601 et. seq.) as amended; (d) the Federal Clean Air Act (42 U.S.C. Section 7401 et. seq.) as amended; (e) the New Jersey Industrial Site Recovery Act, P.L. 1993 c. 139 ( ISRA ), formerly the New Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq. ( ECRA ); (f) the New Jersey Spill Compensation and Control Act, as amended; N.J.S.A. 58:10-23.11 et seq. (the Spill Act ) and (g) the New Jersey Underground Storage of Hazardous Substances Act, as amended, N.J.S.A. 58:10A-21 et seq. ( USTA ) (hereinafter referred to collectively as "Environmental Laws") but shall not include products typically sold by Lessee (hereinafter defined) in the ordinary course of its business and supplies for cleaning and maintenance and standard office supplies in commercially reasonable amounts provided, however, that such items are incidental to the use of the Premises and are stored and used in compliance with all Environmental Laws. MORTGAGOR COVENANTS AND AGREES AS FOLLOWS: 1. Mortgagor shall (a) pay each item of indebtedness secured by this mortgage when due according to the terms hereof and of the Note; (b) pay a late charge equal to four percent (4%) of any payment of principal, interest or premium which is not paid on or before the due date thereof to cover the expense involved in handling such late payment; (c) pay on or before the due date thereof any indebtedness which may be secured by a lien or charge on the Premises (except for construction liens, which are prohibited under paragraph 1(f) hereof), and upon request of Mortgagee exhibit satisfactory evidence of the discharge thereof; (d) except as otherwise expressly permitted by the Lease (as hereinafter defined), so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) complete within a reasonable time the construction of any building now or at any time in process of construction upon the real estate; (e) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) make no material alteration to the Premises without the prior written consent of Mortgagee, except such as are required by law or ordinance; (f) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) remove or demolish no building or other improvement at any time a part of the Premises, and shall keep the Premises, including the buildings and improvements, in good condition and repair, without waste, and free from construction liens or other liens or claims for liens and encumbrances not expressly subordinated to the lien hereof; (g) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) comply, and cause each lessee or other user of the Premises to comply, with all requirements of law and ordinance, and all rules and regulations, now or hereafter enacted, by authorities having jurisdiction of the Premises and the use thereof, all orders and directions of the National Fire Protection Association or similar body, and all covenants, conditions and restrictions of record pertaining to the Premises, including the buildings and improvements, and the use thereof; (h) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) cause or permit no change to be made in the general use of the Premises without Mortgagee's prior written consent; (i) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) initiate or acquiesce in no zoning reclassification or material change in zoning without Mortgagee's prior written consent; (j) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) make or permit no use of the Premises that could with the passage of time result in the creation of any right of use, or any claim of adverse possession or easement on, to or against any part of the Premises in favor of any person or the public; (k) except as otherwise expressly permitted by the Leases, so long as the Leases are in full force and effect (provided, however, if Lessees are obligated to obtain the consent of Mortgagor, as landlord, then Mortgagee s consent shall be required prior to such action being taken) subject to the provisions of paragraph 5(c) hereof, promptly repair, restore or rebuild any buildings or improvements now or hereafter a part of the Premises which may become damaged or be destroyed by any cause whatsoever, so that upon completion of the repair, restoration and rebuilding of the buildings and improvements there will be no liens of any nature arising out of the construction and the Premises will be of substantially the same character and will have a commercial value at least as great as the commercial value thereof prior to the damage or destruction; (l) not, directly or indirectly, due to assignment of beneficial interest under a trust, partnership interest in a partnership, or otherwise, cause or permit any sale, transfer or conveyance of the Premises, including the sale, transfer or conveyance of the Premises to Lessees (as hereinafter defined), or create, suffer or permit any encumbrance or lien on the Premises other than the lien hereof, the leases of the Premises assigned to Mortgagee and other exceptions expressly referred to herein (except for construction liens, which are prohibited under paragraph 1(f) hereof), it being understood and agreed that the indebtedness evidenced by the Note and its terms are personal to Mortgagor and in accepting the same Mortgagee has relied upon what it perceived as the willingness and ability of Mortgagor to perform its obligations hereunder, under the Note, and as lessor under leases of the Premises; Mortgagee may consent to a sale, transfer, conveyance or encumbrance and expressly waive this provision in writing to Mortgagor however any such consent and waiver shall not constitute any consent or waiver of this provision as to any sale, transfer, conveyance or encumbrance other than that for which the consent and waiver was expressly granted; Mortgagee's ability to consent to any sale, transfer, conveyance or encumbrance and waive this provision implies no standard of reasonableness in determining whether or not such consent shall be granted and the same may be based upon what Mortgagee solely deems to be in its best interest; without limiting Mortgagee's right to withhold its consent and waiver entirely, such consent and waiver may be conditioned upon an increase in the rate of interest under the Note and the imposition of other terms and conditions thereunder or hereunder; any sale, transfer, conveyance or encumbrance made, created or permitted in violation of this provision shall be null and void and in addition to the other rights and remedies available to Mortgagee hereunder, Mortgagee shall have the option of declaring the unpaid principal balance of the Note, together with all accrued and unpaid interest, premium, if any and all other sums and charges evidenced thereby or owing hereunder, immediately due and payable; (m) not cause or permit any Hazardous Material to exist on or discharge from the Premises, and comply with all Environmental Laws and promptly: (i) pay any claim against Mortgagor or the Premises, (ii) remove any charge or lien upon the Premises, and (iii) indemnify and hold Mortgagee harmless from any and all loss or damage, resulting from any Hazardous Material that exists on or is discharged from the Premises; provided, however, that this indemnity does not apply to Hazardous Material that exists on or is discharged from the Premises due to acts or omissions occurring after Mortgagor or any person or entity in any way related to Mortgagor no longer holds title to or has any interest in the Premises; (n) not cause or permit any Hazardous Material to exist on or discharge from any property owned or used by Mortgagor which would result in any charge or lien upon the Premises; (o) notify Mortgagee of any Hazardous Material that exists on or is discharged from the Premises within ten (10) days after Mortgagor first has knowledge of such existence or discharge; (p) if other than a natural person, do all things necessary to preserve and keep in full force and effect its existence, franchises, rights and privileges under the laws of the state of its formation and, if other than its state of formation, the state where the Premises is located; (q) do all things necessary to preserve and keep in full force and effect Mortgagee's title insurance coverage insuring the lien of this mortgage as a first and prior lien, subject only to the Permitted Exceptions and any other exceptions after the date of this mortgage approved in writing by Mortgagee, including without limitation, delivering to Mortgagee not less than 30 days prior to the effective date of any rate adjustment, modification or extension of the Note any new policy or endorsement which may be required to assure Mortgagee of such continuing coverage; (r) not directly or indirectly, commit waste; (s) pay or cause any lessee to pay all utilities on the Premises prior to becoming delinquent; and (t) at all times cause its interest in the Premises to be leased to (i) Raceway Village, L.T., Inc., a New Jersey corporation d/b/a Linens N Things ( Linens ) under a lease dated December 15, 1993, and any and all amendments and supplements (the Linens Lease) and (ii) Marshall s of Freehold, N.J., Inc. ( Marshalls ) under a lease dated December 15, 1993 and any and all amendments and supplements (the Marshall Lease ) (Linens and Marshalls are herein collectively and individually, as the context may require, referred to as Lessee and Linens Lease and Marshalls Lease are herein collectively and individually, as the context may require, referred to as the Lease ) and shall punctually perform all obligations, covenants and agreements required to be performed as lessor under the Lease in accordance therewith and do all things necessary to compel performance by Lessee of all its obligations, covenants and agreements under the Lease and the Lessee Estoppel Certificate executed by Lessee and delivered to Mortgagee in connection with the delivery of this mortgage and funding of the Note (the Estoppel ). The term Lease used herein shall include any future lease of the Premises approved by Mortgagee and the term Lessee shall include any future lessee of a future lease approved by Mortgagee. 2. (a) Mortgagor shall pay or cause to be paid when due and before any penalty attaches or interest accrues all general taxes, special taxes, assessments (including assessments for benefits from public works or improvements whenever begun or completed), water charges, sewer service charges, CAM charges, if any, vault or space charges and all other like charges against or affecting the Premises or against any property or equipment located on the Premises, or which might become a lien on the Premises, and shall, within 10 days following Mortgagee's request, furnish to Mortgagee a duplicate receipt of such payment. If any such tax, assessment or charge may legally be paid in installments, Mortgagor may, at its option, pay such tax, assessment or charge in installments. (b) To prevent default hereunder Mortgagor shall pay or cause to be paid in full, under protest in the manner provided by law, any tax, assessment or charge which Mortgagor may desire to contest; provided, however, that (i) if contest of any tax, assessment or charge may be made without the payment thereof, and (ii) such contest shall have the effect of preventing the collection of the tax, assessment or charge so contested and the sale or forfeiture of the Premises or any part thereof or any interest therein to satisfy the same, then Mortgagor may at its option and in its discretion and upon the giving of written notice to Mortgagee of its intended action and upon the furnishing to Mortgagee of such security or bond as Mortgagee may require, contest any such tax, assessment or charge in good faith and in the manner provided by law. All costs and expenses incidental to such contest shall be paid by Mortgagor. In the event of a ruling or adjudication adverse to Mortgagor, Mortgagor shall promptly pay such tax, assessment or charge. Mortgagor shall indemnify and save harmless the Mortgagee and the Premises from any loss or damage arising from such contest and shall, if necessary to prevent sale, forfeiture or any other loss or damage to the Premises or to the Mortgagee, pay such tax, assessment or charge or take whatever action is necessary to prevent any sale, forfeiture or loss. 3. (a) Mortgagor shall at all times keep in force (i) property insurance insuring all buildings and improvements which now are or hereafter become a part of the Premises for perils covered by an all-risk or a causes of loss-special form insurance policy with an ordinance or law coverage endorsement containing both replacement cost and agreed amount endorsements or options; (ii) commercial general liability insurance naming Mortgagee as additional insured protecting Mortgagor and Mortgagee against liability for bodily injury or property damage occurring in, on or adjacent to the Premises, with a combined single limit of not less than One Million Dollars ($1,000,000.00) per occurrence with not less than a Five Million Dollar ($5,000,000.00) aggregate limit and excess umbrella liability insurance of not less than Twenty Five Million Dollars ($25,000,000.00); (iii) boiler and machinery insurance if the property has a boiler or is an office building; (iv) rental value insurance for the perils specified herein for one hundred percent (100%) of the rents (including operating expenses, real estate taxes, assessments and insurance costs which are lessee's liability) for a period of twelve (12) months; and (v) insurance against all other hazards as may be reasonably required by Mortgagee, including, without limitation, insurance against loss or damage by flood and earthquake. (b) All insurance shall be in form, content and amounts approved by Mortgagee and written by an insurance company or companies rated A, class size X or better in the most current issue of Best's Insurance Reports and which is licensed to do business in the state in which the Premises are located and domiciled in the United States or a governmental agency or instrumentality approved by Mortgagee. The policies for such insurance shall have attached thereto standard mortgagee clauses in favor of and permitting Mortgagee to collect any and all proceeds payable thereunder and shall include a 30 day (except for nonpayment of premium, in which case, a 10 day) notice of cancellation clause in favor of Mortgagee. All policies or certificates of insurance shall be delivered to and held by Mortgagee as further security for the payment of the Note and any other obligations arising under the Loan Documents, with evidence of renewal coverage delivered to Mortgagee at least 30 days before the expiration date of any policy. Not more frequently than once every three years, if Mortgagee has a reasonable belief that the replacement cost value is not correct, it shall notify Mortgagor and Mortgagor, at its expense, will furnish Mortgagee with an appraisal of the full insurable replacement cost value of the Premises, made by fire insurance appraisers satisfactory to Mortgagee and fire insurance companies generally. Mortgagor shall not carry separate insurance, concurrent in kind or form and contributing in the event of loss, with any insurance required herein. Notwithstanding anything hereinabove to the contrary, Mortgagee agrees to accept the coverage amounts and carriers provided to Mortgagee as of the date hereof. In the event of a default under the Loan Documents or Lease or a decline in the rating of an approved carrier then Mortgagee shall have the right to require Mortgagor to obtain the insurance required pursuant to this paragraph 3. 4. (a) Mortgagor shall, upon request of Mortgagee, deposit with and pay to Mortgagee, on each payment date specified in the Note , a sum equivalent to: (1) the taxes and assessments assessed or levied against and next due on the Premises divided by the number of payments that will become due and payable under the Note before the date when such taxes and assessments will become due and payable, plus (2) the premiums that will next become due and payable for insurance required by this mortgage to be furnished by Mortgagor divided by the number of payments that will become due and payable under the Note before the date when such premiums will become due and payable. Mortgagee shall use such deposits to pay the taxes, assessments and premiums when the same become due. Mortgagee shall not be liable for interest on such deposits. Mortgagor shall procure and deliver to Mortgagee, in advance, statements for such charges. If the total payments made by Mortgagor under this paragraph plus interest, if any, accrued thereon exceed the amount of payments actually made by Mortgagee for taxes, assessments and insurance premiums, such excess shall be credited by Mortgagee on subsequent deposits to be made by Mortgagor. If, however, the deposits are insufficient to pay the taxes, assessments and insurance premiums when the same shall be due and payable, Mortgagor will pay to Mortgagee any amount necessary to make up the deficiency, five (5) business days before the date when payment of such taxes, assessments and insurance premiums shall be due. If at any time Mortgagor shall tender to Mortgagee, in accordance with the provisions of the Note secured by this mortgage, full payment of the entire indebtedness represented thereby, Mortgagee shall, in computing the amount of such indebtedness, credit to the account of Mortgagor any balance remaining in the funds accumulated and held by Mortgagee under the provisions of this paragraph. If there is a default under any of the provisions of this mortgage resulting in a public sale of the Premises, or if Mortgagee otherwise acquires the Premises after default, Mortgagee shall apply, at the time of commencement of such proceedings, or at the time the Premises is otherwise acquired, the balance then remaining in the funds accumulated under this paragraph as a credit on the interest accrued and unpaid and the balance to the principal then remaining unpaid under the Note. The provisions of this paragraph shall not affect the enforceability of the covenants relating to taxes, assessments and insurance premiums provided for in this mortgage except to the extent that obligations for the same have been actually met by compliance with this paragraph. (b) Any funds held under this paragraph shall not constitute any deposit or account of the Mortgagor or moneys to which the Mortgagor is entitled upon demand, or upon the mere passage of time, or sums to which Mortgagor is entitled to any interest or crediting of interest by virtue of Mortgagee's mere possession of such deposits. Mortgagee shall not be required to segregate such deposits or hold such deposits in any separate account for the benefit of Mortgagor. Mortgagee may hold such deposits in its general account or any other account and may commingle such deposits with any other moneys of Mortgagee or moneys which Mortgagee is holding on behalf of any other person or entity. Mortgagor hereby consents to the investment of such deposits by Mortgagee as outlined herein. (c) Notwithstanding anything hereinabove to the contrary, so long as the Lease is in full force and effect and there are no defaults under the Lease, this Mortgage, the Note or any other instrument securing the Note, Mortgagor shall not be obligated to make the deposits required by this Section 4. 5. In the event of any damage to or destruction of the buildings or improvements which are a part of the Premises: (a) Mortgagor will immediately notify Mortgagee thereof in the manner provided in this mortgage for the giving of notices. Mortgagee may in its discretion (and it is hereby authorized to) either settle and adjust any claim under such insurance policies, or allow Mortgagor to agree with the insurance company or companies on the amount to be paid upon the loss. In either case, the proceeds shall be paid to Mortgagee and Mortgagee is authorized to collect and to give receipts therefor. In the event Mortgagee elects to either settle or adjust any claim under such insurance policies, and provided there is no Event of Default or event which with the passage of time or notice or both would constitute an Event of Default which has occurred and is continuing, Mortgagor shall have the right to participate in said settlement or adjustment; provided, however, that any settlement or adjustment shall be subject to the written approval of Mortgagee. (b) Such proceeds, after deducting therefrom any expenses incurred in the collection thereof, including reasonable attorneys' fees and costs, shall be applied at the option of Mortgagee either to the cost of rebuilding and restoring the buildings and improvements or in reduction of the indebtedness secured hereby whether or not then due and payable, provided however, that if no Event of Default has occurred and Mortgagee has not otherwise previously accelerated the whole or any part of the indebtedness secured hereby, such reduction shall be without Make Whole Premium. Any excess proceeds remaining after said indebtedness is fully paid shall be promptly remitted to Mortgagor. (c) Regardless of the cause of the damage or destruction or the availability or sufficiency of insurance proceeds until all indebtedness secured hereby shall be fully paid, Mortgagor shall be obligated to repair, restore and rebuild any buildings or improvements so damaged or destroyed, provided however, that if any insurance proceeds have been paid to Mortgagee under any insurance policies maintained by Mortgagor under the provisions of Paragraph 3 hereof, Mortgagor shall be so obligated only if Mortgagee elects to apply such proceeds to the cost of rebuilding and restoration. Repair and restoration of the buildings and improvements shall be commenced promptly after the occurrence of the loss and shall be prosecuted to completion diligently, and the buildings and improvements shall be so restored and rebuilt as to be of at least equal value and substantially the same character as prior to such damage and destruction. In the event the estimated costs of rebuilding and restoration exceed 25% of the indebtedness then remaining unpaid as secured hereby, the drawings and specifications pertaining to such rebuilding and restoration shall be subject to the prior written approval of Mortgagee. (d) In the event that Mortgagor is to be reimbursed out of the insurance proceeds, such proceeds shall be made available from time to time upon the furnishing to Mortgagee of satisfactory evidences of the estimated cost of completion thereof and such architect's certificates, waivers of lien, contractor's sworn statements, and other evidence of cost and of payment and of the continued priority of the lien hereof over any potential liens of mechanics and materialmen as Mortgagee may require and approve. No payment made by Mortgagee prior to the final completion of the work shall, together with all payments theretofore made, exceed 90% of the value of the work performed to the time of payment, and at all times the undisbursed balance of said proceeds shall be at least sufficient to pay for the cost of completion of the work free and clear of liens. Any proceeds remaining after payment of the cost of rebuilding and restoration shall, at the option of Mortgagee, either be applied in reduction of the indebtedness secured hereby, provided, however, that if no Event of Default has occurred and Mortgagee has not otherwise previously accelerated the whole or any part of the indebtedness secured hereby, such reduction shall be without Make Whole Premium, or paid to Mortgagor. (e) Should such damage or destruction occur after foreclosure or sale proceedings have been instituted, the proceeds of any such insurance policy or policies, if not applied in rebuilding or restoration of the buildings or improvements, shall be used to pay the indebtedness, then due and owing in the event of a non-judicial sale or the amount due in accordance with any decree of foreclosure or deficiency judgment that may be entered in connection with such proceedings, and the balance, if any, shall be paid to the owner of the equity of redemption if he shall then be entitled to the same, or otherwise as any court having jurisdiction may direct. Following any foreclosure sale, or other sale of the Premises by Mortgagee pursuant to the terms hereof, Mortgagee is authorized without the consent of Mortgagor to assign any and all insurance policies to the purchaser at the sale and to take such other steps as Mortgagee may deem advisable to cause the interests of such purchaser to be protected by any of such insurance policies. (f) Notwithstanding anything hereinabove to the contrary, so long as the Lease is in full force and effect, there are no defaults by Mortgagor, as landlord, under the Lease, which are not cured within any applicable grace period, and there is no Event of Default under this mortgage, all proceeds shall be applied and any obligation to reconstruct and repair shall be in accordance with the terms of the Lease. In the event the Lease expressly permits the Lessee to reconstruct and repair the Premises without giving approval rights to Mortgagor, as landlord, or to Mortgagee, then Mortgagee s approval shall not be required. If the Lease requires Lessee to obtain the approval of Mortgagor, as landlord or of Mortgagee prior to reconstructing and repairing the Premises or the Mortgagor is obligated to reconstruct and repair the Premises, the Mortgagee s prior written approval shall be required. 6. Mortgagor hereby assigns, transfers and sets over to Mortgagee the entire proceeds of any award or claim for damage to any of the Premises taken or damaged under the power of eminent domain or by condemnation. In the event of the commencement of any eminent domain or condemnation proceeding affecting the Premises: (a) Mortgagor shall notify Mortgagee thereof in the manner provided in this mortgage for the giving of notices. Mortgagee may participate in such proceeding, and Mortgagor shall deliver to Mortgagee all documents requested by it to permit such participation. (b) Mortgagee may elect to apply the proceeds of the award upon or in reduction of the indebtedness secured hereby whether or not then due and payable, provided however, that if no Event of Default has occurred and Mortgagee has not otherwise previously accelerated the whole or any part of the indebtedness secured hereby, such reduction shall be without Make Whole Premium, or require Mortgagor to restore or rebuild, in which event the proceeds shall be held by Mortgagee and used to reimburse Mortgagor for the cost of restoring and rebuilding all buildings and improvements in accordance with plans and specifications to be submitted to and approved by Mortgagee. (c) In the event Mortgagee elects to reimburse Mortgagor for the costs of restoring and rebuilding the Premises, then the proceeds of the award shall be paid out in the same manner as provided in this mortgage for the payment of insurance proceeds in reimbursement of the costs of rebuilding and restoration. If the amount of such award is insufficient to cover the cost of restoring and rebuilding, Mortgagor shall pay such cost in excess of the award before being entitled to reimbursement out of the award. Any proceeds remaining after payment of cost of restoring and rebuilding shall, at the option of Mortgagee, either be applied on account of the indebtedness secured hereby, provided, however, that if no Event of Default has occurred and Mortgagee has not otherwise previously accelerated the whole or any part of the indebtedness secured hereby, such reduction shall be without Make Whole Premium, or be paid to Mortgagor. (d) Notwithstanding anything hereinabove to the contrary, so long as the Lease is in full force and effect, there are no defaults by Mortgagor, as landlord, under the Lease, which are not cured within any applicable grace period, and there is no Event of Default under this mortgage, all proceeds of the award shall be applied and all reconstruction and repair shall be undertaken in accordance with the terms of the Lease. In the event the Lease permits Lessee to reconstruct and repair the Premises without approval rights given to Mortgagor, as landlord, or to Mortgagee, the Mortgagee s approval shall not be required. If the Lease expressly requires Lessee to obtain the approval of Mortgagor, as landlord, or of Mortgagee prior to reconstructing and repairing the Premises, or the Mortgagor is obligated to reconstruct and repair the Premises, then Mortgagee s prior written approval shall be required. 7. If by the laws of the United States of America or of any state or governmental subdivision having jurisdiction of Mortgagor or of the Premises or of the transaction evidenced by the Note and this mortgage, any tax or fee is due or becomes due in respect of the issuance of the Note hereby secured or the making, recording and registration of this mortgage, except for Mortgagee's income tax, Mortgagor covenants and agrees to pay such tax or fee in the manner required by such law, and to hold harmless and indemnify Mortgagee, its successors and assigns, against any liability incurred by reason of the imposition of any such tax or fee. 8. In the event of the enactment after the date hereof of any applicable law deducting from the value of land for the purpose of taxation any lien thereon, or imposing upon Mortgagee the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Mortgagor, or changing in any way the laws relating to the taxation of mortgages or debts secured by mortgages or Mortgagee's interest in the Premises, or the manner of collection of taxes, so as to affect this mortgage or the debt secured hereby or the holder thereof, except for Mortgagee's income tax, then and in any such event Mortgagor shall, upon demand by Mortgagee, pay such taxes or assessments or reimburse Mortgagee therefor; provided, however, that, if in the opinion of counsel for Mortgagee (a) it might be unlawful to require Mortgagor to make such payment or (b) the making of such payment might be construed as imposing a rate of interest beyond the maximum permitted by law, then and in such event Mortgagee may elect to declare all of the indebtedness secured hereby to be and become due and payable 60 days from the giving of written notice of such election to Mortgagor, provided, however, that if no Event of Default has occurred and Mortgagee has not otherwise previously accelerated the whole or any part of the indebtedness secured hereby, such reduction shall be without Make Whole Premium. 9. (a) Upon the occurrence of any Event of Default under this mortgage, Mortgagee may, but need not, make any payment or perform any act herein required of Mortgagor, in any form and manner deemed expedient and may, but need not, make full or partial payments of principal or interest on prior encumbrances, if any, and purchase, discharge, compromise or settle any tax lien or other prior lien or title or claim thereof, or redeem from any tax sale or forfeiture affecting said Premises, or contest any tax or assessment. All moneys paid for any of the purposes herein authorized and all reasonable expenses paid or incurred in connection therewith, including reasonable attorneys' fees and costs and reasonable attorneys' fees and costs on appeal, and any other money advanced by Mortgagee to protect the Premises and the lien hereof, shall be so much additional indebtedness secured hereby and shall become immediately due and payable without notice and with interest thereon at the Default Rate (as hereinafter defined) from the date of expenditure or advance until paid. (b) In making any payment hereby authorized relating to taxes or assessments or for the purchase, discharge, compromise or settlement of any prior lien, Mortgagee may make such payment according to any bill, statement or estimate secured from the appropriate public office without inquiry into the accuracy thereof or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof or without inquiry as to the validity or amount of any claim for lien which may be asserted. 10. If one or more of the following events (herein called "Events of Default") shall have occurred: (a) default shall be made in the payment of any principal, interest or premium, utilities, taxes or assessments referred to in this mortgage or insurance premiums for the insurance required pursuant to this mortgage when due under the Note or this mortgage, and such default shall have continued for 10 days; or (b) Mortgagor shall be dissolved, or a decree or order for relief shall be entered by a court having jurisdiction in respect of Mortgagor in a voluntary or involuntary case under the Federal Bankruptcy Code as now or hereafter constituted, or Mortgagor shall file a voluntary petition in bankruptcy or for reorganization or an arrangement or any composition, readjustment, liquidation, dissolution or similar relief pursuant to any similar present or future state or federal bankruptcy law, or shall be adjudicated a bankrupt or become insolvent, or shall commit any act of bankruptcy as defined in such law, or shall take any action in furtherance of any of the foregoing; or (c) a petition or answer shall be filed proposing the adjudication of Mortgagor as a bankrupt or its reorganization or arrangement, or any composition, readjustment, liquidation, dissolution or similar relief with respect to it pursuant to any present or future federal or state bankruptcy or similar law, and Mortgagor shall consent to the filing thereof, or such petition or answer shall not be discharged within 60 days after the filing thereof; or (d) by the order of a court of competent jurisdiction, a receiver, trustee or liquidator of the Premises or any part thereof or of Mortgagor or of substantially all of its assets shall be appointed and shall not be discharged or dismissed within 60 days after such appointment, or if Mortgagor shall consent to or acquiesce in such appointment; or (e) with respect to the matters not described in the other subparagraphs of this paragraph 10, default shall be made in the due observance or performance of any covenant, condition or agreement of the Mortgagor contained in this mortgage, the Note and Assignment of Lease and Rents of even date herewith from Mortgagor to Mortgagee or in any other instrument or agreement by which the Note is secured (the "Loan Documents"), and such default shall have continued for 30 days after notice specifying such default is given by Mortgagee to Mortgagor; or (f) any representation or warranty made by Mortgagor in the Loan Documents shall prove to be untrue or inaccurate in any material respect; or (g) the failure of Mortgagor to give notice to Mortgagee in the manner provided in this mortgage for the giving of notices within 30 days after the death of any natural person who is personally liable for the payment of the indebtedness secured hereby or any part thereof, whether such person is the Mortgagor or any indemnitor or guarantor and whether or not such person has executed the Note or this mortgage; (h) the death of any natural person who is personally liable for the payment of the indebtedness secured hereby or any part thereof, whether such person is the Mortgagor or any indemnitor or guarantor and whether or not such person has executed the Note or this mortgage or the death of any general partner of Mortgagor; or (i) an Event of Default under any mortgage or deed of trust made by Mortgagor in favor of Mortgagee encumbering a Related Premises; (j) amendment, modification or termination by Mortgagor of the Lease without Mortgagee s prior written consent; or (k) default by Mortgagor under the Lease and (a) with respect to a non-monetary obligation, either (i) Mortgagor shall not have commenced cure thereof within five (5) days following receipt of notice from Lessee, (ii) Mortgagor shall have failed to proceed diligently to complete said cure within the time allowed for such cure under the terms of the Lease, or (iii) Mortgagor shall have failed to provide Mortgagee with weekly progress reports of its efforts to effect said cure, and (b) with respect to a monetary obligation, Mortgagor shall have failed to make the payment required to effect the cure of said default no later than four (4) days prior to the last day allowed for such cure under the terms of the Lease and Mortgagor has failed to provide Mortgagee with evidence of said payment. then, in each and every such case, the whole of said principal sum hereby secured shall, at the option of the Mortgagee and without further notice to Mortgagor, become immediately due and payable together with accrued interest thereon and a Make Whole Premium calculated in accordance with the provisions hereof, and whether or not Mortgagee has exercised said option, interest shall accrue on the entire principal balance and any interest or premium then due, at the Default Rate until fully paid or if Mortgagee has not exercised said option, for the duration of any Event of Default. If any default under "(e)" above shall be of such nature that it cannot be cured or remedied within 30 days, Mortgagor shall be entitled to a reasonable period of time to cure or remedy such Event of Default, provided Mortgagor commences the cure or remedy thereof within the 30 day period following the giving of notice and thereafter proceeds with diligence to complete such cure or remedy. 11. Mortgagor agrees that if Mortgagee accelerates the whole or any part of the principal sum hereby secured, or applies any proceeds as if such application had been made as a result of such acceleration, pursuant to the provisions hereof, Mortgagor waives any right to prepay the principal sum hereby secured in whole or in part without premium and agrees to pay, as yield maintenance protection and not as a penalty, a "Make Whole Premium," except as otherwise provided herein. The "Make Whole Premium" shall be the greater of (a) one percent (1%) of the principal amount to be prepaid, or (b) the excess, if any, of (i) the aggregate present value as of the date of payment or prepayment noticed as set forth above (hereinafter, the "Payment Date") of each dollar of principal being paid or prepaid (taking into account the application of such prepayment as set forth herein) and the amount of interest (exclusive of interest accrued to the Payment Date) that would have been payable in respect of such dollar of principal being paid or prepaid if such payment or prepayment had not been made, determined by discounting such amounts monthly at a rate which is equal to the "Treasury Rate" from the due date of this Note, plus fifty (50) basis points, over (ii) 100% of the principal amount being paid or prepaid. The "Treasury Rate" will be equal to the arithmetic mean of the yields to maturity converted to a monthly equivalent of United States Treasury obligations with a constant maturity (as compiled by and published in the United States Federal Reserve Bulletin [H.R. 15] (hereinafter "H.R. 15") or its successor publication for each of the two weeks immediately preceding the Payment Date) most nearly equal to the remaining "Weighted Average Life to Maturity" of this Note as of the Payment Date. If the yields referred to in the preceding sentence shall not have been so published, the yields corresponding to the Payment Date shall be calculated on the basis of the arithmetic mean of the arithmetic means of the secondary market ask rates, as of approximately 3:30 P.M., New York City time, on the last business days of each of the two weeks preceding the Payment Date, for the actively traded U.S. Treasury security or securities with a maturity or maturities most closely corresponding to the "Weighted Average Life to Maturity", as reported by three primary United States Government securities dealers in New York City of national standing selected in good faith by the holder of this Note. If no maturity exactly corresponding to such remaining "Weighted Average Life to Maturity" should appear therein, yields for the next longer and the next shorter published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated from such yields on a straight-line basis (rounding to the nearest month). The "Weighted Average Life to Maturity" with respect to this Note means, at the Payment Date, the number of years obtained by dividing the "Remaining Dollar-years" of this Note by the outstanding principal amount hereof. "Remaining Dollar-years" means the sum of the product obtained by multiplying (A) the amount of each then remaining required principal repayment (including repayment of any principal at the due date of this Note) by (B) the number of years (rounded to the nearest one-twelfth) which will elapse between the Payment Date and the date such required payment is due. 12. Upon the occurrence of any Event of Default, in addition to any other rights or remedies provided in the Loan Documents, at law, in equity or otherwise, Mortgagee shall have the right to foreclose the lien hereof, and to the extent permitted herein and by applicable law to sell the Premises by sale independent of the foreclosure proceedings. In any suit to foreclose the lien hereof, and in any sale of the Premises, there shall be allowed and included as additional indebtedness payable by Mortgagor to Mortgagee and secured hereby all expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees and costs, including attorneys' fees and costs on appeal, appraisers' fees, expenditures for documentary and expert evidence, stenographer's charges, publication and advertising costs, survey costs, environmental audits and costs (which may be estimated as to items to be expended after the entry of any decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies, Torrens certificates and similar data and assurances with respect to title as Mortgagee deems reasonably necessary either to prosecute such suit or to consummate such sale or to evidence to bidders at any sale the true condition of the title to or the value of the Premises. 13. The proceeds of any foreclosure sale, or other sale of the Premises in accordance with the terms hereof or as permitted by law, shall be distributed and applied in the following order of priority: First, to the payment of all costs and expenses incident to the foreclosure and/or sale proceedings, including all items as are mentioned in any preceding or succeeding paragraph hereof; second, to the payment of all other items which under the terms hereof constitute secured indebtedness in addition to that evidenced by the Note, with interest thereon as herein provided; third, to the payment of all principal and accrued interest remaining unpaid on the Note; fourth, any surplus to the Mortgagor, its successors or assigns, as their rights may appear. 14. During the continuance of any Event of Default, Mortgagor shall forthwith upon demand of Mortgagee surrender to Mortgagee possession of the Premises, and Mortgagee shall be entitled to take actual possession of the Premises or any part thereof personally or by its agents or attorneys, and Mortgagee in its discretion may, with or without force and with or without process of law, enter upon and take and maintain possession of all or any part of the Premises together with all documents, books, records, papers and accounts of the Mortgagor or the then owner of the Premises relating thereto, and may exclude Mortgagor, its agents or assigns wholly therefrom, and may as attorney-in-fact or agent of the Mortgagor, or in its own name as Mortgagee and under the powers herein granted: (a) hold, operate, manage or control the Premises and conduct the business, if any, thereof, either personally or by its agents, and with full power to use such measures, legal or equitable, as in its discretion it deems proper or necessary to enforce the payment or security of the income, rents, issues and profits of the Premises, including actions for the recovery of rent, actions in forcible detainer and actions in distress for rents, hereby granting full power and authority to exercise each and every of the rights, privileges and powers herein granted at any and all times hereafter, without notice to Mortgagor; (b) cancel or terminate any lease or sublease for any cause or on any ground which would entitle Mortgagor to cancel the same; (c) elect to cancel any lease or sublease made subsequent to this mortgage or subordinated to the lien hereof unless this mortgage has specifically been made subordinate to such lease or sublease; (d) extend or modify any then existing leases and make new leases, which extensions, modifications or new leases may provide for terms to expire, or for options to lessees to extend or renew terms to expire, beyond the Maturity Date of the Note and the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale, it being understood and agreed that any such leases, and the options or other such provisions to be contained therein, shall be binding upon Mortgagor and all persons whose interests in the Premises are subject to the lien hereof and shall be binding also upon the purchaser or purchasers at any foreclosure sale, notwithstanding any redemption from sale, discharge of the indebtedness secured hereby, satisfaction of any foreclosure decree, or issuance of any certificate of sale or deed to any purchaser; (e) make all necessary or proper repairs, decorating, renewals, replacements, alterations, additions, betterments and improvements to the Premises as it may deem judicious, insure and reinsure the same and all risks incidental to Mortgagee's possession, operation and management thereof, and receive all income, rents, issues and profits. Mortgagee shall not be obligated to perform or discharge, nor does it hereby undertake to perform or discharge, any obligation, duty or liability under any lease, and the Mortgagor shall and does hereby agree to indemnify and to hold Mortgagee harmless of and from all liability, loss or damage which it might incur under said leases or under or by reason of the assignment thereof, and of and from any and all claims or demands whatsoever which may be asserted against it by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in said leases, except if caused by Mortgagee s gross negligence or willful misconduct. Should Mortgagee incur any such liability, loss or damage under any of said leases, or under or by reason of the assignment thereof, or in the defense of any claims or demands, the amount thereof, including costs, expenses and reasonable attorneys' fees and costs, including reasonable attorneys' fees and costs on appeal, shall be secured hereby and Mortgagor shall reimburse Mortgagee therefor immediately upon demand, together with interest at the Default Rate from the date of payment by Mortgagee to the date of reimbursement. 15. Mortgagee in the exercise of the rights and powers hereinabove conferred upon it shall have the full power to use and apply the avails, rents, issues and profits of the Premises to the payment of or on account of the following, at the election of Mortgagee and in such order as Mortgagee may determine: (a) to the payment of the expenses of operating the Premises, including cost of management and leasing thereof (which shall include reasonable compensation to Mortgagee and its agent or agents if management is delegated to an agent or agents, and shall also include lease commissions and other compensation and expenses of seeking and procuring tenants and entering into leases), established claims for damages, if any, and premiums on insurance as hereinabove authorized; (b) to the payment of taxes and special assessments now due or which may hereafter become due on the Premises; (c) to the payment of all repairs, decorating, renewals, replacements, alterations, additions, betterments and improvements of the Premises and of placing the Premises in such condition as will in the judgment of Mortgagee make it readily rentable; and/or (d) to the payment of any principal, interest or other indebtedness secured hereby or any deficiency which may result from any foreclosure sale. 16. During the continuance of any Event of Default under this mortgage, Mortgagee may apply to any court having jurisdiction for the appointment of a receiver of the Premises. Such appointment may be made either before or after sale, without notice, without regard to the solvency or insolvency of Mortgagor at the time of application for such receiver and without regard to the then value of the Premises or the adequacy of Mortgagee's security. Mortgagee or any holder of the Note may be appointed as such receiver. The receiver shall have power to collect the rents, issues and profits of the Premises during the pendency of any foreclosure proceedings and, in case of a sale, during the full redemption period, if any, as well as during any further times when Mortgagor, except for the intervention of such receiver, would be entitled to collect such rents, issues and profits. In addition, the receiver shall have all other powers which shall be necessary or are usual in such cases for the protection, possession, control, management and operation of the Premises during the whole of said period. The court from time to time may authorize the receiver to apply the net income in his hands at Mortgagee's election and in such order as Mortgagee may determine in payment in full or in part of: (a) principal, interest and all other indebtedness secured hereby or provided by any decree foreclosing this mortgage, or any tax, special assessment or other lien which may be or become superior to the lien hereof or of such decree, provided such application is made prior to foreclosure sale; and (b) the deficiency in case of a sale and deficiency. 17. (a) Mortgagor agrees that all reasonable costs, charges and expenses, including reasonable attorneys' fees, incurred or expended by Mortgagee arising out of or in connection with any action, proceeding or hearing, legal, equitable or quasi-legal, including the preparation therefor and any appeal therefrom, in any way affecting or pertaining to this mortgage, the Note or the Premises, shall be promptly paid by Mortgagor. All such sums not promptly paid by Mortgagor shall be added to the indebtedness secured hereby and shall bear interest at the Default Rate from the date of such advance and shall be due and payable on demand. (b) Mortgagor hereby agrees that upon the occurrence of an Event of Default and the acceleration of the principal sum secured hereby pursuant to this mortgage, to the full extent that such rights can be lawfully waived, Mortgagor hereby waives and agrees not to insist upon, plead, or in any manner take advantage of, any notice of acceleration, any stay, extension, exemption, homestead, marshaling or moratorium law or any law providing for the valuation or appraisement of all or any part of the Premises prior to any sale or sales thereof under any provision of this mortgage or before or after any decree, judgment or order of any court or confirmation thereof, or claim or exercise any right to redeem all or any part of the Premises so sold and hereby expressly waives to the full extent permitted by applicable law on behalf of itself and each and every person or entity acquiring any right, title or interest in or to the all or any part of the Premises, all benefit and advantage of any such laws which would otherwise be available to Mortgagor or any such person or entity, and agrees that neither Mortgagor nor any such person or entity will invoke or utilize any such law to otherwise hinder, delay or impede the exercise of any remedy granted or delegated to Mortgagee herein but will permit the exercise of such remedy as though any such laws had not been enacted. Mortgagor hereby further expressly waives to the full extent permitted by applicable law on behalf of itself and each and every person or entity acquiring any right, title or interest in or to all or any part of the Premises any and all rights of redemption from any sale or any order or decree of foreclosure obtained pursuant to provisions of this mortgage. 18. Mortgagor hereby assigns to Mortgagee directly and absolutely, and not merely collaterally, the rents, issues, profits, royalties, and payments payable under any lease of the Premises, or portion thereof, including any oil, gas or mineral lease, or any installments of money payable pursuant to any agreement or any sale of the Premises or any part thereof, subject only to a license, if any, granted by Mortgagee to Mortgagor with respect thereto prior to the occurrence of a default hereunder. Mortgagee, without regard to the adequacy of any security for the indebtedness hereby secured, shall be entitled to (a) collect such rents, issues, profits, royalties, payments and installments of money and apply the same as more particularly set forth in this paragraph, all without taking possession of the Premises, or (b) enter and take possession of the Premises or any part thereof, in person, by agent, or by a receiver to be appointed by the court and to sue for or otherwise collect such rents, issues, profits, royalties, payments and installments of money. Mortgagee may apply any such rents, issues, profits, royalties, payments and installments of money so collected, less costs and expenses of operation and collection, including reasonable attorneys' fees and costs and reasonable attorneys' fees and costs on appeal, upon any principal, interest and all other indebtedness secured hereby, at Mortgagee's option and in such order as Mortgagee may determine, and, if such costs and expenses and reasonable attorneys' fees and costs shall exceed the amount collected, the excess shall be immediately due and payable. The collection of such rents, issues, profits, royalties, payments and installments of money and the application thereof as aforesaid shall not cure or waive any Event of Default or notice of default hereunder or invalidate any act done pursuant to such notice, except to the extent any such Event of Default is fully cured. Failure or discontinuance of Mortgagee at any time, or from time to time, to collect any such moneys shall not impair in any manner the subsequent enforcement by Mortgagee of the right, power and authority herein conferred on Mortgagee. Nothing contained herein, including the exercise of any right, power or authority herein granted to Mortgagee, shall be, or be construed to be, an affirmation by Mortgagee of any tenancy, lease or option, or an assumption of liability under, or the subordination of the lien or charge of this mortgage to any such tenancy, lease or option. Mortgagor hereby agrees that, in the event Mortgagee exercises its rights as in this paragraph provided, Mortgagor waives any right to compensation for the use of Mortgagor's furniture, furnishings or equipment in the Premises for the period such assignment of rents or receivership is in effect, it being understood that the rents, issues, profits, royalties, payments and installments of money derived from the use of any such items shall be applied to Mortgagor's obligations hereunder as above provided. 19. (a) Mortgagor has executed and delivered that certain Assignment of Leases and Rents of even date herewith assigning to Mortgagee directly and absolutely, and not merely collaterally, the interest of Mortgagor as lessor under the existing leases of the Premises, as well as all other leases which may hereafter be made in respect of the Premises, and the rents and other income arising thereunder and from the use of the Premises. Said Assignment of Leases and Rents grants to Mortgagee specific rights and remedies in respect of said leases and governs the collection of rents and other income thereunder and from the use of the Premises, and such rights and remedies so granted shall be cumulative of those granted herein. (b) Mortgagor shall keep and perform all terms, conditions and covenants required to be performed by it as lessor under the aforesaid leases; shall promptly advise Mortgagee in writing of any claim of default by Mortgagor made by a lessee under any such lease or of any default thereunder by a lessee; and shall promptly provide Mortgagee with a copy of any notice of default or other notice served upon Mortgagor by any such lessee. Mortgagor will not cancel, modify or alter, or accept the surrender of, any existing or future lease of the Premises or any part thereof without first obtaining written consent of Mortgagee unless otherwise specifically permitted in the Assignment of Leases and Rents of even date herewith. 20. (a) All rights and remedies granted to Mortgagee in the Loan Documents shall be in addition to and not in limitation of any rights and remedies to which it is entitled in equity, at law or by statute, and the invalidity of any right or remedy herein provided by reason of its conflict with applicable law or statute shall not affect any other valid right or remedy afforded to Mortgagee. No waiver of any Event of Default or of any default in the performance of any covenant contained in the Note or any other instrument securing the Note shall at any time thereafter be held to be a waiver of any rights of the Mortgagee hereunder, nor shall any waiver of a prior Event of Default or default operate to waive any subsequent Event of Default or default. All remedies provided for herein, in the Note and in any other instrument securing the Note are cumulative and may, at the election of Mortgagee, be exercised alternatively, successively, or concurrently. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision or to proceed against one portion of the Premises to the exclusion of any other portion. (b) This mortgage is subject to any existing statutory condition and upon the further condition that all covenants and agreements of Mortgagor herein shall be fully or timely performed, time being of the essence under this mortgage. No breach of any such condition or agreement shall be permitted, and in the event of any such breach, Mortgagee shall have any statutory power of sale, and this mortgage shall be subject to foreclosure as provided by law. 21. By accepting payment of any sum secured hereby after its due date, Mortgagee does not waive its right either to require prompt payment when due of all other sums or installments so secured or to declare a default for failure to pay such other sums or installments. 22. Notwithstanding anything herein or in the Note to the contrary, no provision contained herein or in the Note which purports to obligate Mortgagor to pay any amount of interest or any fees, costs or expenses which are in excess of the maximum permitted by applicable law, shall be effective to the extent that it calls for the payment of any interest or other sums in excess of such maximum. All agreements between Mortgagor and Mortgagee, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand for payment of or acceleration of the maturity of any of the indebtedness secured hereby or otherwise, shall the interest contracted for, charged or received by Mortgagee exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Mortgagee in excess of the maximum lawful amount, the interest payable to Mortgagee shall be reduced to the maximum amount permitted under applicable law; and if from any circumstance Mortgagee shall ever receive anything of value deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any excessive interest shall at Mortgagee's option, be refunded to Mortgagor or be applied to the reduction of the principal balance of the indebtedness secured hereby and not to the payment of interest or, if such excessive interest exceeds the unpaid balance of principal of the indebtedness secured hereby, such excess shall be refunded to Mortgagor. This paragraph shall control all agreements between Mortgagor and Mortgagee. 23. In the event one or more provisions of the Loan Documents shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this mortgage shall be construed as if any such provision had never been contained herein. 24. If the payment of the indebtedness secured hereby or of any part thereof shall be extended or varied, or if any part of the security be released, all persons now or at any time hereafter liable therefor, or interested in said Premises, shall be held to assent to such extension, variation or release, and their liability and the lien and all provisions hereof shall continue in full force, the right of recourse against all such persons being expressly reserved by Mortgagee notwithstanding such variation or release. 25. Upon payment in full of the indebtedness secured hereby and the performance by Mortgagor of all of the obligations imposed on Mortgagor in the Loan Documents, these presents shall be null and void, and Mortgagee shall release this mortgage and the lien hereof by proper instrument executed in recordable form. 26. If no Event of Default has occurred and is continuing under this mortgage, Mortgagor shall have the privilege of making prepayments on the principal of the Note (in addition to the required payments) if and only to the extent and upon the terms and conditions, if any, expressly set forth in the Note. If not expressly so set forth, the Note is not subject to such prepayment. 27. (a) Subject to restrictions applicable to Mortgagor, as landlord, expressly provided in the Lease, so long as the Lease is in full force and effect, Mortgagor hereby grants to Mortgagee and its respective agents, attorneys, employees, consultants, contractors and assigns, an irrevocable license and authorization to enter upon and inspect the Premises and all facilities located thereon at reasonable times and the right to conduct a Phase I environmental audit after the occurrence of an Event of Default or in the event of any sale or conveyance of this mortgage. (b) In the event that there has been an Event of Default or an event which with the passage of time or the giving of notice or both would constitute an Event of Default or Mortgagee has formed a reasonable belief, based on its inspection of the Premises or other factors known to it, that Hazardous Materials may be present on the Premises, then, subject to restrictions applicable to Mortgagor, as landlord, expressly provided in the Lease, so long as the Lease is in full force and effect, Mortgagor shall perform such tests at Mortgagee's request, including without limitation, subsurface testing, soil and ground water testing, and other tests which may physically invade the Premises or facilities from a consultant and pursuant to a scope of work approved by Mortgagee (the "Tests"), as Mortgagee, in its sole discretion, determines as necessary to (i) investigate the condition of the Premises, (ii) protect the security interests created under this mortgage or (iii) determine compliance with all laws relating to Hazardous Materials, the provisions of this mortgage and other matters relating thereto, and Mortgagor shall provide true and accurate written copies of the results of the Tests to Mortgagee upon receipt of the results. In the event that Mortgagor fails to conduct the Tests requested by Mortgagee and to provide Mortgagee with the results within sixty (60) days of such request or such additional time as Mortgagee shall agree in writing in its sole discretion, or if Mortgagee is not reasonably satisfied with the results of any of the Tests or of any Phase I environmental audit, then, subject to any restrictions applicable to Mortgagor, as landlord, expressly provided in the Lease, so long as the Lease is in full force and effect, Mortgagor grants to Mortgagee and its respective agents, attorneys, employees, consultants, contractors and assigns, an irrevocable license and authorization to conduct the Tests necessary in Mortgagee's sole discretion to accomplish (i) through (iii) in this paragraph. 28. Within 15 days after any written request by either party, the other party shall certify, by a written statement duly acknowledged, the amount of principal and interest then owing on the Note and whether the certifying party knows of any offsets or defenses exist against the indebtedness secured hereby. 29. (a) Mortgagor shall furnish to Mortgagee within 90 days after the end of each fiscal year of Mortgagor a detailed financial report prepared in accordance with generally accepted principles of accounting consistently applied, certified by Mortgagor s chief financial officer in a manner and otherwise in form and substance acceptable to Mortgagee covering the full and complete operation of the Premises, including without limitation: (i) income and expense statements , and (ii) a report of the leasing status of the Premises as of the end of such year, identifying the lessee, square footage leased, rental amount, rental concessions and/or rental deferments, escalation rentals, if any, percentage rents, if any, expiration date under each lease of the Premises and a listing of sales volumes attained by lessees of the Premises under percentage leases for the immediately preceding year. Such reports shall be prepared by an accountant who may be an employee of Mortgagor, or of an affiliate of Mortgagor, acceptable to Mortgagee. In addition to the reports referred to herein, Mortgagor shall promptly supply any additional information or records relating to the Premises or its operation as Mortgagee may from time to time reasonably request. (b) Mortgagor shall submit to Mortgagee during the life of this mortgage within 60 days after the end of each quarter quarterly balance sheets, income statements and statements of change for Mortgagor. Quarterly internal financial statements and quarterly 10Qs filed with the Securities and Exchange Commission will satisfy the requirement contained in this subparagraph (b). (c) Mortgagor shall submit to Mortgagee during the life of this mortgage within 90 days following the end of each fiscal year annual balance sheets, income statements and statements of change for Mortgagor. Annual audits with copies of 10Ks filed with the Securities and Exchange Commission will satisfy the requirement contained in this subparagraph (c). 30. Any notice which any party hereto may desire or be required to give to the other shall be deemed to be an adequate and sufficient notice if given in writing and service is made by either (i) registered or certified mail, postage prepaid, in which case notice shall be deemed to have been received three (3) business days following deposit to the mail; or (ii) nationally recognized overnight air courier, next day delivery, prepaid, in which case such notice shall be deemed to have been received one (1) business day following delivery to such courier. All notices shall be addressed to Mortgagor at its address given on the first page hereof or to Mortgagee at 711 High Street, Des Moines, Iowa 50392, Attn: Commercial Real Estate Loan Administration, Loan No. 750905, or to such other place as either party may by written notice to the other hereafter designate as a place for service of notice. 31. This mortgage and all the provisions hereof shall extend to and be binding upon Mortgagor and all persons claiming by, under or through Mortgagor, and the word "Mortgagor" when used herein shall include all such persons and all persons liable for the payment of the indebtedness secured hereby or any part thereof, whether or not such persons have executed the Note or this mortgage. The word "Mortgagee" as used herein shall include the successors and assigns of the Mortgagee named herein, and the holder or holders from time to time of the Note secured hereby. 32. Mortgagor has had the opportunity to fully negotiate the terms hereof and modify the draftsmanship of this mortgage. Therefore, the terms of this mortgage shall be construed and interpreted without any presumption, inference, or rule requiring construction or interpretation of any provision of this mortgage against the interest of the party causing this mortgage or any portion of it to be drafted. Mortgagor is entering into this mortgage freely and voluntarily without any duress, economic or otherwise. 33. This mortgage shall be governed by and construed in accordance with the laws of the State of New Jersey, except for the provisions hereof which pertain to the payments of interest or amounts deemed to constitute interest, all of which provisions, like the Note, shall be governed by the laws of the State of Florida. 34. As used herein, the term "Default Rate" means a rate equal to the lesser of (i) 4% per annum above the then applicable interest rate payable under the Note or (ii) the maximum rate allowed by applicable law. The Default Rate is not a penalty, but rather a rate of interest negotiated by the parties to compensate Mortgagee additionally in the Event of Default. 35. Notwithstanding any provision of this mortgage, the Note or any other instruments evidencing or securing the loan evidenced by the Note which might be construed to the contrary, the assignment of rents and other amounts provided for herein is an absolute assignment and not merely a collateral assignment or a security interest, and is effective whether or not a default occurs hereunder, subject only to a license, if any, granted by Mortgagee to Mortgagor with respect thereto prior to the occurrence of a default hereunder, the extent of which may be more fully described in the Assignment of Leases and Rents. It is the intention of Mortgagor and Mortgagee that the assignment effectuated by this mortgage with respect to such rents and other amounts payable under the leases shall be a direct and currently effective assignment and shall not constitute merely the granting of a lien, security interest or pledge for the purpose of securing the indebtedness secured hereby. In the event that a court of competent jurisdiction determines that, notwithstanding such expressed intent of the parties, Mortgagee's interest in the rents and other amounts payable under the leases constitutes a lien on or security interest in or pledge thereof, it is agreed and understood that the forwarding of a notice to Mortgagor after the occurrence of a default, advising Mortgagor of the revocation of any license then in favor of Mortgagor to collect such rents or other amounts payable under the leases, or of the existence of a default, shall be sufficient action by Mortgagee to (i) perfect such lien on or security interest in or pledge of the rents and other amounts payable under the leases, (ii) take possession thereof, and (iii) entitle Mortgagee to immediate and direct payment of the rents and other amounts payable under the leases, for application as provided in this mortgage, all without the necessity of any further action by Mortgagee, including, without limitation, any action to obtain possession of the land, improvements or any other portion of the premises. Notwithstanding the direct and absolute assignment of the rents and other amounts payable under the leases as herein described, there shall be no pro tanto reduction in any portion of the indebtedness secured by this mortgage except with respect to rents and other amounts payable under the leases actually received by Mortgagee and applied by Mortgagee toward payment of the indebtedness. Mortgagee may, upon written notice to Mortgagor, elect to (i) exclude from the assignment provided in this mortgage any of the leases as specified in such notice so that the interest under such indicated lease is not assigned to Mortgagee, and (ii) subordinate the lien and other terms and provisions of this mortgage to any of the leases as indicated in said notice to Mortgagor. 36. MORTGAGOR KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTIONS BROUGHT BY MORTGAGOR OR MORTGAGEE IN CONNECTION WITH THIS MORTGAGE, ANY OF THE LOAN DOCUMENTS, THE INDEBTEDNESS SECURED HEREBY, OR ANY OTHER STATEMENTS OR ACTIONS OF MORTGAGEE. 37. (a) Notwithstanding any provision to the contrary in the Note, this mortgage or any other instrument or agreement by which the Note is secured and except as otherwise provided in this paragraph, the liability of Mortgagor under the Loan Documents shall be limited to the interests of Mortgagor in the Premises and the rents, issues, proceeds and profits thereof. In the event of foreclosure of the liens evidenced by the Loan Documents, no judgment for any deficiency upon the indebtedness evidenced by the Loan Documents shall be sought or obtained by Mortgagee against Mortgagor. Nothing contained in this paragraph shall: (i) prevent the failure of Mortgagor to make any payment or to perform any obligation under any of the Loan Documents within the time periods provided therein from being an Event of Default thereunder; (ii) be construed as limiting the obligations of Mortgagor to any tenant under any lease of the Premises; (iii) in any way limit or impair the lien or enforcement of the Loan Documents pursuant to the terms thereof; or (iv) limit the obligations of any indemnitor or guarantor, if any, of Mortgagor's obligations under the Loan Documents. (b) Notwithstanding subparagraph (a) above, Mortgagor, but not its shareholders, officers, directors, employees or agents, shall be personally liable to Mortgagee for: (i) Mortgagor's failure to comply with paragraphs 2 (taxes and assessments) and 3 (insurance) hereof with respect to amounts accruing prior to a Sale of the Premises, as defined below; (ii) any event or circumstance for which Mortgagor indemnifies Mortgagee under paragraph 1(m) (environmental indemnity) hereof; (iii) Mortgagor's failure to pay utilities accruing prior to a Sale of the Premises, as defined below, on or before the date such payments are due; (iv) operation and maintenance of the Premises applicable to the time period prior to a Sale of the Premises, as defined below; (v) any sums expended by Mortgagee in fulfilling the obligations of Mortgagor as lessor under any lease of the Premises prior to a sale of the Premises pursuant to foreclosure or power of sale, a bona fide sale (permitted by the terms of paragraph 1(l) hereof or consented to in writing by Mortgagee) to an unrelated third party or upon conveyance to Mortgagee of the Premises by a deed acceptable to Mortgagee in form and content (each of which shall be referred to as a "Sale" for purposes of this paragraph) or expended by Mortgagee after a Sale of the Premises for obligations of Mortgagor which arose prior to a Sale of the Premises; (vi) any rents or other income regardless of type or source of payment (including, but not limited to, CAM charges, lease termination payments, refunds of any type, prepayment of rents, settlements of litigation, or settlements of past due rents) from the Premises which Mortgagor has received or has a right to receive after an Event of Default under the Loan Documents or an event which with the passage of time, the giving of notice or both would constitute an Event of Default, either or both of which has occurred and is continuing, and which are not applied to (A) expenses of operation and maintenance of the Premises and the taxes, assessments, utility charges and insurance of the Premises, taking into account sufficient reserves for the same and for replacements and recurring items, and (B) payment of principal, interest and other charges when due under the Loan Documents; provided that any payments to parties related to Mortgagor shall be considered expenses of operation only if they are at market rates or fees consistent with market rates or fees for the same or similar services; (vii) any security deposits of tenants not turned over to Mortgagee upon conveyance of the Premises to Mortgagee pursuant to foreclosure or power of sale or by a deed acceptable to Mortgagee in form and content; (viii) misapplication or misappropriation of tax reserve accounts, tenant improvement reserve accounts, security deposits, prepaid rents or other similar sums paid to or held by Mortgagor or any other entity or person in connection with the operation of the Premises; (ix) any waste committed or allowed by Mortgagor with respect to the Premises prior to a Sale of the Premises; (x) any insurance or condemnation proceeds or other similar funds or payments with respect to a casualty or condemnation occurring prior to a Sale of the Premises applied by Mortgagor in a manner other than as expressly provided in the Loan Documents; (xi) of any breach or violation of paragraph 1(l) (due on sale or encumbrance) hereof, other than the filing of a nonmaterial mechanic's lien affecting the Premises, the granting of any utility or other nonmaterial easement or servitude burdening the Premises, or any other transfer or encumbrance not in the nature of a transfer, reduction or impairment of any material economic interest in the Premises; and (xii) of any fraud or willful misrepresentation by Mortgagor regarding the Premises, the making or delivery of any of the Loan Documents or in any materials or information provided by Mortgagor in connection with the loan. (c) Notwithstanding anything herein contained to the contrary, Mortgagor, but not its shareholders, officers, directors, employees or agents, shall be personally liable to Mortgagee for $3,664,355.00, if the event relates to the portion of the Premises leased to Linens or $4,289,470.00 if the event relates to the portion of the Premises leased to Marshalls, plus the Make Whole Premium which would be due with respect to such allocated amount had such amount been prepaid as of the date of the occurrence set forth below: (i) in the event of an amendment, modification or termination by Mortgagor of the Lease without the prior written consent of Mortgagee. (ii) in the event Lessee is not obligated to notify Mortgagee of a default by Mortgagor and Mortgagor defaults under the Lease and Mortgagee does not receive notice of said default following the occurrence thereof within a reasonable period of time to effect cure of said default; or (iii) in the event Mortgagor violates any exclusive use or non-compete provision granted to Lessee under the Lease. 38. This mortgage and the indebtedness secured hereby is for the sole purpose of conducting or acquiring a lawful business, professional or commercial activity or for the acquisition or management of real or personal property as a commercial investment, and all proceeds of such indebtedness shall be used for said business or commercial investment purpose. Such proceeds will not be used for the purchase of any security within the meaning of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including without limitation, Regulations G, T and X of the Board of Governors of the Federal Reserve System. This is not a purchase money mortgage where a seller is providing financing to a buyer for the payment of all or any portion of the purchase price, and the Premises secured hereby is not a residence or homestead or used for mining, grazing, agriculture, timber or farming purposes. 39. Unless Mortgagee shall otherwise direct in writing, Mortgagor shall appear in and defend all actions or proceedings purporting to affect the security hereunder, or any right or power of the Mortgagee. The Mortgagee shall have the right to appear in such actions or proceedings. Mortgagor shall save Mortgagee harmless from all costs and expenses, including reasonable attorneys' fees and costs of a title search, continuation of abstract and preparation of survey, incurred by reason of any action, suit, proceeding, hearing, motion or application before any court or administrative body in and to which Mortgagee may be or become a party by reason hereof. Such proceedings shall include but not be limited to condemnation, bankruptcy, probate and administration proceedings, as well as any other action, suit, proceeding, right, motion or application wherein proof of claim is by law required to be filed or in which it becomes necessary to defend or uphold the terms of this mortgage or otherwise purporting to affect the security hereof or the rights or powers of Mortgagee. All money paid or expended by Mortgagee in that regard, together with interest thereon from date of such payment at the Default Rate shall be additional indebtedness secured hereby and shall be immediately due and payable by Mortgagor without notice. 40. During the occurrence of an Event of Default, all rents, issues and profits collected or received by Mortgagor shall be accepted and held for Mortgagee in trust and shall not be commingled with the funds and property of Mortgagor, but shall be promptly paid over to Mortgagee. 41. Mortgagee shall have all rights and remedies provided to a secured party by the Uniform Commercial Code with respect to such portion of the Premises, if any, as is governed by the Uniform Commercial Code. 42. In the event Mortgagee s consent is required by the terms of this mortgage, Mortgagee shall attempt to respond, approve or disapprove within ten (10) days of receipt of Mortgagor s request therefor. Mortgagor acknowledges, however, that the failure of Mortgagee to respond, approve or disapprove any such request shall not be deemed to be a consent. 43. Mortgagor will comply with all provisions hereof and of the Freehold Raceway Village Condominium Master Deed and Declaration of Restrictive Covenants and Protective Covenants ( Master Deed ), which documents and definitions contained therein are made a part hereof as if recited at length herein. 44. The Mortgagor acknowledges and agrees that the Mortgagee shall have the following rights with respect to the Mortgagor s interests in the Condominium and the Freehold Raceway Village Condominium Association, Inc. ( Condominium Association ): (a) The Mortgagor shall notify Mortgagee in writing within ten (10) days of any of the following events or Mortgagor s receipt of notice thereof, as the case may be: (i) any condemnation or any casualty loss which affects the Condominium or the Premises; (ii) any delinquency in the payment of assessments or charges owed by Mortgagor to the Condominium Association; the suspension of Mortgagor s rights in the Association; and any default by Mortgagor under the Master Deed or By- Laws giving rise to a cause of action against the Mortgagor; (iii) any lapse, cancellation or material modification of any insurance policy or fidelity bond required to be maintained by the Condominium Association; and (iv) any proposed action which would affect the rights of the Mortgagee, including but not limited to any amendment of the Master Deed, termination of the Condominium, or amendment of the By-Laws of the Condominium Association. (b) The consent of Mortgagee shall be required (which consent shall not be unreasonably withheld): (i) to add or amend any provisions of the Master Deed or By- Laws of the Association affecting any of the following: (A) voting; (B) assessments, assessment liens or subordination of such liens; (C) boundaries of the Condominium; (D) convertibility of the Units into Common Elements or of Common Elements into the Units (except for any changes in the location of any access road): (E) expansion or contraction of the Condominium or the addition, annexation or withdrawal of property to or from the Condominium; (F) imposition of any right of first refusal or similar restriction on the right of a Unit owner to sell, transfer or otherwise convey his or her Units; (G) creation of Subunits and Subboard; and (H) any provisions which are for the express benefit of permitted mortgage holders, insurer or guarantors of first mortgages on a Unit or which affects the priority or validity of this Mortgage. (ii) to terminate the Condominium. 45. Mortgagor and Mortgagee may agree to change the interest rate, maturity date, or other term or terms of this Mortgage, of any of the documents referred to herein or of the Indebtedness. Any such agreement shall be in writing, duly executed by both Mortgagor and Mortgagee. In the event that any such agreement shall occur, it shall, to the extent permitted by law, be deemed a "modification" as defined in N.J.S.A. 46:9-8.1 et seq., and this Mortgage shall be subject to, and the Mortgagee shall be the beneficiary of, the mortgage lien priority provisions of such statute. IN WITNESS WHEREOF, Mortgagor has caused this mortgage to be duly executed and delivered as of the date first above written. COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation WITNESS: By: /s/Julian E. Whitehurst By: /s/Kevin B. Habicht ----------------------------------- ------------------------------- Name: Julian E. Whitehurst Name: Kevin B. Habicht Title: Executive Vice President By: /s/Deborah A. Sieffert ----------------------------------- Name: Deborah A. Sieffert This document prepared by: Barbara C. Raffaldini Polsky & Riordan, Ltd. 205 North Michigan, Suite 3909 Chicago, IL 60601 312-540-0200 State of ILLINOIS ) ) SS. County of COOK ) I, Wanda A. Underwood, a Notary Public, in and for said County, in the State aforesaid, do hereby certify that Kevin B. Habicht, the Executive Vice President of COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that (s)he signed and delivered said instrument as his/her own free and voluntary act and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Given under my hand and notarial seal this 14th day of December, 1995. My commission expires: /s/Wanda A. Underwood ------------------------------------- Notary Public 07/21/98 EX-7 8 [LETTERHEAD OF KPMG PEAT MARWICK LLP] The Board of Directors Commercial Net Lease Realty, Inc. We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Orlando, Florida January 18, 1996 -----END PRIVACY-ENHANCED MESSAGE-----