-----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, WXHgA7ieIP6+yjoZfO7Idzvp1LQAfbglI6SA+ClhPKRE8otAopXhI86xC0ld4K73 udOiaYPvRC6ROpoLm1fPDg== 0000950124-98-006266.txt : 19981111 0000950124-98-006266.hdr.sgml : 19981111 ACCESSION NUMBER: 0000950124-98-006266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAMCO GERSHENSON PROPERTIES TRUST CENTRAL INDEX KEY: 0000842183 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 136908486 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10093 FILM NUMBER: 98743321 BUSINESS ADDRESS: STREET 1: 27600 NORTHWESTERN HWY STREET 2: SUITE 200 CITY: SOUTHFIELD STATE: MI ZIP: 48034 BUSINESS PHONE: 2483509900 MAIL ADDRESS: STREET 1: 27600 NORTHWESTERN HWY STREET 2: SUITE 200 CITY: SOUTHFIELD STATE: MI ZIP: 48034 FORMER COMPANY: FORMER CONFORMED NAME: RPS REALTY TRUST DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF - ---- 1934 For the quarterly period ended September 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF - ---- 1934 For the transition period from to ---------- ---------- Commission file number 1-10093 RAMCO-GERSHENSON PROPERTIES TRUST (Exact name of registrant as specified in its charter) MARYLAND 13-6908486 - ------- ---------- (State or other jurisdiction (I.R.S. Employer Identification of incorporation or organization) Number) 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034 - ----------------------------------------------------------- ----- (Address of principal executive offices) (Zip code) 248-350-9900 ------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of common shares of beneficial interest ($.01 par value) of the Registrant outstanding as of September 30, 1998: 7,123,638 1 2
Index Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997............. 3 Consolidated Statements of Operations (unaudited) - Three Months and Nine Months Ended September 30, 1998 and 1997............................................................... 4 Consolidated Statement of Shareholders' Equity (unaudited) - Nine Months Ended September 30, 1998........................................................................ 5 Consolidated Statements of Cash Flows (unaudited)- Nine Months Ended September 30, 1998 and 1997............................................................... 6 Notes to Consolidated Financial Statements (unaudited)......................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................................................... 19
2 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS RAMCO-GERSHENSON PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
September 30, December 31, 1998 1997 ------------- ------------- (unaudited) ASSETS Investment in real estate - net (Note 2) .................... $ 495,340 $ 458,294 Accounts receivable - net ................................... 7,057 6,035 Equity investments in and advances to unconsolidated entities .................................................... 5,765 6,421 Cash and cash equivalents ................................... 4,743 5,033 Other assets - net (Note 3) ................................. 12,702 8,899 --------- --------- Total Assets ............................................. $ 525,607 $ 484,682 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Mortgages and notes payable (Note 4) ........................ $ 325,696 $ 295,618 Distributions payable ....................................... 4,784 4,348 Accounts payable and accrued expenses ....................... 13,880 13,145 Due to related entities ..................................... 1,377 1,325 --------- --------- Total Liabilities .......................................... 345,737 314,436 Minority Interest ............................................. 46,324 42,282 Commitments and Contingencies (Note 7) ........................ - - SHAREHOLDERS' EQUITY .......................................... Preferred Shares, par value $.01, 10,000 shares authorized; 867 and 467 Series A convertible shares issued and outstanding, $21,666 and $11,666 liquidation value ..... 20,527 11,147 Common Shares of Beneficial Interest, par value $.01, 30,000 shares authorized; 7,124 and 7,123 issued and outstanding .. 71 71 Additional paid-in capital .................................. 150,523 150,513 Cumulative distributions in excess of net income ............ (37,575) (33,767) --------- --------- Total Shareholders' Equity .................................... 133,546 127,964 --------- --------- Total Liabilities and Shareholders' Equity ................. $ 525,607 $ 484,682 ========= =========
See notes to consolidated financial statements. 3 4 RAMCO-GERSHENSON PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)
For the Three For the Nine Months Ended Months Ended September 30, September 30, 1998 1997 1998 1997 REVENUES ------ ------ ------ ------ Minimum rents...................................... $ 13,693 $ 9,304 $ 40,134 $ 27,220 Percentage rents................................... 46 341 798 1,123 Recoveries from tenants ........................... 5,058 4,677 14,321 13,273 Interest and other income.......................... 166 139 415 595 -------- -------- -------- -------- Total Revenues................................ 18,963 14,461 55,668 42,211 -------- -------- -------- -------- EXPENSES Real estate taxes.................................. 1,761 1,551 5,208 4,560 Recoverable operating expenses..................... 3,246 2,970 9,213 8,444 Depreciation and amortization...................... 3,059 1,999 8,935 5,692 Other operating.................................... 183 179 598 722 General and administrative......................... 1,400 1,108 4,349 3,583 Interest expense................................... 6,444 3,476 18,688 9,588 -------- -------- -------- -------- Total Expenses................................ 16,093 11,283 46,991 32,589 -------- -------- -------- -------- Operating income ...................................... 2,870 3,178 8,677 9,622 Loss from unconsolidated entities...................... 65 85 228 240 -------- -------- -------- -------- Income before minority interest........................ 2,805 3,093 8,449 9,382 Minority interest...................................... 810 806 2,372 2,500 -------- -------- -------- -------- Net income............................................. 1,995 2,287 6,077 6,882 Preferred dividends.................................... (345) - (908) - -------- -------- -------- -------- Net income available to common shareholders............ $ 1,650 $ 2,287 $ 5,169 $ 6,882 ======== ======== ======== ======== Basic earnings per share............................... $0.23 $0.32 $0.73 $0.97 ======== ======== ======== ======== Diluted earnings per share............................. $0.23 $0.32 $0.72 $0.96 ======== ======== ======== ======== Weighted average shares outstanding: Basic.............................................. 7,124 7,123 7,123 7,123 ======== ======== ======== ======== Diluted............................................ 7,144 7,159 7,162 7,145 ======== ======== ======== ========
See notes to consolidated financial statements. 4 5 RAMCO-GERSHENSON PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) (Unaudited)
Preferred Stock Common Stock Additional Cumulative Total --------------- ------------ Paid-In Earnings/ Shareholders' Shares Amount Shares Amount Capital Distribution Equity ------ ------ ------ ------ ------- ------------ ------ Balance at January 1, 1998........ 467 $11,147 7,123 $71 $150,513 $(33,767) $127,964 Cash distributions declared......... (9,885) (9,885) Issuance of preferred shares........ 400 9,380 9,380 Exercise of stock options........... 1 10 10 Net income for the Nine Months Ended September 30, 1998................ 6,077 6,077 --- ------- ----- --- -------- -------- -------- Balance at September 30, 1998....... 867 $20,527 7,124 $71 $150,523 $(37,575) $133,546 === ======= ===== === ======== ======== ========
See notes to consolidated financial statements. 5 6 RAMCO-GERSHENSON PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
For the Nine Months Ended September 30 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,077 $ 6,882 Adjustments to reconcile net income to net cash flows Provided by operating activities: Depreciation and amortization .................................... 8,935 5,692 Amortization of deferred financing costs ......................... 804 153 Loss from unconsolidated entities ................................ 228 240 Minority interest................................................. 2,372 2,500 Changes in assets and liabilities that provided (used) cash: Accounts receivable.......................................... (1,022) (1,289) Other assets ................................................ (5,187) (4,286) Accounts payable and accrued expenses ....................... 1,171 8 ------- -------- Total adjustments ................................................ 7,301 3,018 ------- -------- Cash Flows Provided by Operating Activities ........................ 13,378 9,900 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquired ............................................. (24,838) (21,048) Advances from (to) unconsolidated entities ....................... 428 (623) ------- -------- Cash Flows Used In Investing Activities ............................ (24,410) (21,671) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions to shareholders ............................... (9,885) (8,976) Cash distributions to operating partnership unit holders ......... (3,603) (3,311) Purchase of operating partnership units .......................... - (1,416) Repayment of Credit Facility ..................................... (3,700) (2,430) Principal repayments on mortgages payable ........................ (3,992) (1,398) Payment of deferred financing costs .............................. (370) (613) Borrowings on Credit Facility .................................... 22,600 28,463 Net proceeds from issuance of Preferred Shares ................... 9,380 - Net advances from related entities ............................... 52 318 Net proceeds from exercise of stock options ...................... 10 - Refund of deferred financing costs ............................... 250 - ------- -------- Cash Flows Provided by Financing Activities......................... 10,742 10,637 ------- -------- Net Decrease in Cash and Cash Equivalents .......................... (290) (1,134) Cash and Cash Equivalents, Beginning of Period ..................... 5,033 3,541 ------- -------- Cash and Cash Equivalents, End of Period ........................... $ 4,743 $ 2,407 ======= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest during the period ...................... $17,591 $ 9,070 ======= ======== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of Aquia Towne Center: Debt assumed ............................................. $15,170 - Value of OP units issued ................................. 5,273 -
See notes to consolidated financial statements. 6 7 RAMCO-GERSHENSON PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying interim financial statements and related notes of the Company are unaudited; however, they have been prepared in accordance with generally accepted accounting principles for interim financial reporting, the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such rules. The unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results for interim periods are not necessarily indicative of the results for a full year. Impact of Recent Accounting Pronouncements - In May 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods". This statement establishes standards for when the lessor can recognize contingent rental income that is based on future specified targets within the lessor's fiscal year. The consensus requires that contingent rental income in interim periods should be deferred until the specified target that results in contingent rental income is achieved. The impact of adopting this consensus was to decrease percentage rents by approximately $300 or $0.03 per share for the three months and the nine months ended September 30, 1998. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Readers are referred to the "Impact of Recent Accounting Pronouncements" section of the Company's 1997 Form 10-K for further discussion. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Management has not determined the impact of the Statement on the Company's financial statements. This Statement is effective for fiscal year beginning after June 15, 1999, with earlier adoption encouraged. The Company will adopt this accounting standard as required by January 1, 2000. Reclassifications - Certain reclassifications have been made to the 1997 financial statements in order to conform with the 1998 presentation. 2. REAL ESTATE The Company's real estate consists of the following:
September 30, 1998 December 31, 1997 ------------------ ----------------- (unaudited) Land $ 63,545 $ 57,075 Buildings and Improvements 451,506 414,115 Construction-in- progress 3,443 2,023 -------- --------- 518,494 473,213 Less: accumulated depreciation (23,154) (14,919) -------- --------- Investment in real estate - net $495,340 $458,294 ======== ========
7 8 REAL ESTATE ACQUISITIONS In May 1998 the Company acquired Southbay Fashion Center, a 96,700 square foot community center located in Sarasota, Florida, for approximately $6,000. In September 1998 the Company acquired Conyers Crossing, a 166,600 square foot community shopping center located in Conyers, Georgia for approximately $7,490. The Company also acquired Aquia Towne Center, a 238,000 square foot shopping center, located in Stafford County, Virginia. The purchase price was comprised of $1,430 in cash, issuance of 239,697 operating partnership units with a fair value of $5,273, and the assumption of a $15,170 existing mortgage. The mortgage note matures in March 2008 and has an interest rate of 7.39% (Note 4). The acquisitions have been accounted for using the purchase method of accounting and, accordingly, the assets and liabilities have been included in the consolidated balance sheet based upon their respective fair market values. 3. OTHER ASSETS Other assets are as follows:
September 30, 1998 December 31, 1997 ------------------ ----------------- (unaudited) Leasing costs and other $ 9,741 $ 5,845 Deferred financing costs 2,926 2,806 Proposed development and acquisition costs 2,505 1,214 -------- -------- 15,172 9,865 Less: accumulated amortization (2,470) (966) -------- -------- Other assets - net $ 12,702 $ 8,899 ======== ========
4. MORTGAGES AND NOTES PAYABLE MORTGAGES AND NOTES PAYABLE CONSIST OF THE FOLLOWING:
September 30, 1998 December 31, 1997 ------------------ ----------------- (unaudited) Fixed rate mortgages with interest rates ranging from 6.83% to 8.50% at September 30, 1998 and 6.83% to 8.75% at December 31, 1997, due at various dates through 2008.................................................... $173,208 $162,030 Floating rate mortgages at 75% of the rate of long-term Capital A Rated utility bonds, due January 1, 2010, plus supplemental Interest to equal LIBOR plus 200 basis points. The effective rate at September 30, 1998 was 7.41% and at December 31, 1997 was 7.33%...................... 7,000 7,000 Unsecured term loan, with an interest rate at LIBOR plus 275 basis points, due May 1, 1999. The effective rate at September 30, 1998 and December 31, 1997 was 9.38% and 8.75%, respectively.................................................................. 45,000 45,000 Credit Facility, with an interest rate at LIBOR plus 162.5 basis points at September 30, 1998 and December 31, 1997 due May 1999, maximum available borrowings of $110,000. The effective rate at September 30, 1998 and December 31, 1997 was 7.39% and 7.66%, respectively........................................................ 100,488 81,588 -------- -------- $325,696 $295,618 ======== ========
8 9 The mortgage notes are secured by mortgages on properties that have an approximate net book value of $274,730 and $276,619 as of September 30, 1998 and December 31, 1997, respectively. The Credit Facility is secured by mortgages on various properties that have an approximate net book value of $181,596 and $172,970 as of September 30, 1998 and December 31, 1997, respectively. At September 30, 1998, outstanding letters of credit issued under the Credit Facility, not reflected in the accompanying consolidated balance sheet, total approximately $836. The following table presents scheduled principal payments on mortgages and notes payable as of September 30, 1998:
Year ended December 31, 1998 (October 1 - December 31) $ 769 1999 148,667 2000 8,336 2001 3,245 2002 3,442 Thereafter 161,237 -------- Total $325,696 ========
During August 1998 the Company executed an interest rate swap agreement to limit the Company's exposure to increases in interest rates on its floating rate debt. The notional amount of the agreement was $75,000. Based on rates currently in effect under the Company's Credit Facility, the agreement provides for a fixed rate of 7.425% through October 2000. In conjunction with this agreement, the Company terminated, at no cost, the two interest rate collar agreements previously in place. These terminated agreements consisted of a $75,000 agreement through May 1, 1999 which had a cap at 8.375% and a floor of 7.125%, and a $50,000 agreement for the period May 1999 to October 2000 which had a cap at 8.375% and a floor of 7.225%. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreement, however; the Company does not anticipate non-performance by the counter party. 5. LEASES The Company is engaged in the operation of shopping center and retail properties and leases space to tenants and certain anchors pursuant to lease agreements. The lease agreements provide for initial terms ranging from 3 to 30 years and, in some cases, for annual rentals which are subject to upward adjustment based on operating expense levels and sales volume. Approximate future minimum rentals under noncancelable operating leases in effect at September 30, 1998, assuming no new or renegotiated leases nor option extensions on lease agreements, are as follows:
Year ended December 31, 1998 (July 1 - December 31) $ 12,898 1999 48,933 2000 44,647 2001 39,720 2002 35,713 Thereafter 235,872 -------- Total $417,783 ========
9 10 6. PRO FORMA FINANCIAL INFORMATION During 1997, the Company acquired properties with an aggregate cost of approximately $147,700. The acquisitions were accounted for as purchases and, accordingly, results of operations were included in the consolidated financial statements since the various dates of acquisitions. The following pro forma financial data have been presented as if the acquisitions had occurred on January 1, 1997:
Three Months Ended Nine Months Ended September 30, 1997 September 30, 1997 ------------------ ------------------ Revenues..................................................................... $18,603 $55,414 ======= ======= Net Income................................................................... $ 2,302 $ 6,964 ======= ======= Basic Earnings per Share..................................................... $ 0.33 $ 0.98 ======= ======= Diluted Earnings per Share................................................... $ 0.32 $ 0.98 ======= =======
7. COMMITMENTS AND CONTINGENCIES Substantially all of the properties have been subjected to Phase I environmental audits. Such audits have not revealed nor is management aware of any environmental liability that management believes would have a material adverse impact on the Company's financial position or results of operations. Management is unaware of any instances in which it would incur significant environmental costs if any or all of the properties were sold, disposed of or abandoned. During the third quarter of 1994, the Company held more than 25% of the value of its gross assets in overnight Treasury Bill reverse repurchase transactions which the United States Internal Revenue Service (the "IRS") may view as non-qualifying assets for the purposes of satisfying an asset qualification test applicable to REITs, based on a Revenue Ruling published in 1977 (the "Asset Issue"). The Company has requested that the IRS enter into a closing agreement with the Company that the Asset Issue will not impact the Company's status as a REIT. The IRS has deferred any action relating to the Asset Issue pending the further examination of the Company's 1991-1995 tax returns (the "Tax Audit"). Based on developments in the law which occurred since 1977, the Company's Tax Counsel, Battle Fowler LLP, has rendered an opinion that the Company's investment in Treasury Bill repurchase obligations would not adversely affect its REIT status. However, such opinion is not binding upon the IRS. In connection with the spin-off of Atlantic, Atlantic has assumed all liability arising out of the Tax Audit and the Asset Issue, including liabilities for interest and penalties and attorney fees relating thereto. In connection with the assumption of such potential liabilities, Atlantic and the Company have entered into a tax agreement which provides that the Company (under the direction of its Continuing Trustees), and not Atlantic, will control, conduct and effect the settlement of any tax claims against the Company relating to the Tax Audit and the Asset Issue. Accordingly, Atlantic will not have any control as to the timing of the resolution or disposition of any such claims. The Company and Atlantic also received an opinion from Special Tax Counsel, Wolf, Block, Schorr and Solis-Cohen LLP, that, to the extent there is a deficiency in the Company's taxable income arising out of the IRS examination and provided the Company timely makes a deficiency dividend (i.e., declares and pays a distribution which is permitted to relate back to the year for which each deficiency was determined to satisfy the requirement that the REIT distribute 95 percent of its taxable income), the classification of the Company as a REIT for the taxable years under examination would not be affected. Under the tax agreement referred to above, Atlantic has agreed to reimburse the Company for the amount of any deficiency dividend so made. If notwithstanding the above-described opinions of legal counsel, the IRS successfully challenged the status of the Company as a REIT, its status could be adversely affected. If the Company lost its status as a REIT, the Company believes that it will be able to re-elect REIT status for the taxable year beginning January 1, 1999. Although the IRS agent conducting the examination has not issued his final examination report with respect to the tax issues raised in the Tax Audit, including the Asset Issue (collectively, the "Tax Issues"), the Company has received a preliminary draft of the examining agent's report. The draft sets forth a number of positions which the examining agent has taken with respect to the Company's taxes for the years that are subject to the Tax Audit, which the Company believes are not consistent with applicable law and regulations of the IRS. If the final report were issued in its current form, the liability of Atlantic to indemnify the Company may be substantial. The Continuing Trustees of the Company are engaged in ongoing discussions with the examining agent and his supervisors with regard to the positions set forth in the draft report. There can be no assurance that, after conclusion of discussions 10 11 with such agent and his supervisors regarding the draft report, the examining agent will not issue the proposed report in the form previously delivered to the Company (or another form). Issuance of the revenue agent's report constitutes only the first step in the IRS administrative process for determining whether there is any deficiency in the Company's tax liability for the years at issue and any adverse determination by the examining agent is subject to administrative appeal within the IRS and, thereafter, to judicial review. As noted above, pursuant to the tax agreement between Atlantic and the Company, Atlantic has assumed all liability arising out of the Tax Audit and the Tax Issues. Based on the amount of Atlantic's assets, as disclosed in its Annual Report on Form 10-K for the year ended December 31, 1997, and its Quarterly Report on Form 10-Q for the period ended June 30, 1998, the Company does not believe that the ultimate resolution of the Tax Issues will have a material adverse effect on the financial position, results of operations or cash flows of the Company. During July 1997 Montgomery Ward ("Wards") a tenant at three of the Company's properties, (Tel-Twelve Mall, Clinton Valley Mall and Shoppes of Lakeland), filed for protection under Chapter 11 of the Bankruptcy Code. In October 1997, Wards issued a list of anticipated store closings which included the stores at the Company's Clinton Valley Mall. This location consists of a 101,200 square foot department store and a 7,480 square foot TBA store (Tires, Batteries and Automotive). The Company was notified in March 1998 that Wards rejected the lease. On an annual basis, Wards paid, in the aggregate, approximately $1,000 in base rent and operating and real estate tax expense reimbursements for the Clinton Valley Mall. The Company has leased 30,900 square feet of the former department store and rental income is expected to commence during the first quarter of 1999. 11 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS Of FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, except per Share and per Unit amounts) The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements of the Company, including the respective notes thereto which are included in this Form 10-Q. CAPITAL RESOURCES AND LIQUIDITY The Company generated $13,378 in cash flows from operating activities and $10,742 in cash flows from financing activities for the nine months ended September 30, 1998. These combined cash flows of $24,120 were used to fund $24,410 of investing activities which were primarily the acquisition of real estate assets. The Company's mortgages and notes payable amounted to $325,696 at September 30, 1998, with a weighted average interest rate of 7.84%. The debt consists of nine loans secured by various properties, one unsecured term loan, and the Credit Facility which is secured by various properties. Eight of the mortgage loans amounting to $173,208 have maturities ranging from 2000 to 2008, monthly payments which include regularly scheduled amortization, and have fixed interest rates ranging between 6.83% to 8.50%. One of the mortgage loans, evidenced by tax free bonds, amounting to $7,000 secured by Oak Brook Square Shopping Center is non-amortizing, matures in 2010, and carries a floating interest rate equal to 75% of the new issue long term Capital A rated utility bonds, plus interest to the lender sufficient to cause the lender's overall yield on its investment in the bonds to be equal to 200 basis points over their applicable LIBOR rate (7.41% at September 30, 1998). Another mortgage loan with an interest rate of 8.75%, matured in June 1998. In connection with the acquisition of Aquia Towne Center shopping center, the Company assumed an existing $15,170 mortgage loan. The loan matures in March 2008 and has an interest rate of 7.39%. In addition, Ramco-Gershenson Properties, L.P. (the "Operating Partnership"), the Company's operating partnership, issued 239,697 OP Units valued at approximately $5,300. Variable rate debt accounted for $152,488 of outstanding debt with a weighted average interest rate of 7.98%. Variable rate debt accounted for approximately 46.8% of the Company's total debt and 29.8% of its total capitalization. The Company has an interest rate protection agreement in place relative to $75,000 of floating rate debt as discussed below. After taking into account the impact of converting the variable rate debt into fixed rate debt by use of the interest rate swap agreement discussed below, the Company's variable rate debt would account for approximately 23.8% of the Company's total debt and 15.1% of its total capitalization. The Company has an unsecured term loan amounting to $45,000, maturing May 1999, which may under certain circumstances be extended to October 2000 at the election of the Operating Partnership. This term loan bears interest between 250 and 275 basis points over LIBOR, depending on certain debt ratios (9.38% at September 30, 1998). The Company currently has a $110,000 Credit Facility, of which $100,488 was outstanding as of September 30, 1998. This Credit Facility bears interest between 137.5 and 162.5 basis points over LIBOR depending on certain debt ratios (weighted average 7.39% interest rate at September 30, 1998) and matures May 1999. The maturity date may under certain circumstances be extended to October 2000 at the election of the Operating Partnership. The credit facility is secured by mortgages on various properties and contains financial covenants relating to liabilities-to-asset ratio, minimum operating coverage ratios and a minimum equity value. As of September 30, 1998 the Company was in compliance with the covenant terms. At September 30, 1998, outstanding letters of credit issued under the credit facility total $836. The Company used proceeds from the borrowings under the Credit Facility, the assumption of the existing mortgage on Aquia Towne Center, the issuance of $10,000 of Series A Preferred Shares and the issuance of 239,697 OP Units with a fair value of approximately $5,300 to finance the acquisitions of Southbay Fashion Center, Conyers Crossing and Aquia Towne Center, the development of White Lake MarketPlace, the repayment of a mortgage loan in June 1998, and to pay for other capital expenditures. During August 1998, the Company executed an interest rate swap agreement to limit the Company's exposure to increases in interest rates on its floating rate debt. The notional amount of the agreement was $75,000. Based on rates currently in effect under the Company's Credit Facility, the agreement provides for a fixed rate of 7.425% through October 2000. In conjunction with this agreement, the Company terminated, at no cost, the two interest rate collar agreements previously in place. These terminated agreements consisted of a $75,000 agreement through May 1, 1999 which had a cap at 8.375% and a floor of 7.125%, and a $50,000 12 13 agreement for the period May 1999 to October 2000 which had a cap at 8.375% and a floor of 7.225%. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreement, however; the Company does not anticipate non-performance by the counter parties. Based on the debt and the market value of equity, the Company's debt to total market capitalization (debt plus market value equity) ratio was 63.6% at September 30, 1998. On a pro forma basis, if the full MSAM/Kimco equity investment were infused, the debt to total market capitalization would be 61.1% at September 30, 1998. The two properties in which the Operating Partnership owns an interest and are accounted for on the equity method of accounting are subject to non-recourse mortgage indebtedness. At September 30, 1998, the pro rata share of non-recourse mortgage debt on the unconsolidated properties (accounted for on the equity method) was $6,215 with a weighted average interest rate of 9.14%. In October, 1997, the Company entered into an agreement with certain clients advised by Morgan Stanley Asset Management, Inc. ("MSAM"), and Kimco Realty Corporation ("Kimco") pursuant to which such entities agreed to invest up to an aggregate of $35,000 in the Operating Partnership. The equity investment involves the issuance of up to 1.4 million Series A Convertible Preferred Shares, ("Series A Preferred Shares") issued by the Company at a price of $25.00 per share. The Series A Preferred Shares are convertible, under certain circumstances, into Common Shares of the Company at a conversion price of $17.50 per Common Share. The initial investment of $11,667 was made in October 1997. An additional investment of $10,000 was made in September 1998. The remaining commitment of $13,333 may be drawn by through February 28, 1999 and may be used to help fund strategic acquisitions, retenanting or redevelopment activities, or to reduce outstanding debt. The dividend rate on the Series A Preferred Shares is expected to equal the dividend rate presently being paid to the Company's common shareholders. After the closing of this transaction, the MSAM clients are required to purchase 19.4% of the first $50,000 in a follow-on public offering of the Company's Common Shares at the offering price less the underwriter's fees, commissions, and discounts per share. Upon consummation of such public offering, all outstanding Series A Preferred Shares will be exchanged into Common Shares of the Company, at a conversion price of $17.50 per share, which conversion price is subject to adjustment in certain circumstances. The Company's current capital structure includes property specific mortgages, the unsecured term loan, the Credit Facility, Series A Preferred Shares, Common Shares and minority interest in the Operating Partnership. Minority interest increased to 29.9%, from 26.5% at December 31, 1997. The increase to minority interest resulted from the OP Units assumed to be issued in conjunction with the earnout calculation for the Jackson Crossing shopping center, and the issuance of 239,697 OP Units in connection with the acquisition of Aquia Towne Center. The minority interest computation assumes the issuance of an additional 238,965 OP Units to the Ramco Group relative to increases in net operating income at the Jackson Crossing shopping center. The computation is subject to due diligence procedures and to Board of Director approval. Currently, the minority interest in the Operating Partnership represents the 29.9% ownership in the Operating Partnership which may, under certain conditions, be exchanged for approximately 3,042,185 Common Shares. The OP Units owned by the Ramco Principals are subject to lock-up agreements which provide that the Units cannot be transferred, except under certain conditions until November 1998. In addition, the OP Units issued are exchangeable for Common Shares of the Company on a one-for-one basis. The Company, as sole general partner of the Operating Partnership, has the option to exchange such Units for cash based on the current trading price of the Common Shares. Assuming the exchange of all limited partnership interests in the Operating Partnership, there would be outstanding approximately 10,170,443 Common Shares with a market value of approximately $166,592 at September 30, 1998 (based on the closing price of $16.38 per share on September 30, 1998). In July 1998, the Company commenced the construction of its newest development, White Lake MarketPlace, a 350,000 square foot community shopping center, located in the metro Detroit area. Management anticipates this $15,500 development will be funded utilizing the Credit Facility, other borrowings, and/or the remaining $13,333 MSAM/Kimco equity commitment for Series A Preferred Shares, or the issuance of equity securities or warrants under the Company's shelf registration statement. The principal uses of the Company's liquidity and capital resources are for acquisitions, development, including expansion and renovation programs, and debt repayment. To maintain its qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"), the Company is required to distribute to its shareholders at least 95% of its "Real Estate Investment Trust Taxable Income" as defined in the Code. The Company anticipates that the combination of the availability under the Credit Facility, potential new borrowings relative to the acquired properties and development properties, construction loans, the remaining MSAM/Kimco equity commitment for Series A 13 14 Preferred Shares, joint ventures, and potential future offering of securities under the shelf registration statement will provide adequate liquidity for the foreseeable future to fund future acquisitions, developments, expansions, repositionings, and to continue its currently planned capital programs and to make distributions to its shareholders in accordance with the Code's requirements applicable to REIT's. Although the Company believes that the combination of factors discussed above will provide sufficient liquidity, no such assurance can be given. During July 1997 Wards, a tenant at three of the Company's properties, Tel-Twelve Mall, Clinton Valley Mall and Shoppes of Lakeland, filed for protection under Chapter 11 of the Bankruptcy Code. In October 1997, Wards issued a list of anticipated store closings which included the stores at the Company's Clinton Valley Mall. This location consists of a 101,200 square foot department store and a 7,480 square foot TBA store (Tires, Batteries and Automotive). The Company was notified in March 1998 that Wards rejected the lease. On an annual basis, Wards paid, in the aggregate, approximately $1,000 in base rent and operating and real estate tax expense reimbursement for the Clinton Valley Mall. The Company has leased 30,900 square feet of the former department store and rental income is expected to commence during the first quarter of 1999. The Company recognizes that Year 2000 issues may have an impact on its business, operations and financial condition. The Company has completed an assessment of its Year 2000 readiness with respect to all of its information technology ("IT") systems and is currently addressing the reliability and condition of its non-IT systems. These assessments will continue to be updated as additional information becomes available and as new concerns are identified. The Company's IT systems generally consist of file servers, operating systems, application programs and workstations that utilize purchased and customized systems. The Company continues to evaluate the Year 2000 compliance status of each vendor and believes that its existing systems or planned upgrades during 1998 will be Year 2000 compliant. Implementation and upgrades of non-Year 2000 compliant systems will not result in significant additional cost to the Company. The Company's non-IT systems which may be subject to Year 2000 issues are facility related and encompass areas such as HVAC systems, elevators, security, lighting, telecommunications, electrical, plumbing, fire and sprinkler controls. The Company is currently addressing the potential impact of Year 2000 in these areas and has not identified any instances where Year 2000 issues will require material costs to repair or replace any of these systems. The significant risks to the Company in the event that Year 2000 issues are not identified and corrected could cause delays or errors in processing financial and operation information while non-IT system problems could result in forced closure of certain facilities which could limit the efficient operation of the Company's properties. While the Company believes its planning and remediation efforts are adequate to address its Year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material effect on the Company. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 TO NINE MONTHS ENDED SEPTEMBER 30, 1997. Total revenues for the nine months ended September 30, 1998 increased by 31.9%, or $13,457, to $55,668 as compared to $42,211 for the nine months ended September 30, 1997. The increase was a result of a $12,914 increase in minimum rents, a $1,048 increase in recoveries from tenants, offset by a $325 decrease in percentage rents and a $180 decrease in interest and other income. Minimum rents increased 47.4%, or $12,914, to $40,134 for the nine months ended September 30, 1998 as compared to $27,220 for the nine months ended September 30, 1997. Recoveries from tenants increased 7.9%, or $1,048, to $14,321 as compared to $13,273 for the nine months ended September 30, 1997. These increases are primarily attributable to the acquisition of the Madison, Pelican and Village Lakes shopping centers effective May, June and December 1997, respectively, and the acquisition of the Southeast Portfolio on October 30, 1997. The operating results for the nine months ended September 30, 1998 include the impact of these acquisitions for the full nine months in 1998, while the results for the nine months ended September 30, 1997 included the impact of four months for the Madison acquisition, three months for the Pelican acquisition and no impact from the other acquisitions. The recovery ratio for the nine months ended September 30, 1998 decreased to 99.3% as compared to 102.1% for the nine months ended September 30, 1997. The decrease in percentage rent is primarily the result of the Company adopting consensus Issue No. 98-9, "Accounting for Contingent Rent in Interim Periods". 14 15 Interest and other income decreased 30.3%, or $180, to $415 as compared to $595 for the nine months ended September 30, 1997. This decrease was primarily attributable to non-recurring tenant lease buyouts in 1997. Total expenses for the nine months ended September 30, 1998 increased by 44.2%, or $14,402, to $46,991 as compared to $32,589 for the nine months ended September 30, 1997. The increase was due to a $1,417 increase in total recoverable expenses, including real estate taxes and recoverable operating expenses, a $3,243 increase in depreciation and amortization, a $124 decrease in other operating expenses, a $766 increase in general and administrative expenses, and a $9,100 increase in interest expense. Total recoverable expenses, including real estate taxes and recoverable operating expenses, increased by 10.9%, or $1,417, to $14,421 as compared to $13,004 for the nine months ended September 30, 1997, depreciation and amortization increased by 57.0%, or $3,243, to $8,935 as compared to $5,692 for the nine months ended September 30, 1997, and other operating expenses decreased 17.2%, or $124 to $598 as compared to $722 for the nine months ended September 30, 1998. General and administrative expenses increased 21.4%, or $766, to $4,349 as compared to $3,583 for the nine months ended September 30, 1997. The increase in recoverable expenses of $1,417, depreciation and amortization of $3,243, and interest expense of $9,100, are due to the acquisition of the Southeast Portfolio and the other property acquisitions in 1997 and acquisitions and capital expenditures in 1998. The minority interest of $2,372 for the nine months ended September 30, 1998 represents a 28.1% share of income before minority interest of the operating partnership compared to a 26.7% share of income before minority interest, or $2,500 for the nine months ended September 30, 1997. The increase in the percentage share of income is due to the increase in OP Units assumed to be issued in connection with the earnout calculation for the Jackson Crossing shopping center and the issuance of 239,697 OP Units related to the Aquia Towne Center acquisition. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THREE MONTHS ENDED SEPTEMBER 30, 1997 Total revenues for the three months ended September 30, 1998 increased 31.1%, or $4,502, to $18,963 as compared to $14,461 for the three months ended September 30, 1997. The increase was a result of a $4,389 increase in minimum rents, a $381 increase in recoveries from tenants, a $27 increase in interest and other income, offset by a $295 decrease in percentage rents. Minimum rents increased 47.2%, or $4,389, to $13,693 for the three months ended September 30, 1998 as compared to $9,304 for the three months ended September 30, 1997. Recoveries from tenants increased 8.2%, or $381, to $5,058 as compared to $4,677 for the three months ended September 30, 1997. These increases are primarily attributable to the acquisition of the Southeast Portfolio on October 30, 1997. The operating results for the three months ended September 30, 1998 included the impact of these acquisitions for the full three months in 1998, along with the acquisitions of Southbay Fashion Center, effective May 1998. The results for the three months ended September 30, 1997 did not included the impact of Village Lakes and the Southeast Portfolio. The recovery ratio for the three months ended September 30, 1998 decreased to 101.0% as compared to 103.5% for the three months ended September 30, 1997. The decrease in percentage rent is primarily the result of the Company adopting consensus Issue No. 98-9, "Accounting for Contingent Rent in Interim Periods". Total expenses for the three months ended September 30, 1998 increased by 42.6%, or $4,810, to $16,093 as compared to $11,283 for the three months ended September 30, 1997. The increase was due to a $486 increase in total recoverable expenses, including real estate taxes and recoverable operating expenses, a $1,060 increase in depreciation and amortization, a $4 increase in other operating expenses, a $292 increase in general and administrative expenses, and a $2,968 increase in interest expense. Total recoverable expenses, including real estate taxes and recoverable operating expenses, increased by 10.7%, or $486, to $5,007 as compared to $4,521 for the three months ended September 30, 1997, depreciation and amortization increased 53.0%, or $1,060, to $3,059 as compared to $1,999 for the three months ended September 30, 1997, and other operating expenses increased 2.2%, or $4, to $183 as compared to $179 for the three months ended September 30, 1997. The increase in recoverable expenses of $486, depreciation and amortization of $1,060, and interest expense of $2,968, are due to the acquisition of the Southeast Portfolio and the other property acquisitions in 1997 and acquisitions and other capital expenditures in 1998. 15 16 The loss from unconsolidated entities decreased 23.5%, or $20, to $65 for the three months ended September 30, 1998 as compared to a loss of $85 for the three months ended September 30, 1997. The minority interest of $810 for the three months ended September 30, 1998 represents a 28.9% share of income before minority interest of the operating partnership compared to a 26.1% share of income before minority interest, or $806 for the three months ended September 30, 1997. The increase in the percentage share of income is due to an increase in OP Units assumed to be issued in connection with the earnout calculation for the Jackson Crossing shopping center and the issuance of 239,697 OP Units related to the Aquia Towne Center acquisition. GENERAL AND ADMINISTRATIVE Following is a breakdown of the general and administrative expenses shown in the financial statements (unaudited):
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Management Fees.............................................. $ 234 $ 264 $ 686 $ 778 Leasing, Brokerage and Development Fees 5 142 147 269 Other Revenues............................................... 216 98 561 410 Leasing/Development Cost Reimbursements 391 357 1,395 952 ------ ------ ------ ------ Total Revenues................................ 846 861 2,789 2,409 ------ ------ ------ ------ Employee Expenses............................................ 1,213 1,038 3,687 3,033 Office and Other Expenses.................................... 315 252 1,112 873 Depreciation and Amortization................................ 67 60 195 183 ------ ------ ------ ------ Total Expenses................................ 1,595 1,350 4,994 4,089 ------ ------ ------ ------ Operating Partnership Cost Reimbursement Expenses............ 749 489 2,205 1,680 ------ ------ ------ ------ Operating Partnership Administrative Expenses................ 539 524 1,811 1,604 ------ ------ ------ ------ Shopping Center Level General and Administrative Expenses.... 112 95 333 299 ------ ------ ------ ------ Total General and Administrative Expenses.................... $1,400 $1,108 $4,349 $3,583 ====== ====== ====== ======
The increase in general and administrative expenses, when compared to the nine months ended September 30, 1997 is primarily due to general salary increases, including an increase in headcount incurred subsequent to the third quarter of 1997 and an increase in state and local tax expense. FUNDS FROM OPERATIONS Management generally considers funds from operations ("FFO") to be one measure of financial performance of an equity REIT. It has been presented to assist investors in analyzing the performance of the Company and to provide a relevant basis for comparison to other REITs. The Company has adopted the most recent National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO, which was effective on January 1, 1996. Under the NAREIT definition, FFO represents income (loss) before minority interest (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. 16 17 Therefore, FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered an alternative to net income as an indication of the Company's performance or to cash flows from operating activities as a measure of liquidity or of the ability to pay distributions. Furthermore, while net income and cash generated from operating, investing and financing activities determined in accordance with generally accepted accounting principles consider capital expenditures which have been and will be incurred in the future, the calculation of FFO does not. The following table illustrates the calculation of FFO for the three months and nine months ended September 30, 1998, and 1997 (unaudited):
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net Income $ 1,995 $ 2,287 $ 6,077 $ 6,882 Add: Depreciation and amortization.................. 3,066 1,999 8,956 5,692 Add: Minority interest in partnership............... 810 806 2,372 2,500 ------- ------- ------- ------- Funds from operations - diluted........................... $ 5,871 $ 5,092 $17,405 15,074 Less: Preferred share dividends..................... (345) - (908) - ------- ------- ------- ------- Funds from operations - basic............................. $ 5,526 $ 5,092 $16,497 $15,074 ======= ======= ======= ======= Weighted average equivalent shares outstanding (1) Basic................................................ 10,010 9,691 9,931 9,721 ======= ======= ======= ======= Diluted.............................................. 10,831 9,727 10,681 9,743 ======= ======= ======= ======= Supplemental disclosure: Straight-line rental income.......................... 662 304 1,413 1,337 ======= ======= ======= ======= Amortization of management contracts and covenants not to compete.................................. $ 124 $ 124 $ 372 $ 372 ======= ======= ======= =======
(1) For basic FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares. For diluted FFO, represents the weighted average total shares outstanding, assuming the redemption of all Operating Partnership Units for Common Shares, the Series A Preferred Shares converted to Common Shares, and the Common Shares issuable under the treasury stock method upon exercise of stock options. CAPITAL EXPENDITURES During the nine months ended September 30, 1998, the Company spent approximately $5,838 on revenue generating capital expenditures including tenant allowances, leasing commissions paid to third-party brokers, legal costs relative to lease documents, and capitalized leasing and construction costs. These types of costs generate a return through rents from tenants over the term of their leases. Revenue enhancing capital expenditures, including expansions, renovations or repositionings, were approximately $3,022. Revenue neutral capital expenditures, such as roof and parking lot repairs which are anticipated to be recovered from tenants, amounted to approximately $2,152. 17 18 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In May 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods". This statement establishes standards for when the lessor can recognize contingent rental income that is based on future specified targets within the lessor's fiscal year. The consensus requires that contingent rental income in interim periods should be deferred until the specified target that results in contingent rental income is achieved. This impact of adopting this consensus was to decrease percentage rents by approximately $300 or $0.03 per share for the three months and the nine months ended September 30, 1998. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Readers are referred to the "Impact of Recent Accounting Pronouncements" section of the Company's 1997 Annual Report to Shareholders for further discussion. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Management has not determined the impact of the Statement on the Company's financial statements. This Statement is effective for fiscal year beginning after June 15, 1999, with earlier adoption encouraged. The Company will adopt this accounting standard as required by January 1, 2000. This Form 10-Q contains forward-looking statements with respect to the operation of certain of the Company's properties. Management of the Company believes the expectations reflected in the forward-looking statements made in this document are based on reasonable assumptions. Certain factors could occur that might cause actual results to vary. These include general economic conditions, the strength of key industries in the cities in which the Company's properties are located, the performance of the Company's tenants at the Company's properties and elsewhere, and other factors discussed in this report and the Company's reports filed with the Securities and Exchange Commission. 18 19 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS See Exhibit Index immediately preceding the exhibits. (b) REPORTS ON FORM 8-K No reports on Form 8-K have been filed during the quarter ending September 30, 1998. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. RAMCO-GERSHENSON PROPERTIES TRUST Date: November 10, 1998 By: /s/ Dennis E. Gershenson -------------------------------- Dennis E. Gershenson President and Trustee (Chief Executive Officer) Date: November 10, 1998 By: /s/ Richard J. Smith -------------------------------- Richard J. Smith Chief Financial Officer (Principal Accounting Officer) 20 21 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.1 Promissory Note dated as of February 27, 1998 in the principal face amount of $15,225,000.00 made by A.T.C., L.L.C. in favor of GMAC Commercial Mortgage Corporation. 10.2 Deed of Trust and Security Agreement dated as of February 27, 1998 by A.T.C., L.L.C. to Lawyers Title Insurance Company for the benefit of GMAC Commercial Mortgage Corporation relating to a $415,225,000.00 loan. 10.3 Assignment and Assumption Agreement dated as of October 8, 1998 among A.T.C., L.L.C., Ramco Virginia Properties, L.L.C., A.T. Center, Inc., Ramco-Gershenson Properties Trust and LaSalle National Bank, as trustee for the registered holders of GMAC Commercial Mortgage Securities, Inc. Mortgage Pass-Through Certificates. 10.4 Exchange Rights Agreement dated as of September 4, 1998 between Ramco-Gershenson Properties Trust, and A.T.C., L.L.C. 27.1 Financial Data Schedule 21 EX-10.1 2 PROMISSORY NOTE 1 EXHIBIT 10.1 PROMISSORY NOTE $15,225,000.00 February 27, 1998 FOR VALUE RECEIVED, A.T.C., L.L.C., a Virginia limited liability company, having its principal place of business at A.T.C., L.L.C. c/o Berman Kappler, Inc., 1010 Wisconsin Avenue, N.W., Suite 250, Washington, D.C. 20007 (hereinafter referred to as "Borrower"), promises to pay to the order of GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation, having its principal place of business at 650 Dresher Road, Horsham, Pennsylvania 19055-8015 (hereinafter referred to as "Lender"), the principal sum of FIFTEEN MILLION TWO HUNDRED TWENTY FIVE THOUSAND AND NO/100THS DOLLARS ($15,225,000.00), with interest on the unpaid principal balance to be computed from the date of this Promissory Note (this "Note") at the Applicable Interest Rate (hereinafter defined), in lawful money of the United States of America which shall at the time of payment be legal tender in payment of all debts and dues, public and private. 1. PAYMENT OF PRINCIPAL AND INTEREST. A. The principal and interest under this Note shall be payable at the office of Lender as set forth above, Attn: Mr. Barry Moore, or at such other place as Lender may from time to time designate in writing, in equal consecutive monthly installments of $106,454.33 each, on the first day of April, 1998, and on the first day of each calendar month thereafter up to and including the first day of March, 2008 (or if such day is not a Business Day (hereinafter defined) the next Business Day thereafter); and the balance of said principal sum together with accrued and unpaid interest and any other amounts due under this Note, the Security Instrument and the Other Security Documents (each as hereinafter defined) shall be due and payable on the 1st day of March, 2008 (the "Maturity Date"). The term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the State of New York. B. Interest on the principal sum of this Note shall accrue in arrears and be calculated on the basis of an actual three hundred sixty (360) day year except that interest due and payable for a period less than a full month shall be calculated by multiplying the actual number of days elapsed in such period by a daily rate based on said 360 day year. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to close of business. Payments in federal funds immediately available in the place designated for payment which are received by Lender prior to 2:00 p.m. local time at said place of payment shall be credited prior to close of business, while other payments may, at the option of Lender, not be credited until immediately available to Lender in federal funds in the place designated for payment prior to 2:00 p.m. local time 2 at said place of payment on a day on which Lender is open for business. On the date of the closing of the loan evidenced by this Note, Borrower shall pay to Lender an interest payment equal to the product of the number of days remaining in the month from the date on which the loan is closed multiplied by the interest per diem. Payments under this Note shall be applied first to the payment of interest and other costs and charges due in connection with this Note or the Debt (as hereinafter defined), as Lender may determine in its sole discretion, and the balance applied toward the reduction of the principal sum in inverse order of maturity (but such application shall not reduce the amount of the fixed monthly installments required to be paid pursuant to Section 3.A. above). All amounts due under this Note shall be payable without set off, counterclaim or any other deduction whatsoever by the Borrower, unless authorized by Lender or an unappealable judgment of a court of competent jurisdiction. C. The term "Applicable Interest Rate" as used in this Note shall mean from the date of this Note through and including the Maturity Date, a rate of 7.390% per annum. 2. DEFAULT. A. If any sum payable under this Note is not paid within five (5) days on the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment and such amount shall be secured by the Security Instrument and the Other Security Documents. B. The entire outstanding principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Security Instrument, the Other Security Documents and this Note (all such sums hereinafter collectively referred to as the "Debt"), or any portion thereof, shall without notice become immediately due and payable at the option of Lender if any payment required under this Note is not paid on the date when due or on the happening of any other default, each after the expiration of any applicable notice and grace periods, herein or under the terms of the Security Instrument or the Other Security Documents (hereinafter each an "Event of Default"). Time is of the essence in this Note, the Security Instrument and the Other Security Documents. All of the terms, covenants and conditions contained in the Security Instrument and the Other Security Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event that Lender employs counsel to collect the Debt or to protect or foreclose the security hereof, Borrower also agrees to pay on demand all costs of collection incurred by Lender, including reasonable attorneys' fees for the services of counsel whether or not suit be brought. C. Borrower does hereby agree that upon the occurrence of an Event of Default which is not cured within any applicable grace or notice period, or upon the failure of Borrower to pay the Debt in full on the Maturity Date, or upon the failure of Borrower to pay the Debt on the date specified in any notice given pursuant to Section 3.A.(i) hereof, 2 3 Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at the Applicable Interest Rate plus five percent (5%) (the "Default Rate"); provided, however, that in the event Lender permits Borrower to cure such Event of Default, then the rate of interest on the unpaid principal balance of this Note shall be the Applicable Interest Rate and shall be computed from the date such Event of Default is cured. The Default Rate shall be computed from the occurrence of the Event of Default until the actual receipt and collection of the Debt or, if permitted by Lender, the date such Event of Default is cured. This charge shall be added to the Debt, and shall be deemed secured by the Security Instrument. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default. In the event the Default Rate would otherwise exceed the maximum rate permitted by applicable law, the Default Rate shall be the maximum rate permitted by applicable law. 3. PREPAYMENT AND DEFEASANCE. A. Except as otherwise set forth herein, prepayments of this Note shall not be permitted. Provided no Event of Default exists, the principal balance of this Note may be prepaid in whole but not in part (except as otherwise specifically provided herein) at any time after the date which is thirty (30) days prior to the scheduled Maturity Date (the "Defeasance Expiration Date") provided (i) written irrevocable notice of such prepayment specifying the intended date of prepayment is received by Lender not more than sixty (60) days and not less than thirty (30) days prior to the date of such prepayment, and (ii) such prepayment is received on a scheduled payment date (or, if such prepayment is not received on a scheduled payment date, interest is paid through the last day of such calendar month) and is accompanied by all interest accrued hereunder and all other sums due hereunder or under the Security Instrument and Other Security Documents. With regard to any prepayment made hereunder, if the prior written notice required in (i) above has not been received by Lender, the required prepayment amount shall be increased by an amount equal to the lesser of (i) thirty (30) days' unearned interest computed on the outstanding principal balance of this Note so prepaid and (ii) unearned interest computed on the outstanding principal balance of this Note so prepaid for the period from, and including, the date of prepayment through the Maturity Date. Notwithstanding anything to the contrary in this Note, the Security Instrument or the Other Security Documents, the principal balance of the Note shall be absolutely and unconditionally due and payable on the date specified in any notice given pursuant to Section 3.A.(i) hereof. B. Partial prepayments of this Note shall not be permitted, except partial prepayments resulting from Lender applying insurance or condemnation proceeds to reduce the outstanding principal balance of this Note as provided in the Security Instrument, in which event no premium shall be due. No notice of prepayment shall be required under the circumstance specified in the preceding sentence. No principal amount repaid may be reborrowed. Partial payments of principal shall be applied to the unpaid principal payments in inverse order of maturity but such application shall not 3 4 reduce the amount of the fixed monthly installments required to be paid pursuant to Section 1.A. above. C. (1) Provided no Event of Default exists, notwithstanding any provision of this Note to the contrary, on or after April 1, 2001 (the "Optional Defeasance Date"), and subject to a Rating Confirmation (hereinafter defined) having been obtained therefor and subject to the terms and conditions set forth in this Section 3.C., Borrower may defease all (but not less than all) of the principal of this Note (hereinafter, a "Defeasance"). For purposes herein, "Rating Confirmation," with respect to the matter in question, shall mean that as a condition thereto the Rating Agencies (hereinafter defined) shall have confirmed in writing that (i) such investment, replacement or action shall not result, in and of itself, in a reduction, withdrawal or qualification of any rating then assigned to any outstanding certificates issued with respect to a Securitization (as defined in the Security Instrument) (collectively, "Certificates") (if the Securitization has occurred), or (ii) such investment, replacement or action would not result, in and of itself, in a reduction, withdrawal or qualification of any rating for proposed Certificates then under consideration by the Rating Agencies (if the Securitization has not yet occurred); provided that if the Securitization has not taken (or as certified by Lender, will not take) the form of a transaction rated by the Rating Agencies, then "Rating Confirmation" shall instead mean that the matter in question shall be subject to the prior approval of the Lender. For purposes herein "Rating Agencies" shall mean each of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch Investors Service, L.P. or any other nationally-recognized statistical rating agency selected by Lender. No Defeasance shall be permitted on or after the Defeasance Expiration Date. Each Defeasance shall be subject, in each case, to the satisfaction of the following conditions precedent: (a) Borrower shall provide not less than thirty (30) days' prior written notice to Lender specifying a date (the "Defeasance Date") on which the Defeasance Deposit (hereinafter defined) is to be made and on which the Defeasance is to occur, as well as the anticipated outstanding principal amount of this Note as of the Defeasance Date. (b) Borrower shall pay to Lender all accrued and unpaid interest on the principal balance of this Note to but not including the Defeasance Date. (c) Borrower shall pay to Lender all other sums, not including scheduled interest or principal payments, then due under this Note, the Security Instrument and the other documents executed in connection therewith. (d) No Event of Default shall exist on the Defeasance Date. (e) Borrower shall pay to Lender the required Defeasance Deposit for the Defeasance. For purposes herein, "Defeasance Deposit" shall mean an amount equal to the sum of (i) the remaining principal 4 5 amount of this Note, (ii) without duplication, all costs and expenses (including the purchase price) incurred or to be incurred in the purchase of U.S. Government Securities (hereinafter defined) necessary to meet the Scheduled Defeasance Payments (hereinafter defined) and (iii) any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of this Note, or otherwise required to accomplish the agreements of this Section 3.C. For purposes herein, "U.S. Government Securities" shall mean securities evidencing an obligation to pay principal and interest in a full and timely manner that are (y) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, or (z) obligations of an entity controlled or supervised by and acting as an agency or instrumentality of and guaranteed as a full faith and credit obligation by the United States of America, which in either case are not callable or redeemable at the option of the issuer thereof (including a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such securities or a specific payment of principal of or interest on any such securities held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the securities or the specific payment of principal of or interest on the securities evidenced by such depository receipt). (f) Borrower shall execute and deliver one or more security agreements, in form and substance satisfactory to Lender in its sole and absolute discretion, creating a first priority lien on the Defeasance Deposit and the U.S. Government Securities purchased with the Defeasance Deposit in accordance with the provisions of this Section 3.C. (the "Defeasance Security Agreement"). (g) Borrower shall deliver to Lender an opinion of counsel for Borrower in form satisfactory to Lender in its sole and absolute discretion, stating, among other things, that Lender has a perfected first priority security interest in the U.S. Government Securities purchased with the Defeasance Deposit. (h) If this Note and the Security Instrument is included in any "real estate mortgage investment conduit" ("REMIC") within the meaning of Section 860D of the Internal Revenue Code of 1986, as amended and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto (the "Code"), formed pursuant to a Securitization, Borrower shall also deliver or cause to be delivered an opinion of counsel, in form and substance satisfactory to Lender in its sole and absolute discretion stating that, after a Defeasance, the Security Instrument will continue to be a "qualified mortgage" within the meaning 5 6 of Section 860G of the Code and the REMIC will not fail to maintain its status as a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code as a result of such Defeasance. (i) Borrower shall deliver to Lender an Officer's Certificate certifying that the requirements set forth in this Section 3.C. have been satisfied. (j) Borrower shall deliver such other certificates, documents or instruments as Lender may reasonably request. (k) Borrower shall pay all reasonable costs and expenses of Lender incurred in connection with the Defeasance, including any costs and expenses associated with a release of the Security Instrument as provided in this Section 3.C. hereof and reasonable attorneys' fees and expenses. (l) Borrower shall deliver to Lender a confirmation, in form and substance satisfactory to Lender in its sole and absolute discretion, by a "Big Four" independent certified public accounting firm, that the Defeasance Deposit is sufficient to pay all Scheduled Defeasance Payments and other amounts required to be paid by Borrower hereunder in connection with the proposed Defeasance. (m) Borrower shall deliver to Lender confirmation, in form and substance satisfactory to Lender in its sole and absolute discretion, that all conditions to defeasance have been met from any applicable Rating Agency that has required as a condition to defeasance that such conditions have been met. (n) In the event an Event of Default arises after notice of Defeasance is given but before Defeasance occurs, Borrower shall pay a premium equal to one percent (1%) of the principal balance of this Note. (2) In connection with the Defeasance of this Note, Borrower hereby appoints Lender as its agent and attorney-in-fact for the purpose of using the Defeasance Deposit to purchase U.S. Government Securities (which purchases, if made by Lender, shall be made on an arms-length basis at then prevailing market rates) which provide payments on or prior to, but as close as possible to the first day of each calendar month after the Defeasance Date, and in amounts equal to the monthly installments due under this Note (the "Scheduled Defeasance Payments"). Borrower, pursuant to the Defeasance Security Agreement or other appropriate document, shall irrevocably authorize and direct that the payments received from the U.S. Government Securities may be made directly to Lender and applied to satisfy the obligations of Borrower under this Note. In connection with the Defeasance of this Note, any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Government Securities required by this Section 3.C. and (b) and satisfy Borrower's obligations under this Section 3.C. shall be remitted to 6 7 Borrower. Any amounts received in payment on the U.S. Government Securities in excess of the amounts necessary to make monthly installment payments shall be applied to reduce the outstanding principal amount of this Note. (3) (a) If Borrower has elected Defeasance, and the requirements of this Section 3.C. have been satisfied, the Property (as defined in the Security Instrument) shall be released from the lien of the Security Instrument and the U.S. Government Securities, pledged pursuant to the Defeasance Security Agreement, shall be the sole source of collateral securing this Note. (b) In connection with the release of the Security Instrument, Borrower shall submit to Lender, not less than twenty (20) days prior to the Defeasance Date, a release of lien for the Property (for execution by Lender) in a form appropriate in the applicable state and otherwise satisfactory to Lender in its reasonable discretion and all other documentation Lender reasonably requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all applicable laws, and (ii) will effect such releases in accordance with the terms of the Security Instrument. 4. SECURITY. This Note is secured by the Security Instrument and the Other Security Documents. The term "Security Instrument" as used in this Note shall mean that certain Deed of Trust and Security Agreement dated the date hereof, given by Borrower to Lender covering the fee estate of Borrower in certain premises located in Stafford County, State of Virginia, and other property, as more particularly described therein and intended to be duly recorded in said County, as the same may be amended, supplemented, replaced or otherwise modified from time to time. The term "Other Security Documents" as used in this Note shall mean all and any of the documents other than this Note or the Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of the Debt. 5. EXCULPATION. Notwithstanding anything to the contrary contained in this Note, the liability of Borrower and of any general partner or member of Borrower to pay the Debt and for the performance of the other agreements, covenants and obligations contained herein and in the Security Instrument and the other Security Documents shall be limited as set forth in Article 15 of the Security Instrument. 6. GENERAL A. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Debt or any portion thereof at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the Debt or any portion thereof at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and 7 8 all prior interest payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. B. This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. C. Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest, notice of non-payment and notice of intent to accelerate the maturity hereof (and of such acceleration). No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument and the Other Security Documents made by agreement between Lender and any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other who may become liable for the payment of all or any part of the Debt, under this Note, the Security Instrument and the Other Security Documents. Lender may release any guarantor or indemnitor of the Debt from liability, in every instance without the consent of the Borrower hereunder, and without waiving any rights the Lender may have hereunder or by virtue of the laws of the State in which the Property (as defined in the Security Instrument) is located or any other state of the United States. D. Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute, deliver and perform its obligations pursuant to this Note, the Security Instrument and the Other Security Documents and that this Note, the Security Instrument and the Other Security Documents constitute valid and binding obligations of Borrower. E. Lender shall have the right to transfer, sell and assign this Note, the Security Instrument and the Other Security Documents, and the obligations hereunder. F. Borrower shall not, without the prior written consent of Lender, sell, convey, alienate, mortgage, encumber, pledge or otherwise transfer, or permit the transfer of, directly or indirectly, the Property or ownership interests in Borrower, except as permitted in accordance with the Security Instrument. G. All notices or other written communications hereunder shall be given and become effective as provided in the Security Instrument. H. Borrower is and shall be obligated to pay principal, interest and any and all other amounts which become payable hereunder or under the Other Security Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction and without any reduction for counterclaim or setoff. In the event that at any time any payment received by Lender hereunder shall be deemed by a court of competent 8 9 jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand. I. This Note shall be interpreted, construed and enforced according to the laws of the State where the Property is located. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms "Borrower" and "Lender" shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties or by operation of law. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under this Note. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa. Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provisions hereof. This Note, the Security Instrument and the Other Security Documents contain the entire agreements between the parties hereto relating to the subject matter hereof and thereof and all prior agreements relative hereto and thereto which are not contained herein or therein are terminated. J. BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. K. If any term of this Note or any application thereof shall be invalid or unenforceable, the remainder of this Note and any other application of the term shall not be affected thereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9 10 IN WITNESS WHEREOF, Borrower has duly executed this Note the day and year first above written. BORROWER: A.T.C., L.L.C., a Virginia limited liability company By: A.T. Center, Inc., a Virginia corporation By: /s/ Thomas Kappler ----------------------------------------------- Thomas Kappler, President 10 EX-10.2 3 DEED OF TRUST & SECURITY AGREEMENT 1 EXHIBIT 10.2 A.T.C., L.L.C., as trustor (Borrower) to LAWYERS TITLE INSURANCE COMPANY, as trustee (Trustee) for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, as beneficiary (Lender) ----------------------------------- DEED OF TRUST AND SECURITY AGREEMENT ----------------------------------- Dated: February 27, 1998 Location: Aquia Towne Center Stafford, Virginia PREPARED BY AND UPON RECORDATION RETURN TO: Weil Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, Texas 75201 Attention: C. Craig Lilly, Esq. 2 TABLE OF CONTENTS
PAGE Article 1. GRANTS OF SECURITY...........................................................1 Section 1.1 Property Mortgaged...........................................................1 (a) Land.........................................................................1 (b) Additional Land..............................................................1 (c) Improvements.................................................................1 (d) Easements....................................................................2 (e) Fixtures and Personal Property...............................................2 (f) Leases and Rents.............................................................2 (g) Condemnation Awards..........................................................2 (h) Insurance Proceeds...........................................................3 (i) Tax Certiorari...............................................................3 (j) Rights.......................................................................3 (k) Agreements...................................................................3 (l) Intangibles..................................................................3 (m) Conversion...................................................................3 (n) Other Rights.................................................................3 Section 1.2 Assignment of Leases and Rents...............................................3 Section 1.3 Security Agreement...........................................................4 Section 1.4 Pledge of Monies Held........................................................4 Article 2. DEBT AND OBLIGATIONS SECURED.................................................4 Section 2.1 Debt.........................................................................4 Section 2.2 Other Obligations............................................................5 Section 2.4 Debt and Other Obligations...................................................5 Section 2.5 Payments.....................................................................5 Article 3. BORROWER COVENANTS...........................................................5 Section 3.1 Payment of Debt..............................................................5 Section 3.2 Incorporation by Reference...................................................6 Section 3.3 Insurance....................................................................6 Section 3.4 Payment of Taxes, Etc.......................................................10
i 3 TABLE OF CONTENTS (continued)
PAGE Section 3.5 Escrow Fund.................................................................11 Section 3.6 Condemnation................................................................11 Section 3.7 Leases and Rents............................................................12 Section 3.8 Maintenance of Property.....................................................13 Section 3.9 Waste.......................................................................13 Section 3.10 Compliance With Laws........................................................14 Section 3.11 Books and Records...........................................................14 Section 3.12 Payment For Labor and Materials.............................................16 Section 3.13 Performance of Other Agreements.............................................16 Section 3.14 Change of Name, Identity or Structure.......................................16 Section 3.15 Existence...................................................................16 Article 4. SPECIAL COVENANTS...........................................................16 Section 4.1 Property Use................................................................16 Section 4.2 ERISA.......................................................................16 Section 4.3 Single Purpose Entity.......................................................17 Section 4.4 Restoration After Casualty/Condemnation.....................................20 Article 5. REPRESENTATIONS AND WARRANTIES..............................................24 Section 5.1 Warranty of Title...........................................................24 Section 5.2 Authority...................................................................25 Section 5.3 Legal Status and Authority..................................................25 Section 5.4 Validity of Documents.......................................................25 Section 5.5 Litigation..................................................................25 Section 5.6 Status of Property..........................................................26 Section 5.7 No Foreign Person...........................................................27 Section 5.8 Separate Tax Lot............................................................27 Section 5.9 ERISA Compliance............................................................27 Section 5.10 Leases......................................................................27 Section 5.11 Financial Condition.........................................................28 Section 5.12 Business Purposes...........................................................28
ii 4 TABLE OF CONTENTS (CONTINUED)
PAGE Section 5.13 Taxes.......................................................................28 Section 5.14 Mailing Address.............................................................28 Section 5.15 No Change in Facts or Circumstances.........................................28 Section 5.16 Disclosure..................................................................28 Section 5.17 Third Party Representations.................................................28 Section 5.18 Illegal Activity............................................................29 Article 6. DEBTOR/CREDITOR RELATIONSHIP................................................29 Section 6.1 Relationship of Borrower and Lender.........................................29 Section 6.2 Servicing of the Loan.......................................................29 Article 7. FURTHER ASSURANCES..........................................................29 Section 7.1 Recording of Security Instrument, Etc.......................................29 Section 7.2 Further Acts, Etc...........................................................29 Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws..................................................................30 Section 7.4 Estoppel Certificates.......................................................30 Section 7.5 Flood Insurance.............................................................31 Section 7.6 Splitting of Security Instrument............................................31 Section 7.7 Replacement Documents.......................................................32 Section 7.8 Amended Financing Statements................................................32 Article 8. DUE ON SALE/ENCUMBRANCE.....................................................32 Section 8.1 No Sale/Encumbrance.........................................................32 Section 8.2 Sale/Encumbrance Defined....................................................32 Section 8.3 Lender's Rights.............................................................33 Article 9. PREPAYMENT..................................................................33 Section 9.1 Prepayment Only in Accordance with Note.....................................33 Article 10. DEFAULT.....................................................................34 Section 10.1 Events of Default...........................................................34 Section 10.2 Late Payment Charge.........................................................35 Section 10.3 Default Interest............................................................35 Article 11. RIGHTS AND REMEDIES.........................................................35
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PAGE Section 11.1 Remedies....................................................................35 Section 11.2 Application of Proceeds.....................................................39 Section 11.3 Right to Cure Defaults......................................................39 Section 11.4 Actions and Proceedings.....................................................39 Section 11.5 Recovery of Sums Required To Be Paid........................................39 Section 11.6 Examination of Books and Records............................................39 Section 11.7 Other Rights, Etc...........................................................40 Section 11.8 Right to Release Any Portion of the Property................................40 Section 11.9 Violation of Laws...........................................................41 Section 11.10 Right of Entry..............................................................41 Article 12. ENVIRONMENTAL HAZARDS.......................................................41 Section 12.1 Environmental Representations and Warranties................................41 Section 12.2 Environmental Covenants.....................................................42 Section 12.3 Lender's Rights.............................................................43 Article 13. INDEMNIFICATION.............................................................44 Section 13.1 General Indemnification.....................................................44 Section 13.2 Mortgage and/or Intangible Tax..............................................45 Section 13.3 ERISA Indemnification.......................................................45 Section 13.4 Environmental Indemnification...............................................45 Section 13.5 Duty to Defend; Attorneys' Fees and Other Fees and Expenses................................................................46 Article 14. WAIVERS.....................................................................47 Section 14.1 Waiver of Counterclaim......................................................47 Section 14.2 Marshalling and Other Matters...............................................47 Section 14.3 Waiver of Notice............................................................47 Section 14.4 Waiver of Statute of Limitations............................................47 Section 14.5 Sole Discretion of Lender...................................................47 Section 14.6 Survival....................................................................47 Section 14.7 Waiver of Trial By Jury.....................................................48 Article 15. EXCULPATION.................................................................48
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PAGE Section 15.1 Exculpation.................................................................48 Section 15.2 Reservation of Certain Rights...............................................49 Section 15.3 Exceptions to Exculpation...................................................49 Section 15.4 Recourse....................................................................49 Section 15.5 Bankruptcy Claims...........................................................49 Article 16. NOTICES.....................................................................50 Section 16.1 Notices.....................................................................50 Article 17. APPLICABLE LAW..............................................................51 Section 17.1 Choice of Law...............................................................51 Section 17.2 Usury Laws..................................................................51 Section 17.3 Provisions Subject to Applicable Law........................................52 Section 17.4 Inapplicable Provision......................................................52 Article 18. SECONDARY MARKET............................................................52 Section 18.1 Dissemination of Information................................................52 Section 18.2 Conversion to Registered Form...............................................53 Article 19. COSTS.......................................................................53 Section 19.1 Performance at Borrower's Expense...........................................53 Section 19.2 Attorney's Fees for Enforcement.............................................54 Article 20. DEFINITIONS.................................................................54 Section 20.1 General Definitions.........................................................54 Section 20.2 Headings, Etc...............................................................54 Article 21. MISCELLANEOUS PROVISIONS....................................................54 Section 21.1 No Oral Change..............................................................54 Section 21.2 Liability...................................................................55 Section 21.3 Duplicate Originals; Counterparts...........................................55 Section 21.4 Number and Gender...........................................................55 Section 21.5 Subrogation.................................................................55 Section 21.6 Entire Agreement............................................................55 Article 22. TRUSTEE PROVISIONS..........................................................55
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PAGE Section 22.1 The Trustee.................................................................55 Article 23. LOCAL LAW PROVISIONS........................................................57
vi 8 Exhibits - Exhibit A - Description of Land Exhibit B - Local Law Provisions Definitions The terms set forth below are defined in the following Sections of this Security Instrument: a. ADA: Subsection 3.10(a); b. Applicable Law: Subsection 3.10(a); c. Attorneys' Fees/Counsel Fees: Section 20.1; d. Bankruptcy Code: Subsection 1.1(f); e. Borrower: Preamble; f. Business Day: Section 16.1; g. Casualty Consultant: Subsection 4.4(b)(iii); h. Casualty Retainage: Subsection 4.4(b)(iv); i. Collateral: Section 1.3; j. Debt: Section 2.1; k. Default Rate: Section 10.3; l. Environmental Indemnity: Subsection 10.1(c); m. Environmental Law: Section 12.1; n. Environmental Liens: Section 12.2; o. Environmental Report: Section 12.1; p. ERISA: Subsection 4.2(a); q. Escrow Fund: Section 3.5; r. Event: Section 19.1; s. Event of Default: Section 10.1; t. Exculpated Parties: Section 15.1; u. Force Majeure: Subsection 4.4(b); v. Guarantor: Section 5.5; w. Hazardous Substances: Section 12.1; x. Improvements: Subsection 1.1(c); y. Indemnified Parties: Section 13.1; z. Indemnitor: Subsection 10.1(c); aa. Independent Director: Subsection 4.3(c); bb. Insurance Premiums: Subsection 3.3(b); cc. Investor: Section 18.1; dd. Land: Subsection 1.1(a); ee. Lease Guaranty: Subsection 3.7(a); ff. Leases: Subsection 1.1(f); gg. Lender: Preamble; hh. Loan Application: Section 5.15; ii. Losses: Section 13.1; jj. Net Proceeds: Subsection 4.4(b); kk. Net Proceeds Deficiency: Subsection 4.4(b)(vi); i 9 ll. Note: Recitals; mm. Obligations: Section 2.3; nn. Other Charges: Subsection 3.4(a); oo. Other Obligations: Section 2.2; pp. Other Security Documents: Section 3.2; qq. Participations: 18.1; rr. Permitted Exceptions: Section 5.1; ss. Person: Section 20.1; tt. Personal Property: Subsection 1.1(e); uu. Policies/Policy: Subsection 3.3(b); vv. Property: Section 1.1; ww. Qualified Insurer: Subsection 3.3(b); xx. Rating Agency: Subsection 3.3(b); yy. Registrar: Section 18.2; zz. Release: Section 12.1; aaa. Remediation: Section 12.1; bbb. Rents: Subsection 1.1(f); ccc. Restoration: Subsection 3.3(d); ddd. Securities: Section 18.1; bd Securitization: Section 18.1; eee. Security Instrument: Preamble; fff. Servicer: Section 6.2; ggg. SPE Member: Subsection 4.3(b); hhh. Taxes: Subsection 3.4(a); iii. Trustee: Preamble; and jjj. Uniform Commercial Code: Subsection 1.1(e). ii 10 THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security Instrument") is made as of the 27th day of February, 1998, by A.T.C., L.L.C., a Virginia limited liability company, having its principal place of business at A.T.C., L.L.C. c/o Berman Kappler, Inc., 1010 Wisconsin Avenue, N.W., Suite 250, Washington, D.C. 20007, as trustor ("Borrower") to LAWYERS TITLE INSURANCE COMPANY, having an address at 804 Charles Street, Fredericksburg, Virginia, 22404, as trustee ("Trustee"), for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation, having an address at 650 Dresher Road, Horsham, Pennsylvania 19055-8015, as beneficiary ("Lender"). RECITALS: Borrower by its promissory note of even date herewith given to Lender is indebted to Lender in the principal sum of $15,225,000.00 in lawful money of the United States of America (the note together with all extensions, renewals, modifications, consolidations, substitutions, replacements, restatements and increases thereof shall collectively be referred to as the "Note"), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note. Borrower desires to secure the payment of the Debt (as defined in Article 2) and the performance of all of its obligations under the Note and the Other Obligations (as defined in Article 2). ARTICLE 1. GRANTS OF SECURITY Section 1.1 Property Mortgaged. Borrower does hereby irrevocably (i) mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Trustee and to its successors and assigns in trust with power of sale in accordance with the terms and conditions hereof, for the use and benefit of Lender, and (ii) grant a security interest to Trustee and to its successors and assigns in trust with power of sale, in accordance with the terms and conditions hereof, for the use and benefit of Lender, in, the following property, rights, interests and estates now owned, or hereafter acquired by Borrower (collectively, the "Property"): (a) Land. The real property described in Exhibit A attached hereto and made a part hereof (the "Land"); (b) Additional Land. All additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the Land and the development of the Land that may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Security Instrument; (c) Improvements. The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "Improvements"); 11 (d) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto; (e) Fixtures and Personal Property. All machinery, equipment, fixtures (including, but not limited to all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land or the Improvements, or appurtenant thereto, and used in connection with the present or future operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or used in connection with the present or future operation and occupancy of the Land and the Improvements (collectively, the "Personal Property"), and the right, title and interest of Borrower in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state or states where any of the Property is located (the "Uniform Commercial Code"), superior in lien to the lien of this Security Instrument and all proceeds and products of the above; (f) Leases and Rents. All leases and other agreements affecting the use, enjoyment or occupancy of all or any part of the Land or the Improvements heretofore or hereafter entered into whether before or after the filing by or against Borrower of any petition for relief under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"), as the same may be amended from time to time (the "Leases") and all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, all guarantees, letters of credit and any other credit support given by any guarantor in connection therewith, cash or securities deposited under the Leases to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code (the "Rents") and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; (g) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, 2 12 whether from the exercise of the right of eminent domain (including, but not limited to any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property; (h) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance judgments, or settlements made in lieu thereof, for damage to the Property; (i) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction; (j) Rights. The right, in the name and on behalf of Borrower, to commence any action or proceeding to protect the interest of Lender or Trustee in the Property and while an Event of Default (defined in Section 10.1) remains uncured, to appear in and defend any action or proceeding brought with respect to the Property; (k) Agreements. All agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof and all right, title and interest of Borrower therein and thereunder, including, without limitation, the right, while an Event of Default remains uncured, to receive and collect any sums payable to Borrower thereunder; (l) Intangibles. All accounts, escrows, chattel paper, claims, deposits, trade names, trademarks, servicemarks, logos, copyrights, goodwill, books and records and all other general intangibles specific to or used in connection with the operation of the Property, if any; and (m) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of the foregoing including, without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims; (n) Other Rights. Any and all other rights of Borrower in and to the items set forth in Subsections (a) through (m) above. Section 1.2 Assignment of Leases and Rents. Borrower hereby absolutely and unconditionally assigns to Lender Borrower's right, title and interest in and to all current and future Leases and Rents; it being intended by Borrower that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of this Section 1.2 and Section 3.7, Lender grants to Borrower a revocable license to collect and receive the Rents. Borrower shall hold the Rents, or a portion thereof, sufficient to discharge all current sums due on the Debt, for use in the payment of such sums. 3 13 Section 1.3 Security Agreement. This Security Instrument is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. By executing and delivering this Security Instrument, Borrower hereby grants to Lender, as security for the Obligations (defined in Section 2.3), a security interest in the Property to the full extent that the Property may be subject to the Uniform Commercial Code (said portion of the Property so subject to the Uniform Commercial Code, the "Collateral"). Section 1.4 Pledge of Monies Held. Borrower hereby pledges to Lender, and grants to Lender a security interest in, any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Escrow Fund (defined in Section 3.5) and the Net Proceeds (defined in Section 4.4), as additional security for the Obligations until expended or applied as provided in this Security Instrument. CONDITIONS TO GRANT TO HAVE AND TO HOLD the above granted and described Property unto the Trustee and its successors and assigns, in trust with power of sale in accordance with the terms and conditions hereof, for the use and benefit of Lender, and the successors and assigns of Lender, forever; PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void. ARTICLE 2. DEBT AND OBLIGATIONS SECURED Section 2.1 Debt. This Security Instrument and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the following, in such order of priority as Lender may determine in its sole discretion (the "Debt"): (a) the payment of the indebtedness evidenced by the Note in lawful money of the United States of America; (b) the payment of interest, default interest, late charges and other sums, as provided in the Note, this Security Instrument or the Other Security Documents (defined in Section 3.2); (c) Prepayment Consideration (as defined in the Note); (d) the payment of all other monies agreed or provided to be paid by Borrower in the Note, this Security Instrument or the Other Security Documents; 4 14 (e) the payment of all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby; and (f) the payment of all sums advanced and costs and expenses incurred by Lender or Trustee in connection with the Debt or any part thereof, any renewal, extension, modification, consolidation, change, substitution, replacement, restatement or increase of the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender. Section 2.2 Other Obligations. This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the following (the "Other Obligations"): (a) the performance of all other obligations of Borrower contained herein; (b) the performance of each obligation of Borrower contained in the Note in addition to the payment of the Debt and of Borrower and of any Guarantor (defined in Section 5.5) contained in the Other Security Documents; and Section 2.3 the performance of each obligation of Borrower and any Guarantor contained in any renewal, extension, modification, consolidation, change, substitution, replacement for, restatement or increase of all or any part of the Note, this Security Instrument or the Other Security Documents. Section 2.4 Debt and Other Obligations. Borrower's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively below as the "Obligations." Section 2.5 Payments. Unless payments are made in the required amount in immediately available funds at the place where the Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default. ARTICLE 3. BORROWER COVENANTS Borrower covenants and agrees with Trustee and Lender that: Section 3.1 Payment of Debt. Borrower will pay the Debt at the time and in the manner provided in the Note and in this Security Instrument. 5 15 Section 3.2 Incorporation by Reference. All the covenants, conditions and agreements contained in (a) the Note and (b) all and any of the documents other than the Note or this Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guaranty payment of the Note or the other Obligations (the "Other Security Documents"), are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. Section 3.3 Insurance. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Property providing at least the following coverages: (i) Property Insurance. Insurance with respect to the Improvements and building equipment insuring against any peril included within the classification "All Risks of Physical Loss" in amounts at all times sufficient to prevent Lender from becoming a co-insurer within the terms of the applicable policies and under applicable law, but in any event such insurance shall be maintained in an amount equal to the full insurable value of the Improvements and building equipment, the term "full insurable value" to mean the actual replacement cost of the Improvements and building equipment (without taking into account any depreciation, and exclusive of excavations, footings and foundations, landscaping and paving) determined annually by an insurer, a recognized independent insurance broker or an independent appraiser selected and paid by Borrower and in no event less than the coverage required pursuant to the terms of any Lease. Absent such annual adjustment, each policy shall contain inflation guard coverage insuring that the policy limit will be increased over time to reflect the effect of inflation. Borrower shall also maintain insurance against loss or damage to such furniture, furnishings, fixtures, equipment and other items (whether personalty or fixtures) included in the Property and owned by Borrower from time to time, to the extent applicable, in the amount of the cost of replacing the same, in each case, with inflation guard coverage to reflect the effect of inflation, or annual valuation. Each policy or policies shall contain a replacement cost endorsement and either an agreed amount endorsement (to avoid the operation of any co-insurance provisions) or a waiver of any co-insurance provisions, all subject to Lender's approval. The maximum deductible shall be $10,000.00; (ii) Liability Insurance. Comprehensive general liability insurance, including personal injury, bodily injury, death and property damage liability, insurance against any and all claims, including all legal liability to the extent insurable and imposed upon Lender and all court costs and attorneys' fees and expenses, arising out of or connected with the possession, use, leasing, operation, maintenance or condition of the Property in such amounts as are generally available at commercially reasonable premiums and are generally required by institutional lenders for properties comparable to the Property but in no event for a combined single limit of less than $2,000,000.00. During any 6 16 construction of the Property, Mortgagor's general contractor for such construction shall also provide the insurance required in this Subsection b. Lender hereby retains the right to periodically review the amount of said liability insurance being maintained by Borrower and to require an increase in the amount of said liability insurance should Lender deem an increase to be reasonably prudent under then existing circumstances; (iii) Workers' Compensation Insurance. Statutory workers' compensation insurance with respect to any work on or about the Property covering all persons subject to the workers' compensation laws of the state in which the Property is located; (iv) Business Interruption. Business interruption and/or loss of "rental income" insurance in an amount sufficient to avoid any co-insurance penalty and to provide proceeds which will cover a period of not less than one (1) year from the date of casualty or loss, the term "rental income" to mean the sum of (A) the total then ascertainable Rents payable under the Leases and (B) the total ascertainable amount of all other amounts to be received by Borrower from third parties which are the legal obligation of the tenants, reduced to the extent such amounts would not be received because of operating expenses not incurred during a period of non-occupancy of that portion of the Property then not being occupied. The amount of coverage shall be adjusted annually to reflect the rents payable during the succeeding twelve (12) month period. (v) Boiler and Machinery Insurance. Broad form boiler and machinery insurance (without exclusion for explosion) covering all boilers or other pressure vessels, machinery, and equipment located in, on or about the Property and insurance against loss of occupancy or use arising from any breakdown in such amount per accident equal to the replacement value of the improvements housing the machinery or $10,300,000.00 or such other amount reasonably determined by Lender. If one or more large HVAC units is in operation at the Property, "System Breakdowns" coverage shall be required, as determined by Mortgagee. Minimum liability coverage per accident must equal the value of such unit(s); (vi) Flood Insurance. If required by Subsection 5.6(a) hereof, flood insurance in an amount at least equal to the lesser of (A) the minimum amount required, under the terms of coverage, to compensate for any damage or loss on a replacement basis (or the unpaid balance of the indebtedness secured hereby if replacement cost coverage is not available for the type of building insured); or (B) the maximum insurance available under the appropriate National Flood Insurance Administration program. The maximum deductible shall be $3,000.00 per building or a higher minimum amount as required by the Federal Emergency Management Agency or other applicable law. (vii) During the period of any construction, renovation or alteration of the Improvements which exceeds the lesser of 10% of the principal 8 17 amount of the Note or $500,000, at Lender's request, a completed value, "All Risk" Builder's Risk form, or "Course of Construction" insurance policy in non-reporting form for any Improvements under construction, renovation or alteration in an amount approved by Lender may be required. During the period of any construction of any addition to the existing Improvements, a completed value, "All Risk" Builder's Risk form or "Course of Construction" insurance policy in non-reporting form, in an amount approved by Lender, shall be required. (viii) Other Insurance. Such other insurance with respect to the Property or on any replacements or substitutions thereof or additions thereto as may from time to time be required by Lender against other insurable hazards or casualties which at the time are commonly insured against in the case of property similarly situated, including, without limitation, sinkhole, mine subsidence, earthquake and environmental insurance, due regard being given to the height and type of buildings, their construction, location, use and occupancy. (b) All insurance provided for in Subsection 3.3(a) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), and shall be issued by one or more domestic primary insurer(s) having (i) an investment grade rating or a claims paying ability assigned by one or more credit rating agencies approved by Lender (a "Rating Agency") and (ii) a general policy rating of A or better and a financial class of VI or better by A.M. Best Company, Inc. (each such insurer shall be referred to below as a "Qualified Insurer"). All insurers providing insurance required by this Security Instrument shall be authorized to issue insurance in the state in which the Property is located. The Policy referred to in Subsection 3.3(a)(ii) above shall name Lender as an additional named insured and the Policy referred to in Subsection 3.3(a)(i), (iv), (v) and (vi) above shall provide that all proceeds be payable to Lender as set forth in Section 4.4 hereof. The Policies referred to in Subsections 3.3(a)(i), (v) and (vi) shall also contain: (i) a standard "non-contributory mortgagee" endorsement or its equivalent relating, inter alia, to recovery by Lender notwithstanding the negligent or willful acts or omission of Lender; (ii) to the extent available at commercially reasonable rates, a waiver of subrogation endorsement as to Lender; and (iii) an endorsement providing for a deductible per loss of an amount not more than that which is customarily maintained by prudent owners of similar properties in the general vicinity of the Property, but in no event in excess of $250,000. All Policies described in Subsection 3.3(a) above shall contain (i) a provision that such Policies shall not be cancelled or terminated, nor shall they expire, without at least thirty (30) days' prior written notice to Lender in each instance; and (ii) include effective waivers by the insurer of all claims for Insurance Premiums (defined below) against any loss payees, additional insureds and named insureds (other than Borrower). In the event that the Property or the Improvements constitutes a legal non-conforming use under applicable building, zoning or land use laws or ordinances, the policy shall include an ordinance or law coverage endorsement which will contain Coverage A: "Loss Due to Operation of Law" (with a minimum liability limit equal to Replacement Cost With Agreed Value Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of Construction" coverages. Certificates of insurance with respect to all renewal and replacement Policies shall be delivered to Lender not less than thirty (30) days prior to the expiration date of any of the 8 18 Policies required to be maintained hereunder which certificates shall bear notations evidencing payment of applicable premiums (the "Insurance Premiums"). Originals or certificates of such replacement Policies shall be delivered to Lender promptly after Borrower's receipt thereof but in any case within thirty (30) days after the effective date thereof. If Borrower fails to maintain and deliver to Lender the original Policies or certificates of insurance required by this Security Instrument, upon ten (10) days' prior notice to Borrower, Lender may procure such insurance at Borrower's sole cost and expense. (c) Borrower shall comply with all insurance requirements and shall not knowingly bring or keep or permit to be brought or kept any article upon any of the Property or intentionally or negligently cause or permit any condition to exist thereon which would be prohibited by an insurance requirement, or would invalidate the insurance coverage required hereunder to be maintained by Borrower on or with respect to any part of the Property pursuant to this Section 3.3. (d) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, Borrower shall give prompt notice of such damage to Lender and provided that Borrower shall have received the Net Proceeds, Borrower shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be approved by Lender (the "Restoration") and otherwise in accordance with Section 4.4 of this Security Instrument. (e) The insurance coverage required under Section 3.3(a) may be effected under a blanket policy or policies covering the Property and other properties and assets not constituting a part of the security hereunder; provided that any such blanket policy shall specify, except in the case of public liability insurance, the portion of the total coverage of such policy that is allocated to the Property, and any sublimit in such blanket policy applicable to the Property, and shall in any case comply in all other respects with the requirements of this Section 3.3. (f) The insurance coverage required under Subsection 3.3(a)(ii) may be satisfied by a layering of Comprehensive General Liability, Umbrella and Excess Liability Policies, but in no event will the Comprehensive General Liability policy be written for an amount less than $2,000,000.00 combined single limit for bodily injury and property damage liability. (g) The delivery to Lender of the insurance policies or the certificates of insurance as provided above shall constitute an assignment of all proceeds payable under such insurance as relating to the Property by Borrower to Lender as further security for the indebtedness secured hereby. In the event of foreclosure of this Deed of Trust, or other transfer of title to the Property in extinguishment in whole or in part of the secured indebtedness, all right, title and interest of Borrower in and to all proceeds payable under such policies then in force concerning the Property shall thereupon vest in the purchaser at such foreclosure, or in Lender or other transferee in the event of such other transfer of 10 19 title. Approval of any insurance by Lender shall not be a representation of the solvency of any insurer or the sufficiency of any amount of insurance. (h) Lender shall not be responsible for nor incur any liability for the insolvency of the insurer or other failure of the insurer to perform, even though Lender has caused the insurance to be placed with the insurer after failure of Borrower to furnish such insurance. Borrower shall not obtain insurance for the Property in addition to that required by Lender without the prior written consent of Lender, which consent will not be unreasonably withheld provided that (i) Lender is named insured on such insurance, (ii) Lender receives complete copies of all policies evidencing such insurance, and (iii) such insurance complies with all of the applicable requirements set forth herein. Section 3.4 Payment of Taxes, Etc. (a) Borrower shall pay by their due date all taxes, assessments, water rates, sewer rents, governmental impositions, and other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Taxes"), all ground rents, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Other Charges"), and all charges for utility services provided to the Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender's request, evidence satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent. (b) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Taxes or the Other Charges, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Security Documents, (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property, (iii) such proceeding shall suspend the collection of the Taxes or Other Charges from Borrower and from the Property or Borrower shall have paid all of the Taxes or Other Charges under protest, (iv) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (v) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost, (vi) Borrower shall have set aside adequate reserves for the payment of the Taxes or Other Charges, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes or Other Charges under protest, and (vii) Borrower shall have furnished 10 20 the security as may be required in the proceeding, or as may be reasonably requested by Lender to insure the payment of any contested Taxes or Other Charges, together with all interest and penalties thereon, taking into consideration the amount in the Escrow Fund available for payment of Taxes or Other Charges. Section 3.5 Escrow Fund. At the option of Lender, Lender may require Borrower to establish an Escrow Fund (defined below) sufficient to discharge its obligations for the payment of Insurance Premiums and Taxes pursuant to Sections 3.3 and 3.4 hereof. Initial deposits of Taxes and Insurance Premiums shall be made by Borrower to Lender in amounts determined by Lender in its discretion on the date hereof to be held by Lender in escrow. Additionally, Borrower shall pay to Lender on the first day of each calendar month (a) one-twelfth of an amount which would be sufficient to pay the Taxes payable, or estimated by Lender to be payable, upon the due dates established by the appropriate taxing authority during the next ensuing twelve (12) months and (b) one-twelfth of an amount which would be sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the Policies upon the expiration thereof (the initial deposits together with the amounts in (a) and (b) above shall be called the "Escrow Fund"). Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Taxes and Insurance Premiums of which it has obtained knowledge and authorizes Lender or its agent to obtain the bills for Taxes and Other Charges directly from the appropriate tax authority. The Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Provided there are sufficient amounts in the Escrow Fund and no Event of Default exists, Lender shall be obligated to pay the Taxes and Insurance Premiums as they become due on their respective due dates on behalf of Borrower by applying the Escrow Fund to the payments of such Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections 3.3 and 3.4 hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections 3.3 and 3.4 hereof, Lender shall, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth in (a) and (b) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall reasonably estimate as sufficient to make up the deficiency. The Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Unless otherwise required by Applicable Law (defined in Section 3.10), no earnings or interest on the Escrow Fund shall be payable to Borrower. Section 3.6 Condemnation. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings to the extent permitted by law. Upon an Event of Default, Borrower shall deliver to Lender all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Lender, its attorneys and experts, 11 21 and cooperate with them in the carrying on or defense of any such proceedings. Borrower shall not make any agreement in lieu of condemnation of the Property or any portion thereof without the prior written consent of Lender in each instance, which consent shall not be unreasonably withheld or delayed in the case of a taking of an insubstantial portion of the Property. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including, but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any award or payment therefor shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by the power of eminent domain, Borrower shall promptly commence and diligently prosecute the Restoration of the Property and otherwise comply with the provisions of in accordance with Section 4.4 of this Security Instrument. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the award or payment, or a portion thereof sufficient to pay the Debt. Section 3.7 Leases and Rents. Except as otherwise consented to by Lender, all Leases shall be written on a standard form of lease which shall have been approved by Lender. Upon request, Borrower shall furnish Lender with executed copies of all Leases. By its acceptance hereof, Lender acknowledges its receipt and approval of the form of lease used by Borrower and the tenants currently in possession of the Mortgaged Property thereunder. No material changes may be made to the Lender-approved standard lease without the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed. All proposed leases shall be subject to the prior approval of Lender except that all proposed leases which (i) are on the same form of lease which has been approved by Lender, (ii) are the result of an arms-length transaction, (iii) which provide for rental rates comparable to existing market rates, (iv) where space to be leased does not exceed more than ten percent (10%) of total rentable space of the Property, (v) where the proposed tenant is an independent third party not affiliated with the Borrower, and (vi) do not contain any terms which would materially affect Lender's rights under this Security Instrument, the Note or the Other Security Documents, shall not be subject to the prior approval of Lender. Borrower (i) shall observe and perform all the obligations imposed upon the lessor under the Leases if the failure to perform or observe the same would materially and adversely affect the value of the Property taken as a whole and shall not do or permit to be done anything to impair the value of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; (iii) shall enforce in a commercially reasonable manner all of the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed; provided, however, with respect to multifamily residential property, a residential Lease may be terminated in the event of a default by the tenant thereunder; (iv) shall not collect any of the Rents more than one (1) month in advance (provided that a security deposit shall not be deemed 12 22 rent collected in advance); (v) shall not execute any other assignment of the lessor's interest in the Leases or the Rents; (vi) shall not (A) materially alter, modify or change the terms of the Leases without the prior written consent of Lender, which consent shall not be unreasonably withheld or delayed if the alteration, modification or change does not materially and adversely affect the value of the Property taken as a whole and provided further that such Lease, as altered, modified or changed, is otherwise in compliance with the requirements of this Security Instrument, or (B) cancel or terminate any Lease (except for defaults thereunder) of more than ten (10%) percent of the rentable space of the Property or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Land or of any interest therein so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, lessees thereunder; (vii) shall not alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to the Leases (the "Lease Guaranty") or cancel or terminate such Lease Guaranty without the prior written consent of Lender; and (viii) shall not consent to any assignment of or subletting under the Leases not in accordance with their terms, without the prior written consent of Lender. Notwithstanding the foregoing, subdivisions (ii), (vi), (vii) and (viii) shall not apply to residential Leases for space in a multifamily residential property. Section 3.8 Maintenance of Property. Borrower shall cause the Property to be maintained in a good and safe condition and repair. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property) without the consent of Lender. Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding of the character referred to in Section 3.6 hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit the nonconforming use or Improvement to be discontinued or abandoned without the express written consent of Lender. Section 3.9 Waste. Borrower shall not commit or suffer any waste of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way impair the value of the Property or the security of this Security Instrument. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. 13 23 Section 3.10 Compliance With Laws. (a) Borrower shall promptly comply with all existing and future federal, state and local laws, orders, ordinances, governmental rules and regulations or court orders affecting the Property, or the use thereof including, but not limited to, the Americans with Disabilities Act ("ADA") (collectively, "Applicable Law"). (a) Borrower shall from time to time, upon Lender's request, provide Lender with evidence reasonably satisfactory to Lender that the Property complies with all Applicable Laws or is exempt from compliance with Applicable Laws. (b) Notwithstanding any provisions set forth herein or in any document regarding Lender's approval of alterations of the Property, Borrower shall not alter the Property in any manner which would materially increase Borrower's responsibilities for compliance with Applicable Laws without the prior written approval of Lender. Lender's approval of the plans, specifications, or working drawings for alterations of the Property shall create no responsibility or liability on behalf of Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The foregoing shall apply to tenant improvements constructed by Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of compliance with Applicable Laws from an independent architect, engineer, or other person acceptable to Lender. (c) Borrower shall give prompt notice to Lender of the receipt by Borrower of any notice related to a violation of any Applicable Laws and of the commencement of any proceedings or investigations which relate to compliance with Applicable Laws. (d) After prior written notice to Lender, Borrower, at its own expense, a contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the Applicable Laws affecting the Property, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Security Documents; (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property; (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder; (iv) neither the Property nor any part thereof or interest therein nor any of the tenants or occupants thereof shall be affected in any material adverse way as a result of such proceeding; and (v) Borrower shall have furnished to Lender all other items reasonably requested by Lender. Section 3.11 Books and Records. (a) Borrower and any Guarantors and Indemnitors shall keep adequate books and records of account in accordance with methods acceptable to Lender in its sole discretion, consistently applied and furnish to Lender: 14 24 (i) quarterly certified rent rolls signed and dated by Borrower, detailing the names of all tenants of the Improvements, the portion of Improvements occupied by each tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, and any other information as is reasonably required by Lender, within thirty (30) days after the end of each fiscal quarter; (ii) a quarterly operating statement of the Property detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, together with a balance sheet for such quarter, to be prepared and certified by Borrower in the form required by Lender, and if available, any quarterly operating statement and/or balance sheet prepared by an independent certified public accountant within thirty (30) days after the close of each fiscal quarter. (iii) an annual balance sheet and profit and loss statement of Borrower, any Guarantors and any Indemnitors, in the form required by Lender, prepared and certified by the respective Borrower, Guarantor and/or Indemnitor, as applicable, within ninety (90) days after the close of each fiscal year; (iv) an annual certified rent roll presented on a quarterly basis consistent with the quarterly certified rent rolls described above within ninety (90) days after the close of each fiscal year; (v) an annual operating budget presented on a monthly basis consistent with the annual operating statement described above for the Property and all proposed capital replacements and improvements at least thirty (30) days prior to the start of each calendar year; and (vi) such other financial statements, including monthly operating statements and rent rolls, as Lender may reasonably request. (b) Upon reasonable request from Lender, Borrower and its affiliates shall furnish to Lender: (i) a property management report for the Property, showing the number of inquiries made and/or rental applications received from tenants or prospective tenants and deposits received from tenants and any other information requested by Lender, in reasonable detail and certified by Borrower under penalty of perjury to be true and complete, but no more frequently than quarterly; and (ii) an accounting of all security deposits held in connection with any Lease of any part of the Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions. 15 25 (c) Borrower and its affiliates and any Guarantor and Indemnitor shall furnish Lender with such other additional financial or management information as may, from time to time, be reasonably required by Lender in form and substance satisfactory to Lender. Section 3.12 Payment For Labor and Materials. Borrower will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials incurred in connection with the Property and never permit to exist beyond the due date thereof in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event never permit to be created or exist in respect of the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Exceptions (defined in Section 5.1). Section 3.13 Performance of Other Agreements. Borrower shall observe and perform each and every term to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property. Section 3.14 Change of Name, Identity or Structure. Borrower will not change Borrower's name, identity (including its trade name or names) or, if not an individual, Borrower's corporate, partnership or other structure without notifying the Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the case of a change in Borrower's structure, without first obtaining the prior written consent of the Lender. Section 3.15 Existence. Borrower will continuously maintain (a) its existence and shall not dissolve or permit its dissolution, (b) its rights to do business in the state where the Property is located and (c) its franchises and trade names. ARTICLE 4. SPECIAL COVENANTS Borrower covenants and agrees with Trustee and Lender that: Section 4.1 Property Use. The Property shall be used only for a retail/wholesale shopping center and for no other use without the prior written consent of Lender, which consent may be withheld in Lender's discretion. Section 4.2 ERISA. (a) It shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Security Instrument and the Other Security Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Security 16 26 Instrument, as requested by Lender in its sole discretion, that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (A) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) Less than 25 percent of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. Section 4.3 Single Purpose Entity. (a) It has not and shall not: (i) engage in any business or activity other than the ownership, operation and maintenance of the Property, and activities incidental thereto; (ii) acquire or own any material assets other than (A) the Property, and (B) such incidental Personal Property as may be necessary for the operation of the Property; (iii) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent; (iv) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles or Certificate of Incorporation, Operating Agreement or similar organizational documents, as the case may be, as same may be further amended or supplemented, if such amendment, modification, termination or failure to comply would adversely affect the ability of Borrower to perform its obligations hereunder, under the Note or under the Other Security Documents; (v) own any subsidiary or make any investment in, any person or entity without the consent of Lender; 17 27 (vi) commingle its assets with the assets of any of its general partners, members, shareholders, affiliates, principals or of any other person or entity; (vii) incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt and trade payables incurred in the ordinary course of business, provided same are paid when due; (viii) fail to maintain its records, books of account and bank accounts separate and apart from those of the general partners, members, shareholders, principals and affiliates of Borrower, the affiliates of a general partner or member, or shareholder of Borrower, and any other person or entity; (ix) enter into any contract or agreement with any general partner, member, shareholder, principal or affiliate of Borrower, Guarantor or Indemnitor, or any general partner, member, principal or affiliate thereof, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any general partner, member, shareholder, principal or affiliate of Borrower, Guarantor or Indemnitor, or any general partner, member, principal or affiliate thereof; (x) seek the dissolution or winding up in whole, or in part, of Borrower; (xi) maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any general partner, member, shareholder, principal or affiliate of Borrower, or any general partner, member, shareholder, principal or affiliate thereof or any other person; (xii) hold itself out to be responsible for the debts of another person; (xiii) make any loans or advances to any third party, including any general partner, member, shareholder, principal or affiliate of Borrower, or any general partner, principal or affiliate thereof; (xiv) fail to file its own tax returns; (xv) agree to, enter into or consummate any transaction which would render Borrower unable to furnish the certification or other evidence referred to in Section 4.2(b) hereof; (xvi) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (A) to mislead others as to the identity with which such other party is transacting business, or (B) to suggest that Borrower is 18 28 responsible for the debts of any third party (including any general partner, principal or affiliate of Borrower, or any general partner, principal or affiliate thereof); (xvii) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; or (xviii) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors. (b) If Borrower is a limited partnership or a limited liability company, each general partner or at least one member (the "SPE Member") of Borrower, as applicable, is a corporation whose sole asset is its interest in Borrower and each general partner or the SPE Member of Borrower, as applicable, will at all times comply, and will cause Borrower to comply, with each of the covenants, terms and provisions contained in Section 4.3(a) as if such representation, warranty or covenant was made directly by such general partner or SPE Member. Only the SPE Member may be designated as a manager under the law where the Borrower is organized. (c) Borrower shall at all times cause there to be at least one duly appointed member of the board of directors (an "Independent Director") of each general partner of Borrower (or of the SPE Member of Borrower) reasonably satisfactory to Lender who shall not have been at the time of such individual's initial appointment, and may not have been at any time during the preceding five years, and shall not be at any time while serving as a director of the general partner (or SPE Member) either (i) a shareholder of, or an officer, director, partner or employee of, Borrower or any of its shareholders, partners, members, subsidiaries or affiliates, (ii) a customer of, or supplier to, Borrower or any of its shareholders, partners, members, subsidiaries or affiliates, (iii) a person or other entity controlling or under common control with any such shareholder, officer, director, partner, member, employee, supplier or customer, or (iv) a member of the immediate family of any such shareholder, officer, director, partner, member, employee, supplier or customer. As used herein, the term "control": means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policy of a person or entity, whether through ownership of voting securities, by contract or otherwise. (d) Borrower shall not cause or permit the board of directors of the general partner of Borrower (or of the SPE Member of Borrower) to take any action which, under the terms of any certificate of incorporation, bylaws or any voting trust agreement with respect to any common stock, requires a vote of the board of directors of the general partner of Borrower (or the SPE Member of Borrower) unless at the time of such action there shall be at least one member of the board of directors who is an Independent Director. 19 29 Section 4.4 Restoration After Casualty/Condemnation. In the event of a casualty or a taking by eminent domain, the following provisions shall apply in connection with the Restoration of the Property: (a) If (i) the Net Proceeds (defined below) do not exceed $250,000 ("Casualty Amount"); (ii) the costs of completing the Restoration as reasonably estimated by Borrower shall be less than or equal to the Casualty Amount; (iii) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the Other Security Documents; (iv) the Property and the use thereof after the Restoration will be in compliance with, and permitted under, all applicable zoning laws, ordinances, rules and regulations (including, without limitation, all applicable Environmental Laws (defined in Section 12.1); and (v) such fire or other casualty or taking, as applicable, does not materially impair access to the Property or the Improvements, then the Net Proceeds will be disbursed directly to Borrower and Borrower shall commence and diligently prosecute to completion, subject to Force Majeure (defined herein), the Restoration of the Property to as nearly as possible the condition it was in immediately prior to such fire or other casualty or to such taking. Except upon the occurrence and continuance of an Event of Default, Borrower shall settle any insurance claims with respect to the Net Proceeds which in the aggregate are less than or equal to the Casualty Amount. Lender shall have the right to participate in and reasonably approve any settlement for insurance claims with respect to the Net Proceeds which in the aggregate are equal to or greater than the Casualty Amount. If an Event of Default shall have occurred and be continuing, Borrower hereby irrevocably empowers Lender, in the name of Borrower as its true and lawful attorney-in-fact, to file and prosecute such claim and to collect and to make receipt for any such payment. If the Net Proceeds are received by Borrower, such Net Proceeds shall, until the completion of the related work, be held in trust for Lender and shall be segregated from other funds of Borrower to be used to pay for the cost of the Restoration in accordance with the terms hereof. (b) If the Net Proceeds are greater than the Casualty Amount, such Net Proceeds shall, subject to the provisions of the Leases that are superior to the lien of this Security Instrument or with respect to which subordination, non-disturbance agreements binding upon Lender have entered into concerning the deposits of Net Proceeds, be forthwith paid to Lender to be held by Lender in a segregated account to be made available to Borrower for the Restoration in accordance with the provisions of this Subsection 4.4(b). Borrower shall commence and diligently prosecute to completion, subject to Force Majeure (defined below), the Restoration (in the case of a taking, to the extent the Property is capable of being restored). The term "Net Proceeds" for purposes of this Section 4.4 shall mean: (i) the net amount of all insurance proceeds received by Lender under the Policies carried pursuant to Subsections 3.3(a)(i), (iv), (v), (vi) and (vii) of this Security Instrument as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to reasonable counsel fees), if any, in collecting the same, or (ii) the net amount of all awards and payments received by Lender with respect to a taking referenced in Section 3.6 of this Security Instrument, after deduction of its reasonable costs and expenses (including, but not limited to reasonable counsel fees), if any, in collecting the same, whichever the case may be. The term "Force Majeure" for the purpose of this Section 4.4 shall have the following 20 30 meaning: Borrower shall be excused for the period of any delay in the performance of any obligations hereunder when prevented from so doing by cause or causes beyond Borrower's control such as, without limitation, all labor disputes, civil commotion, war, war-like operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fire or other casualty, inability to obtain any materials or services, and acts of God. (i) The Net Proceeds shall be made available to Borrower for payment of, or reimbursement of Borrower's expenses in connection with, the Restoration, subject to the following conditions: (A) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the Other Security Documents; (B) Lender shall, within a reasonable period of time prior to request for initial disbursement, be furnished with an estimate of the cost of the Restoration accompanied by an independent architect's certification as to such costs and appropriate plans and specifications for the Restoration; (C) the Net Proceeds, together with any cash or cash equivalent deposited by Borrower with Lender, are sufficient to cover the cost of the Restoration as such costs are certified by the independent architect; (D) (1) in the event that the Net Proceeds are insurance proceeds, less than fifty percent (50%) of the total floor area of the Improvements has been damaged or destroyed, or rendered unusable as a result of such fire or other casualty; or (2) in the event that the Net Proceeds are condemnation awards, less than fifty percent (50%) of the Land constituting the Property is taken, such Land that is taken is located along the perimeter or periphery of the Property and no portion of the Improvements is located in such Lands; (E) Lender shall be satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, or (2) other funds of Borrower; (F) Lender shall be satisfied that, upon the completion of the Restoration and related lease-up, if applicable, the net cash flow of the Property will be restored to a level sufficient to cover all carrying costs and operating expenses of the Property, including, without limitation, debt service on the Note at a coverage ratio (on a "normalized" basis, i.e., after deducting replacement reserve requirements and reserves for tenant 21 31 improvements and leasing commissions from net operating income, whether or not such sums are escrowed with Lender) of at least 1.25: 1.0, which coverage ratio shall be equal to or greater than the coverage ratio existing as of the date of this Security Instrument or, if lower, the coverage ratio which existed as of the date immediately preceding such casualty or taking as the case may be; (G) the Restoration can reasonably be completed on or before the earliest to occur of (1) six (6) months prior to the Maturity Date (as defined in the Note), (2) the earliest date required for such completion under the terms of any Lease and (3) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to as nearly as possible the condition it was in immediately prior to such fire or other casualty or to such taking, as applicable; (H) the Property and the use thereof after the Restoration will be in compliance with, and permitted under, all applicable zoning laws, ordinances, rules and regulations (including, without limitation, all applicable Environmental Laws (defined in Section 12.1); and (I) such fire or other casualty or taking, as applicable, does not materially impair access to the Property or the Improvements. (ii) The Net Proceeds shall be held by Lender and, until disbursed in accordance with the provisions of this Subsection 4.4(b), shall constitute additional security for the Obligations. The Net Proceeds other than the Net Proceeds paid under the Policy described in Subsection 3.3(a)(iv) shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic's or materialmen's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company insuring the lien of this Security Instrument. (iii) Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and an independent consulting engineer selected by Lender (the "Casualty Consultant"), such acceptance not to be unreasonably withheld or delayed. All costs and expenses incurred by Lender in connection with making the Net Proceeds 22 32 available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Casualty Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, minus the Casualty Retainage. The term "Casualty Retainage" as used in this Subsection 4.4(b) shall mean an amount equal to 10% of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until such time as the Casualty Consultant certifies to Lender that 50% of the required Restoration has been completed. There shall be no Casualty Retainage with respect to costs actually incurred by Borrower for work in place in completing the last 50% of the required Restoration. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Subsection 4.4(b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 4.4(b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage, provided, however, that Lender will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Casualty Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, and the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company insuring the lien of this Security Instrument. If required by Lender, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the opinion of Lender, be sufficient to pay in full the balance of the costs which are estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "Net Proceeds Deficiency") with Lender before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency 23 33 deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Subsection 4.4(b) shall constitute additional security for the Obligations. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Casualty Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection 4.4(b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Security Instrument or any of the Other Security Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Subsection 4.4(b)(vii) shall be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its discretion shall deem proper or, at the discretion of Lender, the same shall be paid, either in whole or in part, to Borrower. If Lender shall receive and retain Net Proceeds, the lien of this Security Instrument shall be reduced only by the amount received and retained by Lender and actually applied by Lender in reduction of the Debt. ARTICLE 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Trustee and Lender that: Section 5.1 Warranty of Title. Borrower has good and marketable title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and that Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements and that it owns the Property free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument (the "Permitted Exceptions"). The Permitted Exceptions do not materially interfere with the security intended to be provided by this Security Instrument or the use and operations of the Property. Borrower shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Trustee and to Lender against the claims of all persons whomsoever. Upon the recordation of this Security Instrument and the filing of a UCC Financing Statement in the office of the Secretary of State for the state where the Property is located, the Lender will have a first priority perfected security interest in all personal property owned by Borrower. 24 34 Section 5.2 Authority. Borrower (and the undersigned representative of Borrower, if any) has full power, authority and legal right to execute this Security Instrument, and to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on Borrower's part to be performed. Section 5.3 Legal Status and Authority. Borrower (a) is duly organized, validly existing and in good standing under the laws of its state of organization or incorporation; (b) is duly qualified to transact business and is in good standing in the State where the Property is located; and (c) has all necessary approvals, governmental and otherwise, and full power and authority to own the Property and carry on its business as now conducted and proposed to be conducted. Borrower now has and shall continue to have the full right, power and authority to operate and lease the Property, to encumber the Property as provided herein and to perform all of the other obligations to be performed by Borrower under the Note, this Security Instrument and the Other Security Documents. Section 5.4 Validity of Documents. (a) The execution, delivery and performance of the Note, this Security Instrument and the Other Security Documents and the borrowing evidenced by the Note (i) are within the power and authority of Borrower; (ii) have been authorized by all requisite organizational action; (iii) have received all necessary approvals and consents, corporate, governmental or otherwise; (iv) will not violate, conflict with, result in a breach of or constitute (with notice or lapse of time, or both) a default under any provision of law (including, without limitation, any usury laws), any order or judgment of any court or governmental authority, the articles of incorporation, by-laws, partnership or operating agreement, or other governing instrument of Borrower, or any indenture, agreement or other instrument to which Borrower is a party or by which it or any of its assets or the Property is or may be bound or affected; (v) will not result in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of its assets, except the lien and security interest created hereby; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this instrument in appropriate land records in the State where the Property is located and except for Uniform Commercial Code filings relating to the security interest created hereby), and (b) the Note, this Security Instrument and the Other Security Documents constitute the legal, valid and binding obligations of Borrower. Section 5.5 Litigation. There is no action, suit or proceeding, judicial, administrative or otherwise (including any condemnation or similar proceeding), pending or, to the best of Borrower's knowledge, threatened or contemplated against Borrower, any person guaranteeing the payment of the Debt or any portion thereof or performance by Borrower of any terms of this Security Instrument (a "Guarantor"), if any, an Indemnitor (defined in Subsection 10.1(c)), if any, or against or affecting the Property that (a) has not been disclosed to Lender, and has a material, adverse effect on the Property or Borrower's, any Guarantor's or any Indemnitor's ability to perform its obligations under the Note, this Security Instrument or the Other Security Documents, or 25 35 (b) is not adequately covered by insurance, each as determined by Lender in its sole and absolute discretion. Section 5.6 Status of Property. (a) No portion of the Improvements is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, or the National Flood Insurance Reform Act of 1994, as each may be amended, or any successor law, or, if any portion of the Improvements is now or at any time in the future located within any such area, Borrower has obtained and will maintain the insurance prescribed in Section 3.3 hereof. (b) Borrower has obtained all necessary certificates, licenses and other approvals, governmental and otherwise, necessary for the operation of the Property and the conduct of its business and all required zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force and effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification. (c) The Property and the present and contemplated use and occupancy thereof are in full compliance with all Applicable Laws, including, without limitation, zoning ordinances, building codes, land use and Environmental Laws, laws relating to the disabled (including but not limited to, the ADA) and other similar laws. (d) The Property is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service. (e) To Borrower's knowledge, all public roads and streets necessary for service of and access to the Property for the current or contemplated use thereof have been completed, are serviceable and all-weather and are physically and legally open for use by the public. (f) The Property is served by public water and sewer systems. (g) The Property is free from damage caused by fire or other casualty. (h) To Borrower's knowledge, all costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full. (i) Borrower has paid in full for, and is the owner of, all furnishings, fixtures and equipment (other than tenants' property) used in connection with the operation of the Property, free and clear of any and all security interests, liens or encumbrances, except the lien and security interest created hereby. 26 36 (j) All liquid and solid waste disposal, septic and sewer systems located on the Property are in a good and safe condition and repair and in compliance with all Applicable Laws. (k) All security deposits relating to the Leases reflected on the certified rent roll delivered to Lender have been collected by Borrower except as noted on the certified rent roll. (l) Borrower has received no notice of an actual or threatened condemnation or eminent domain proceeding by any public or quasi-public authority. (m) All the Improvements lie within the boundaries of the Property. Section 5.7 No Foreign Person. Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury Department regulations, including temporary regulations. Section 5.8 Separate Tax Lot. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Property or any portion thereof. Section 5.9 ERISA Compliance. (a) As of the date hereof and throughout the term of this Security Instrument, (i) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and (ii) the assets of Borrower do not and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA; and (b) As of the date hereof and throughout the term of this Security Instrument, (i) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(3) of ERISA, and (ii) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans. Section 5.10 Leases. Except as disclosed in the rent roll for the Property delivered to and approved by Lender, (a) Borrower is the sole owner of the entire lessor's interest in the Leases; (b) the Leases are valid and enforceable; (c) the terms of all alterations, modifications and amendments to the Leases are reflected in the certified rent roll delivered to and approved by Lender; (d) none of the Rents reserved in the Leases have been assigned or otherwise pledged or hypothecated (except to Lender); (e) none of the Rents have been collected for more than one (1) month in advance (provided that a security deposit shall not be deemed rent collected in advance); (f) the premises demised under the Leases have been completed and the tenants under the Leases have accepted the same and have taken possession of the same on a rent-paying basis; (g) there exist no offsets or defenses to the payment of any portion of the Rents; (h) Borrower has received no notice from any tenant challenging the validity or enforceability of any Lease; (i) there 27 37 are no agreements with the tenants under the Leases other than expressly set forth in each Lease; (j) the Leases are valid and enforceable against Borrower and the tenants set forth therein; (k) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision; (l) no person or entity has any possessory interest in, or right to occupy, the Property except under and pursuant to a Lease; (m) each Lease (other than a residential Lease) is subordinate to this Security Instrument, either pursuant to its terms or a recorded subordination agreement; (n) no Lease has the benefit of a non-disturbance agreement that would be considered unacceptable to prudent institutional lenders; and (o) no brokerage commissions or finders fees are due and payable regarding any Lease. Section 5.11 Financial Condition. (a) Borrower is solvent, and no bankruptcy, reorganization, insolvency or similar proceeding under any state or federal law with respect to Borrower has been initiated, (b) it has received reasonably equivalent value for the granting of this Security Instrument, and (c) the granting of this Security Instrument does not constitute a fraudulent conveyance. Section 5.12 Business Purposes. The loan evidenced by the Note is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. Section 5.13 Taxes. Borrower, any Guarantor and any Indemnitor have filed all federal, state, county, municipal, and city income and other tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. Neither Borrower, any Guarantor nor any Indemnitor knows of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years. Section 5.14 Mailing Address. Borrower's mailing address, as set forth in the opening paragraph hereof or as changed in accordance with Article 16, is true and correct. Section 5.15 No Change in Facts or Circumstances. All information in the application for the loan submitted to Lender (the "Loan Application") and in all financing statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan Application or in satisfaction of the terms thereof, are accurate, complete and correct in all respects. There has been no adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading. Section 5.16 Disclosure. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. Section 5.17 Third Party Representations. Each of the representations and the warranties made by each Guarantor and Indemnitor herein or in any Other Security Document(s) is true and correct in all material respects. 28 38 Section 5.18 Illegal Activity. No portion of the Property has been or will be purchased, improved, fixtured, equipped or furnished with proceeds of any criminal or other illegal activity and to the best of Borrower's knowledge, there are no illegal activities or activities relating to controlled substance at the Property. ARTICLE 6. DEBTOR/CREDITOR RELATIONSHIP Section 6.1 Relationship of Borrower and Lender. The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or condition of any of the Note, this Security Instrument and the Other Security Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor. Section 6.2 Servicing of the Loan. At the option of Lender, the loan secured hereby may be serviced by a servicer/trustee (the "Servicer") selected by Lender and Lender may delegate all or any portion of its responsibilities under the Note, this Security Instrument, and the Other Security Documents to the Servicer. ARTICLE 7. FURTHER ASSURANCES Section 7.1 Recording of Security Instrument, Etc. Borrower forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument and any of the Other Security Documents creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Trustee and of Lender in, the Property. Borrower will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other Security Documents, any note or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. Section 7.2 Further Acts, Etc. Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Trustee (where appropriate) and to Lender, the property and rights hereby mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now 29 39 or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Trustee or to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Applicable Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender and Trustee to execute in the name of Borrower or without the signature of Borrower to the extent Lender or Trustee may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence or perfect more effectively the security interest of Trustee or Lender in the Property. Borrower grants to Lender and Trustee an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Trustee or Lender pursuant to this Section 7.2. Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws. (a) If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in the Property, Borrower will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option by written notice of not less than ninety (90) days to declare the Debt immediately due and payable. (b) Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than ninety (90) days, to declare the Debt immediately due and payable. (c) If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Security Instrument, or any of the Other Security Documents or impose any other tax or charge on the same, Borrower will pay for the same, with interest and penalties thereon, if any. Section 7.4 Estoppel Certificates. (a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or any proposed assignee with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date installments of interest and/or principal were last paid, (vi) that, except as provided in such statement, there are no defaults or events which with the passage of time or the giving of notice or both, would 30 40 constitute an event of default under the Note or the Security Instrument, (vii) that the Note and this Security Instrument are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification, (viii) whether any offsets or defenses exist against the obligations secured hereby and, if any are alleged to exist, a detailed description thereof, (ix) that all Leases are in full force and effect and (provided the Property is not a residential multifamily property) have not been modified (or if modified, setting forth all modifications), (x) the date to which the Rents thereunder have been paid pursuant to the Leases, (xi) whether or not, to the best knowledge of Borrower, any of the lessees under the Leases are in default under the Leases, and, if any of the lessees are in default, setting forth the specific nature of all such defaults, (xii) the amount of security deposits held by Borrower under each Lease and that such amounts are consistent with the amounts required under each Lease, and (xiii) as to any other matters reasonably requested by Lender and reasonably related to the Leases, the obligations secured hereby, the Property or this Security Instrument. (b) Borrower shall deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may require, including, but not limited to attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, except as security, and that the lessee claims no defense or offset against the full and timely performance of its obligations under the Lease [Not Multifamily]. (c) Upon any transfer or proposed transfer contemplated by Section 18.1 hereof, at Lender's request, Borrower, any Guarantors and any Indemnitors shall provide an estoppel certificate to the Investor (defined in Section 18.1) or any prospective Investor confirming the accuracy of information provided by such person to Lender under or in respect of this Security Instrument. (d) After written request by Borrower not more than twice annually, Lender shall furnish Borrower a statement setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, and (iv) the balance of the sums in the Escrow Fund, if any. Section 7.5 Flood Insurance. After Lender's request, Borrower shall deliver evidence satisfactory to Lender that no portion of the Improvements is situated in a federally designated "special flood hazard area" or, if it is, that Borrower has obtained insurance meeting the requirements of Section 3.3(a)(vi). Section 7.6 Splitting of Security Instrument. This Security Instrument and the Note shall, at any time until the same shall be fully paid and satisfied, at the sole election of Lender, be split or divided into two or more notes and two or more security instruments, each of which shall cover all or a portion of the Property to be more particularly described therein. To that end, Borrower, upon written request of Lender, shall execute, acknowledge and deliver to Lender and/or its designee or designees substitute notes and security instruments in such principal amounts, aggregating not more 31 41 than the then unpaid principal amount secured by this Security Instrument, and containing terms, provisions and clauses no less favorable to Borrower than those contained herein and in the Note, and such other documents and instruments as may be required by Lender to effect the splitting of the Note and this Security Instrument. Section 7.7 Replacement Documents. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any Other Security Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or Other Security Document, Borrower will issue, in lieu thereof, a replacement Note or Other Security Document, dated the date of such lost, stolen, destroyed or mutilated Note or Other Security Document in the same principal amount thereof and otherwise of like tenor. Section 7.8 Amended Financing Statements. Borrower will execute and deliver to the Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by the Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of the Lender, Borrower shall execute a certificate in form satisfactory to the Lender listing the trade names under which Borrower intends to operate the Property, and representing and warranting that Borrower does business under no other trade name with respect to the Property. ARTICLE 8. DUE ON SALE/ENCUMBRANCE Section 8.1 No Sale/Encumbrance. Unless otherwise permitted and all amounts due and outstanding under the Loan Documents are paid in full thereby, including without limitation any and all prepayment fees, Borrower agrees that Borrower shall not, without the prior written consent of Lender, sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or any part thereof or permit the Property or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred. Section 8.2 Sale/Encumbrance Defined. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Article 8 shall be deemed to include, but not limited to (a) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (b) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (c) if Borrower, any Guarantor, any Indemnitor, or any general partner or managing member (or if no managing member, any member) of Borrower, Guarantor or Indemnitor is a corporation, the voluntary or involuntary sale, conveyance, transfer or pledge of such corporation's stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock by which an aggregate of more than 49% of such corporation's stock shall be vested in a party or parties who are not now owners of more than 49% of such corporation's stock; (d) if Borrower, any 32 42 Guarantor or Indemnitor or any general partner or managing member (or if no managing member, any member) of Borrower, any Guarantor or Indemnitor is a limited or general partnership or joint venture, the change, removal or resignation of a general partner or the transfer or pledge of the partnership interest of any general partner or any profits or proceeds relating to such partnership interest; and (e) if Borrower, any Guarantor, any Indemnitor or any general partner or member of Borrower, any Guarantor or any Indemnitor is a limited liability company, the change, removal or resignation of a managing member (or if no managing member, any member) or the transfer of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest. Notwithstanding the foregoing, the following transfers shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment or transfer within the meaning of this Article 8: (a) transfer by devise or descent or by operation of law upon the death of a member, general partner or stockholder of Borrower, any Guarantor or Indemnitor or any member or general partner thereof, and (b) a sale, transfer or hypothecation of a membership, partnership or shareholder interest in Borrower, whichever the case may be, by a current member, general partner or shareholder, as applicable, to an immediate family member (i.e., parents, spouses, siblings, children or grandchildren) of such member, general partner or shareholder, or to a trust for the benefit of an immediate family member of such member, general partner or shareholder, provided that, with respect to any such sale or transfer, Borrower shall deliver a non-consolidation opinion or an update of the same, in form and substance reasonably satisfactory to Lender, upon Lender's request to do so. Section 8.3 Lender's Rights. Lender reserves the right to condition the consent required hereunder upon a modification of the terms hereof and on assumption of the Note, this Security Instrument and the Other Security Documents as so modified by the proposed transferee, payment of a transfer fee and all of Lender's and Trustee's expenses incurred in connection with such transfer, or such other conditions as Lender shall determine in its sole discretion to be in the interest of Lender. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property without Lender's consent. This provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property. ARTICLE 9. PREPAYMENT Section 9.1 Prepayment Only in Accordance with Note. The Debt may be prepaid only in strict accordance with the express terms and conditions of the Note including, without limitation, payment of the Prepayment Consideration if applicable. 33 43 ARTICLE 10. DEFAULT Section 10.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) if any portion of the Debt is not paid within five (5) days following the date the same is due, or if the entire Debt is not paid on or before the Maturity Date; (b) if Borrower violates or does not comply with any of the provisions of Sections 3.7, 4.3 or 8.1 or if any general partner or the SPE Member of Borrower violates or does not comply with any of the provisions of Section 4.3; (c) if any representation or warranty of Borrower, Indemnitor (as defined in that certain Environmental Indemnity Agreement dated as of the date hereof (the "Environmental Indemnity") or any Guarantor, or any member, general partner, principal or beneficial owner of any of the foregoing, made herein or in the Environmental Indemnity or in any guaranty, or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (d) if any default occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, if any; (e) except for the specific defaults set forth in this Section 10.1 any other default hereunder or under the Note or any of the Other Security Documents by Borrower, which default is not cured (i) in the case of any default which can be cured by the payment of a sum of money, within ten (10) days after written notice from Lender to Borrower, or (ii) in the case of any other default, within thirty (30) days after written notice from Lender to Borrower; provided that if such default cannot reasonably be cured within such thirty (30) day period and Borrower shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for so long as it shall require Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of one hundred twenty (120) days, unless, only in the case of cures that require construction or remedial work, such cure cannot with diligence be completed within such one hundred twenty (120) day period, in which case such period shall be extended for an additional one hundred twenty (120) days; (f) if Borrower or any Guarantor or Indemnitor shall make an assignment for the benefit of creditors or if Borrower shall generally not be paying its debts as they become due; or (g) if the Policies are not kept in full force and effect, or Borrower has not delivered evidence of the renewal of the Policies ten (10) days prior to their expiration as provided in Section 3.3(b); or 34 44 (h) if (i) Borrower or any Guarantor or Indemnitor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Guarantor or Indemnitor shall make a general assignment for the benefit of its creditors'; or (ii) there shall be commenced against Borrower or any Guarantor or Indemnitor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii) there shall be commenced against the Borrower or any Guarantor or Indemnitor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within ninety (90) days from the entry thereof; or (iv) the Borrower or any Guarantor or Indemnitor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any Guarantor or Indemnitor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due. Section 10.2 Late Payment Charge. If any monthly installment of principal and interest is not paid on the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid portion of the outstanding monthly installment of principal and interest then due or the maximum amount permitted by applicable law, to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, and such amount shall be secured by this Security Instrument and the Other Security Documents. Section 10.3 Default Interest. Borrower will pay, from the date of an Event of Default through the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full, interest on the unpaid principal balance of the Note at a per annum rate equal to the lesser of (a) the Default Rate (as defined in the Note), and (b) the maximum interest rate which Borrower may by law pay or Lender may charge and collect. ARTICLE 11. RIGHTS AND REMEDIES Section 11.1 Remedies. (a) Upon the occurrence of any Event of Default, and to the extent permitted by Applicable Laws, Borrower agrees that Lender, and when requested to do so by Lender, Trustee, may take such action, without notice or demand, as it deems 35 45 advisable to protect and enforce the rights of Lender and Trustee against Borrower and in and to the Property, including, but not limited to the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender or Trustee: (i) declare the entire unpaid Debt to be immediately due and payable; (ii) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable provision of law in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner; (iii) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Security Instrument for the portion of the Debt then due and payable, subject to the continuing lien and security interest of this Security Instrument for the balance of the Debt not then due, unimpaired and without loss of priority; (iv) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale or otherwise, at one or more sales, as an entity or in parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law; (v) subject to the provisions of Article 15, institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note or in the Other Security Documents; (vi) subject to the provisions of Article 15, recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument or the Other Security Documents; (vii) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of Borrower, any Guarantor, Indemnitor or of any person, firm or other entity liable for the payment of the Debt; (viii) subject to any applicable law, the license granted to Borrower under Section 1.2 shall automatically be revoked and Lender may enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess Borrower and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Borrower and its agents or 36 46 servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Borrower agrees to surrender possession of the Property and of such books, records and accounts to Lender upon demand, and thereupon Lender may (A) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (B) complete any construction on the Property in such manner and form as Lender deems advisable; (C) make alterations, additions, renewals, replacements and improvements to or on the Property; (D) exercise all rights and powers of Borrower with respect to the Property, whether in the name of Borrower or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property and every part thereof; (E) require Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be occupied by Borrower; (F) require Borrower to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Borrower may be evicted by summary proceedings or otherwise; and (G) apply the receipts from the Property to the payment of the Debt, in such order, priority and proportions as Lender shall deem appropriate in its sole discretion after deducting therefrom all expenses (including reasonable attorneys' fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Other Charges, insurance and other expenses in connection with the Property, as well as just and reasonable compensation for the services of Lender, its counsel, agents and employees; (ix) exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (A) the right to take possession of the Collateral or any part thereof, and to take such other measures as Trustee or Lender may deem necessary for the care, protection and preservation of the Collateral, and (B) request Borrower at its expense to assemble the Collateral and make it available to Trustee or Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Trustee or Lender with respect to the Collateral sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower; (x) apply any sums then deposited in the Escrow Fund and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument or any Other Security Document to the payment of the following items in any order in its sole and absolute discretion: (A) Taxes and Other Charges; (B) Insurance Premiums; (C) Interest on the unpaid principal balance of the Note; 37 47 (D) amortization of the unpaid principal balance of the Note; and all other sums payable pursuant to the Note, this Security Instrument and the Other Security Documents, including, without limitation, advances made by Lender pursuant to the terms of this Security Instrument; (xi) surrender the Policies maintained pursuant to Article 3 hereof, collect the unearned Insurance Premiums and apply such sums as a credit on the Debt in such priority and proportion as Lender in its discretion shall deem proper, and in connection therewith, Borrower hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Borrower to collect such Insurance Premiums; (xii) apply the undisbursed balance of any Net Proceeds or any Net Proceeds Deficiency deposit, together with interest thereon, to the payment of the Debt in such order, priority and proportions as Lender shall deem to be appropriate in its discretion; (xiii) prohibit Borrower and anyone claiming on behalf of or through Borrower from making use of or withdrawing any sums from the Lock Box Account; (xiv) pursue such other remedies as Lender or Trustee may have under applicable law. (b) In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority. Notwithstanding the provisions of this Section 11.1 to the contrary, if any Event of Default as described in Subsection 10.1 (h)(i) or (ii) shall occur, the entire unpaid Debt shall be automatically due and payable, without any further notice, demand or other action by Lender. (c) Lender may adjourn from time to time any sale by it to be made under or by virtue of this Security Instrument by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Lender, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. (d) Upon any sale made under or by virtue of this Section 11.1, whether made under a power of sale or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, Lender may bid for and acquire the Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Debt the net sales price after deducting therefrom the expenses of the sale and costs of the action and any other sums which Lender is authorized to deduct under this Security Instrument. 38 48 Section 11.2 Application of Proceeds. The purchase money, proceeds and avails of any disposition of the Property, or any part thereof, or any other sums collected by Lender pursuant to the Note, this Security Instrument or the Other Security Documents, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. Section 11.3 Right to Cure Defaults. Upon the occurrence of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, cure the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt, and the cost and expense thereof (including reasonable attorneys' fees to the extent permitted by law), with interest as provided in this Section 11.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and be secured by this Security Instrument and the Other Security Documents and shall be immediately due and payable upon demand by Lender therefor. Section 11.4 Actions and Proceedings. After the occurrence and during the continuance of an Event of Default, Lender has the right to appear in and defend any action or proceeding brought with respect to the Property and to bring any action or proceeding, in the name and on behalf of Borrower, which Lender, in its discretion, decides should be brought to protect its interest in the Property. Section 11.5 Recovery of Sums Required To Be Paid. Lender shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Lender thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Borrower existing at the time such earlier action was commenced. Section 11.6 Examination of Books and Records. Lender, its agents, accountants and attorneys shall have the right upon prior written notice to examine the records, books, management and other papers of Borrower and its affiliates or of any Guarantor or Indemnitor which reflect upon their financial condition, at the Property or at any office regularly maintained by Borrower, its affiliates or any Guarantor or Indemnitor where the books and records are located. Lender and its agents shall have the right upon notice to make copies and extracts from the foregoing records and other papers. In addition, Lender, its agents, accountants and attorneys shall have the right to examine and audit the books and records of Borrower and its affiliates or of any Guarantor or Indemnitor pertaining to the income, expenses and operation of the Property during 39 49 reasonable business hours at any office of Borrower, its affiliates or any Guarantor or Indemnitor where the books and records are located. Section 11.7 Other Rights, Etc. (a) The failure of Lender to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Borrower shall not be relieved of Borrower's obligations hereunder by reason of (i) the failure of Lender or Trustee to comply with any request of Borrower, any Guarantor or any Indemnitor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note or the Other Security Documents, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any person liable for the Debt or any portion thereof, or (iii) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Security Instrument or the Other Security Documents. (b) It is agreed that the risk of loss or damage to the Property is on Borrower, and Lender shall have no liability whatsoever for decline in value of the Property, for failure to maintain the Policies, or for failure to determine whether insurance in force is adequate as to the amount of risks insured. Possession by Lender shall not be deemed an election of judicial relief, if any such possession is requested or obtained, with respect to any Property or collateral not in Lender's possession. (c) Lender may resort for the payment of the Debt to any other security held by Lender or Trustee in such order and manner as Lender, in its discretion, may elect. Lender may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Trustee or Lender thereafter to foreclose this Security Instrument. The rights of Trustee and Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Trustee or Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Neither Trustee nor Lender shall be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. Section 11.8 Right to Release Any Portion of the Property. Trustee, at the direction of Lender, may release any portion of the Property for such consideration as Lender may require without, as to the remainder of the Property, in any way impairing or affecting the lien or priority of this Security Instrument, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the obligations hereunder shall have been reduced by the actual monetary consideration, if any, received by Lender for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lienholder. This Security Instrument shall continue as a lien and security interest in the remaining portion of the Property. 40 50 Section 11.9 Violation of Laws. If the Property is not in compliance with Applicable Laws, Lender may impose additional requirements upon Borrower in connection herewith including, without limitation, monetary reserves or financial equivalents. Section 11.10 Right of Entry. Lender and its agents shall have the right upon prior written notice to enter and inspect the Property at all reasonable times upon not less than five (5) Business Days' notice (except in the case of emergencies when no notice shall be required) to Borrower. ARTICLE 12. ENVIRONMENTAL HAZARDS Section 12.1 Environmental Representations and Warranties. Borrower represents and warrants, based upon an environmental Phase I site assessment of the Property and information that Borrower knows, that: (a) there are no Hazardous Substances (defined below) or underground storage tanks in, on, or under the Property, except those that are both (i) in compliance with Environmental Laws (defined below) and with permits issued pursuant thereto, if any, and (ii) fully disclosed to Lender in writing pursuant to the written reports resulting from the environmental assessments of the Property delivered to Lender (the "Environmental Report"); (b) there are no past or present Releases (defined below) of Hazardous Substances in violation of any Environmental Law or which would require Remediation (defined below) by a Governmental Authority in, on, under or from the Property except as described in the Environmental Report; (c) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Property except as described in the Environmental Report; (d) Borrower does not know of, and has not received, any written or oral notice or other communication from any person or entity (including, but not limited to a governmental entity) relating to Hazardous Substances or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual administrative or judicial proceedings in connection with any of the foregoing; and (e) Borrower has truthfully and fully provided to Lender, in writing, any and all information relating to environmental conditions in, on, under or from the Property that is known to Borrower and that is contained in Borrower's files and records, including, but not limited to any reports relating to Hazardous Substances in, on, under or from the Property and/or to the environmental condition of the Property. "Environmental Law" means any present, and for the purposes of Sections 12.2. 12.3 and 13.4 only, future, federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Law" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances 41 51 Transportation Act; the Resource Conservation and Recovery Act (including, but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Law" also includes, but is not limited to, any present, and for the purposes of Sections 12.2, 12.3 and 13.4 only, future, federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property; requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property. "Hazardous Substances" include but are not limited to any and all substances (whether solid, liquid or gas) (i) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present, or for the purposes of Sections 12.2. 12.3 and 13.4 only, future, Environmental Laws or (ii) that may have a negative impact on human health or the environment, including, but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives. "Release" of any Hazardous Substance includes, but is not limited to any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances. "Remediation" includes, but is not limited to any response, remedial removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance, any actions to prevent, cure or mitigate any Release of any Hazardous Substance, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to in this Article 12. Section 12.2 Environmental Covenants. Borrower covenants and agrees that so long as the Borrower owns, manages, is in possession of, or otherwise controls the operation of the Property: (a) all uses and operations on or of the Property, whether by Borrower or any other person or entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on, under or from the Property; (c) there shall be no Hazardous Substances in, on, or under the Property, except those that are in compliance with all Environmental Laws and with permits issued pursuant thereto, if and to the extent required; (d) Borrower shall keep the Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Borrower or any other person or entity (the "Environmental Liens"); (e) Borrower shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Section 12.3 below, including, but not limited to providing all relevant information and making knowledgeable persons available for interviews; (f) Borrower shall, at its sole cost and 42 52 expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property, pursuant to any reasonable written request of Lender after Lender has reason to believe this Section 12.2 has been violated (including, but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lender the reports and other results thereof, and Lender and other Indemnified Parties (defined in Section 13.1) shall be entitled to rely on such reports and other results thereof; (g) Borrower shall, at its sole cost and expense, comply with all reasonable written requests of Lender to (i) reasonably effectuate Remediation of any condition (including, but not limited to a Release of a Hazardous Substance) in, on, under or from the Property, (ii) comply with any Environmental Law, (iii) comply with any directive from any governmental authority, and (iv) take any other reasonable action necessary or appropriate for protection of human health or the environment; (h) Borrower shall not do or allow any tenant or other user of the Property to do any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off the Property), impairs or may impair the value of the Property, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste, or violates any covenant, condition, agreement or easement applicable to the Property; and (i) Borrower shall immediately notify Lender in writing promptly after it has become aware of (A) any presence or Releases or threatened Releases of Hazardous Substances in, on, under, from or migrating towards the Property which is required to be reported to a governmental authority under any Environmental Law, (B) any actual Environmental Lien affecting the Property, (C) any required Remediation of environmental conditions relating to the Property, and (D) any written or oral notice or other communication of which Borrower becomes aware from any source whatsoever (including, but not limited to a governmental entity) relating in any way to Hazardous Substances or Remediation thereof, possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or threatened administrative or judicial proceedings in connection with anything referred to in this Article 12. Section 12.3 Lender's Rights. Lender, its environmental consultant, and any other person or entity designated by Lender, including, but not limited to any receiver and any representative of a governmental entity, shall have the right, but not the obligation, at intervals of not less than one year, or more frequently if the Lender reasonably believes that a Hazardous Substance or other environmental condition violates or threatens to violate any Environmental Law, after notice to Borrower, to enter upon the Property at all reasonable times to assess any and all aspects of the environmental condition of the Property and its use, including, but not limited to conducting any environmental assessment or audit of the Property or portions thereof to confirm Borrower's compliance with the provisions of this Article 12, and Borrower shall cooperate in all reasonable ways with Lender in connection with any such audit. Such audit shall be performed in a manner so as to minimize interference with the conduct of business at the Property. If such audit discloses that a violation of or a liability under any Environmental Law exists or if such audit was required or prescribed by law, regulation or governmental or quasi-governmental authority, Borrower shall pay all costs and expenses incurred in connection 43 53 with such audit; otherwise, the costs and expenses of such audit shall, notwithstanding anything to the contrary set forth in this Section, be paid by Lender. ARTICLE 13. INDEMNIFICATION Section 13.1 General Indemnification. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, or punitive damages, of whatever kind or nature (including, but not limited to attorneys' fees and other costs of defense) (the "Losses") imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following (but excluding Losses arising out of Lender's gross negligence or willful misconduct): (a) ownership of this Security Instrument, the Property or any interest therein or receipt of any Rents; (b) any amendment to, or restructuring of, the Debt, and the Note, this Security Instrument, or any Other Security Documents; (c) any and all lawful action that may be taken by Lender or Trustee in connection with the enforcement of the provisions of this Security Instrument or the Note or any of the Other Security Documents, whether or not suit is filed in connection with same, or in connection with Borrower, any Guarantor or Indemnitor and/or any member, partner, joint venturer or shareholder thereof becoming a party to a voluntary or involuntary federal or state bankruptcy, insolvency or similar proceeding; (d) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (e) any use, nonuse or condition in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (f) any failure on the part of Borrower to perform or be in compliance with any of the terms of this Security Instrument or the Other Security Documents; (g) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; (h) the failure of any person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with the Security Instrument, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the transaction in connection with which this Security Instrument is made; (i) any failure of the Property to be in compliance with any Applicable Laws; (j) the enforcement by any Indemnified Party of the provisions of this Article 13; (k) any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any Lease; (l) the payment of any commission, charge or brokerage fee to anyone which may be payable in connection with the funding of the loan evidenced by the Note and secured by this Security Instrument; or (m) any misrepresentation made by Borrower in this Security Instrument, the Other Security Documents, or any documents or information provided pursuant to Section 18.1 hereof. Any amounts payable to Lender by reason of the application of this Section 13.1 shall become immediately due and payable and shall bear interest at the Default Rate from the 44 54 date loss or damage is sustained by Lender until paid. For purposes of this Article 13, the term "Indemnified Parties" means Lender and any person or entity who is or will have been involved in the origination of this loan, any person or entity who is or will have been involved in the servicing of this loan, any person or entity, including Trustee and its successors and assigns, in whose name the encumbrance created by this Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in this loan (including, but not limited to Investors or prospective Investors in the Securities, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in this loan for the benefit of third parties) as well as the respective directors, officers, shareholders, members, partners, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including, but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in this loan or the Property, whether during the term of this loan or as a part of or following a foreclosure of this loan and including, but not limited to any successors by merger, consolidation or acquisition of all or a substantial portion of Lender's assets and business). Section 13.2 Mortgage and/or Intangible Tax. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any tax on the making and/or recording of this Security Instrument, the Note or any of the Other Security Documents or in connection with a transfer of all or a portion of the Property pursuant to a foreclosure, deed in lieu of foreclosure or otherwise. Section 13.3 ERISA Indemnification. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (including, without limitation, attorneys' fees and costs incurred in the investigation, defense, and settlement of Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Sections 4.2 or 5.9. Section 13.4 Environmental Indemnification. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including, but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and arising out of or in any way relating to any one or more of the following, unless caused by the gross negligence or willful misconduct of any Indemnified Party: (a) any presence of any Hazardous Substances in, on, above or under the Property; (b) any past, present or threatened Release of Hazardous Substances in, on, above, under or from the Property; (c) any activity by Borrower, any person or entity affiliated with Borrower or tenant or 45 55 other users of the Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Substances at any time located in, under, on or above the Property; (d) any activity by Borrower, any person or entity affiliated with Borrower or tenant or other users of the Property in connection with any actual or proposed Remediation of any Hazardous Substances at any time located in, under, on or above the Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including, but not limited to any removal, remedial or corrective action; (e) any past, present or threatened violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Property or operations thereon, including, but not limited to any failure by Borrower, any person or entity affiliated with Borrower or tenant or other users of the Property to comply with any order of any governmental authority in connection with Environmental Laws; (f) the imposition, recording or filing of any Environmental Lien encumbering the Property; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in Article 12 and this Section 13.4; (h) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Property, including, but not limited to costs to investigate and assess such injury, destruction or loss; (i) any acts of Borrower or other users of the Property in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Substances owned or possessed by such Borrower or other users, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Substance; (j) any acts of Borrower or other users of the Property, in accepting any Hazardous Substances for transport to disposal or treatment facilities, incineration vessels or sites selected by Borrower or such other users, from which there is a Release, or a threatened Release of any Hazardous Substance which causes the incurrence of costs for Remediation; (k) any personal injury, wrongful death, or property damage caused by Hazardous Substances arising under any statutory or common law or tort law theory, including, but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Property; and (l) any intentional misrepresentation in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to Article 12. Section 13.5 Duty to Defend; Attorneys' Fees and Other Fees and Expenses. Upon written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall control the resolution of claim or proceeding. Upon demand, Borrower shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. 46 56 ARTICLE 14. WAIVERS Section 14.1 Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Trustee or Lender arising out of or in any way connected with this Security Instrument, the Note, any of the Other Security Documents, or the Obligations. Section 14.2 Marshalling and Other Matters. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by Applicable Law. Section 14.3 Waiver of Notice. To the extent permitted by Applicable Law, Borrower shall not be entitled to any notices of any nature whatsoever from Trustee or Lender except with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Trustee or Lender to Borrower and except with respect to matters for which Trustee or Lender is required by Applicable Law to give notice, and Borrower hereby expressly waives the right to receive any notice from Trustee or Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Trustee or Lender to Borrower. Section 14.4 Waiver of Statute of Limitations. Borrower hereby expressly waives and releases to the fullest extent permitted by law, the pleading of any statute of limitations as a defense to payment of the Debt or performance of its Other Obligations. Section 14.5 Sole Discretion of Lender. \Wherever pursuant to this Security Instrument (a) Lender exercises any right given to it to approve or disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c) any other decision or determination is to be made by Lender, the decision of Lender to approve or disapprove all decisions that arrangements or terms are satisfactory or not satisfactory, and all other decisions and determinations made by Lender, shall be in the sole and absolute discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. Section 14.6 Survival. Except as hereinafter specifically set forth below, the representations and warranties, covenants, and other obligations arising under Article 12 shall in no way be impaired by: any satisfaction or other termination of this Security Instrument, any assignment or other transfer of all or any portion of this Security Instrument or Lender's interest in the Property (but, in such case, shall benefit both Indemnified Parties and any assignee or transferee), any exercise of Lender's or Trustee's 47 57 rights and remedies pursuant hereto including, but not limited to foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any rights and remedies pursuant to the Note or any of the Other Security Documents, any transfer of all or any portion of the Property (whether by Borrower, by Lender, or by Trustee at the request of Lender following foreclosure or acceptance of a deed in lieu of foreclosure or at any other time), any amendment to this Security Instrument, the Note or the Other Security Documents, and any act or omission that might otherwise be construed as a release or discharge of Borrower from the obligations pursuant hereto. All obligations and liabilities of Borrower under Article 12 shall cease and terminate on the first (1st) anniversary of the date of payment to Lender in cash of the entire Debt, provided that contemporaneously with or subsequent to such payment, Borrower, at its sole cost and expense, delivers to Lender an environmental audit of the Property in form and substance, and prepared by a qualified environmental consultant, reasonably satisfactory in all respects to Lender and indicating the Property is in full compliance with all applicable Environmental Laws. Section 14.7 Waiver of Trial By Jury. BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. ARTICLE 15. EXCULPATION Section 15.1 Exculpation. Notwithstanding anything to the contrary contained in this Security Instrument or in any Other Security Document (but subject to the provisions of Sections 15.2, 15.3, 15.4 and 15.5), Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note or this Security Instrument by any action or proceeding to collect damages or wherein a money judgment or any deficiency judgment or order or any judgment establishing any personal obligation or liability shall be sought against Borrower or any principal director, officer, employee, beneficiary, shareholder, partner, member, trustee, agent or affiliate of Borrower or any person owning, directly or indirectly, any legal or beneficial interest in Borrower, or any successors or assigns of any of the foregoing (collectively, the "Exculpated Parties"). Lender or Trustee, at the request of Lender, may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Security Instrument, the Other Security Documents, and the interest in the Property, the Rents and any other collateral given to Lender created by this Security Instrument and the Other Security Documents; provided, however, subject to the provisions of Sections 15.2, 15.3, 15.4 and 15.5, that any judgment in any action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender in connection with the Note. Lender, by accepting 48 58 the Note and this Security Instrument, agrees that it shall not, except as otherwise provided below, sue for or demand any deficiency judgment against Borrower or any of the Exculpated Parties in any action or proceeding, under or by reason of or under or in connection with the Note, the Other Security Documents or this Security Instrument. Section 15.2 Reservation of Certain Rights. The provisions of Section 15.1 shall not (a) constitute a waiver, release or impairment of the Obligations; (b) impair the right of Lender or Trustee to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Security Instrument; (c) affect the validity or enforceability of any indemnity, guaranty, master lease or similar instrument made in connection with the Note, this Security Instrument, or the Other Security Documents; (d) impair the right of Lender to obtain the appointment of a receiver; or (e) impair the enforcement of the Assignment of Leases and Rents executed in connection herewith. Section 15.3 Exceptions to Exculpation. Notwithstanding the provisions of Article 15.1 to the contrary, Borrower and Indemnitor shall be personally liable to Lender on a joint and several basis for the Losses Lender incurs due to: (a) fraud or intentional misrepresentation by Borrower or any other person or entity in connection with the execution and the delivery of the Note, this Security Instrument or the Other Security Documents; (b) Borrower's misapplication or misappropriation of Rents received by Borrower after the occurrence and during the continuance of an Event of Default; (c) Borrower's misapplication or misappropriation of tenant security deposits or Rents collected in advance; (d) the misapplication or misappropriation of insurance proceeds or condemnation awards after the occurrence and during the continuance of an Event of Default; (e) any fees or commissions paid by Borrower after the occurrence and during the continuance of an Event of Default to any principal, affiliate or general partner of Borrower, Indemnitor or Guarantor in violation of the terms of the Note, this Security Instrument or the Other Security Documents; (f) criminal acts perpetrated by it in respect of the Property; (g) any failure by Borrower or Indemnitor to comply with the terms and provisions of Section 13.4 hereof or of the Environmental Indemnity; or (h) any failure by Borrower or any general partner or the SPE Member of Borrower to comply with the terms and provisions of Section 4.3 hereof; or (i) all fees and expenses of Lender or Trustee pursuant to Section 19.2 hereof. Section 15.4 Recourse. Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in Section 15.1 above SHALL BECOME NULL AND VOID and shall be of no further force and effect in the event (i) the Property or any part thereof shall become an asset in (A) a voluntary bankruptcy or insolvency proceeding, or (B) an involuntary bankruptcy or insolvency proceeding commenced by an affiliate of Borrower which is not dismissed within ninety (90) days of filing, or (ii) Borrower or any Guarantor or Indemnitor fails to comply with the terms and provisions of Section 3.11 hereof within thirty (30) days after written notice from Lender to Borrower (which notice shall be a second notice given after the expiration of any notice given pursuant to Section 10.1(e)). Section 15.5 Bankruptcy Claims. Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or 49 59 any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by this Security Instrument or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Note, this Security Instrument and the Other Security Documents. ARTICLE 16. NOTICES Section 16.1 Notices. All notices or other written communications hereunder shall be deemed to have been properly given (a) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof, (b) one (1) Business Day (defined below) after having been deposited for overnight delivery with any reputable overnight courier service, or (c) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Borrower: A.T.C, L.L.C. 1010 Wisconsin Avenue, N.W. Suite 250 Washington, D.C. 20007 Fax Number: 202-298-7277 Attn: Thomas G. Kappler with a copy to: JACKSON & CAMPBELL, P.C. 1120 20th Street, N.W. Suite 300 Washington, D.C. 20036 Fax Number: 202-457-1678 Attention: David H. Cox If to Trustee: LAWYERS TITLE INSURANCE COMPANY 804 Charles Street Fredericksburg, VA 22404 Attention: John McManus 50 60 If to Lender: GMAC Commercial Mortgage Corporation 650 Dresher Road Horsham, Pennsylvania 19055-8015 Attention: Barry Moore, Executive Vice President Facsimile No. (215) 328-3478 With a copy to: Commercial Capital Initiatives, Inc. Wall Street Plaza 88 Pine Street New York, New York 10005 Attention: Manager - Loan Administration Facsimile No. (212) 269-5286 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Elliot L. Hurwitz, Esq. (KLT) Facsimile No. (212) 310-8007 or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. For purposes of this Subsection, "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the State of New York. ARTICLE 17. APPLICABLE LAW Section 17.1 Choice of Law. THIS SECURITY INSTRUMENT SHALL BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. Section 17.2 Usury Laws. This Security Instrument and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Debt at a rate which could subject the holder of the Note to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of 51 61 this Security Instrument or the Note, Borrower is at any time required or obligated to pay interest on the Debt at a rate in excess of such maximum rate, the rate of interest under the Security Instrument and the Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Note. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Section 17.3 Provisions Subject to Applicable Law. All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any Applicable Law. Section 17.4 Inapplicable Provision. If any term of this Security Instrument or any application thereof shall be invalid or unenforceable, the remainder of this Security Instrument and any other application of the term shall not be affected thereby. ARTICLE 18. SECONDARY MARKET Section 18.1 Dissemination of Information. If Lender determines at any time to sell, transfer or assign the Note, this Security Instrument and the Other Security Documents, and any or all servicing rights with respect thereto, or to grant participations therein (the "Participations") or issue mortgage pass-through certificates or other securities (such sale and/or issuance, the "Securitization") evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities"), Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor, or their respective successors in such Participations and/or Securities (collectively, the "Investor") or any Rating Agency rating such Securities and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitors and the Property (including, without limitation, all financial statements), which shall have been furnished by Borrower, any Guarantor or any Indemnitors, as Lender determines necessary or desirable. Borrower, any Guarantor and any Indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section, including, without limitation, the delivery of an estoppel certificate required in accordance with Subsection 7.4(c) hereof and such other documents as may be reasonably requested by Lender and, upon Lender's reasonable request, meeting with any Rating Agency for due diligence purposes. Borrower shall also furnish and Borrower, any Guarantor and any Indemnitor consent to Lender furnishing to such Investors or such prospective Investors or any Rating Agency any and all information concerning the 52 62 Property, the Leases, the financial condition of Borrower, any Guarantor and any Indemnitor as may be requested by Lender, any Investor or any prospective Investor or Rating Agency in connection with any sale, transfer or Participation. Borrower shall deliver on the date hereof, at Borrower's sole cost and expense, a nonconsolidation opinion, and within ten (10) days after demand of Lender, an update of same (which update Borrower will not be required to provide more than once), each in form and substance and delivered by counsel acceptable to Lender and the Rating Agency rating or proposed to rate the Securities, as may be required by Lender and/or such Rating Agency. Borrower's failure to deliver the opinions required hereby shall constitute an Event of Default hereunder. Section 18.2 Conversion to Registered Form. At the request of Lender, Borrower shall appoint, as its agent, a registrar and transfer agent (the "Registrar") which shall maintain, subject to such reasonable regulations as it shall provide, such books and records as are necessary for the registration and transfer of the Note in a manner that shall cause the Note to be considered to be in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986. The option to convert the Note into registered form once exercised may not be revoked. Borrower's choice of Registrar and any agreement setting out the rights and obligation of the Registrar shall be subject to the reasonable approval of Lender. Borrower may revoke the appointment of any particular person as Registrar, effective upon the effectiveness of the appointment of a replacement Registrar. The costs and fees of the Registrar shall be borne by Borrower and the Registrar shall not be entitled to any fee from Lender or any other lender in respect of transfers of the Note and Security Instrument (other than Taxes and governmental charges and fees). ARTICLE 19. COSTS Section 19.1 Performance at Borrower's Expense. Borrower acknowledges and confirms that Lender shall impose certain administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment and termination of its loans, (b) the release or substitution of collateral therefor, (c) obtaining certain consents, waivers and approvals with respect to the Property, or (d) the review of any Lease or proposed Lease or the preparation or review of any subordination, non-disturbance agreement (the occurrence of any of the above shall be called an "Event"). Borrower further acknowledges and confirms that it shall be responsible for the payment of all costs of reappraisal of the Property or any part thereof, whether required by law, regulation, Lender or any governmental or quasi-governmental authority. Borrower hereby acknowledges and agrees to pay, immediately, with or without demand, all such fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event or otherwise. Wherever it is provided for herein that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, all legal fees and disbursements of Lender (whether of retained firms, the reimbursement for the expenses of in-house staff or otherwise) and all costs and expenses of Trustee, if any. 53 63 Section 19.2 Attorney's Fees for Enforcement. (a) Borrower shall pay all legal fees incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Security Documents; and (ii) the items set forth in Section 19.1 above, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender or Trustee in protecting its interest in the Property or the Collateral or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property or the Collateral, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and is continuing, together with interest thereon at the Default Rate from the date paid or incurred by Lender or Trustee until such expenses are paid by Borrower. ARTICLE 20. DEFINITIONS Section 20.1 General Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word "Borrower" shall mean "each Borrower and any subsequent owner or owners of the Property or any part thereof or any interest therein," the word "Lender" shall mean "Lender and any subsequent holder of the Note," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "person" shall include an individual, corporation, limited liability company, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the word "Property" shall include any portion of the Property and any interest therein, the word "Trustee" shall mean "Trustee and its successors and assigns", and the phrases "attorneys' fees" and "counsel fees" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights under this Security Instrument. Section 20.2 Headings, Etc. The headings and captions of various Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. ARTICLE 21. MISCELLANEOUS PROVISIONS Section 21.1 No Oral Change. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower, Lender or Trustee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 54 64 Section 21.2 Liability. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever. Section 21.3 Duplicate Originals; Counterparts. This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument. The failure of any party hereto to execute this Security Instrument, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Section 21.4 Number and Gender. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Section 21.5 Subrogation. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the repayment of the Debt, the performance and discharge of Borrower's obligations hereunder, under the Note and the Other Security Documents and the performance and discharge of the Other Obligations. Section 21.6 Entire Agreement. The Note, this Security Instrument and the Other Security Documents constitute the entire understanding and agreement between Borrower, Lender and Trustee with respect to the transactions arising in connection with the Debt and supersede all prior written or oral understandings and agreements between Borrower and Lender with respect thereto. Borrower hereby acknowledges that, except as incorporated in writing in the Note, this Security Instrument and the Other Security Documents, there are not, and were not, and no persons are or were authorized by Lender to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Note, this Security Instrument and the Other Security Documents. ARTICLE 22. TRUSTEE PROVISIONS Section 22.1 The Trustee. (a) It shall be no part of the duty of Trustee to see to any recording, filing or registration of this Security Instrument or any other instrument in addition or supplemental hereto, or to give any notice thereof, or to see to the payment of or be under 55 65 any duty in respect of any tax or assessment or other governmental charge which may be levied or assessed on the Property, or any part thereof, or against Borrower, or to see to the performance or observance by Borrower of any of the covenants and agreements contained herein. Trustee shall not be responsible for the execution, acknowledgement or validity of this Security Instrument or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of Lender. Trustee shall have the right to advice of counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. Trustee shall not incur any personal liability hereunder except for his own gross negligence or willful misconduct and Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder and believed by Trustee in good faith to be genuine. (b) Trustee may resign by an instrument in writing addressed to Lender, or Trustee may be removed at any time with or without cause by an instrument in writing executed by Lender. In case of the death, resignation, removal or disqualification of Trustee, or if for any reason Lender shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein named trustee or any substitute or successor trustee, then Lender shall have the right and is hereby authorized and empowered to appoint a successor trustee, or a substitute trustee, without other formality than appointment and designation in writing executed by Lender, which substituted trustee may be Lender or an affiliate of Lender, and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Debt secured hereby has been paid in full, or until the Property is fully and finally sold hereunder. Such appointment and designation by Lender shall be full evidence of the right and authority to make the same and of all facts therein recited. If Lender is a corporation or association and such appointment is executed in its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association. Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee, and he shall thereupon succeed to and shall hold, possess and execute all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee; but, nevertheless, upon the written request of Lender or of the successor or substitute Trustee, the trustee ceasing to act shall execute and deliver an instrument transferring to such successor or substitute Trustee all of the estate and title in the Property of the trustee so ceasing to act, together with all the rights, powers, privileges, immunities and duties herein conferred upon the Trustee, and shall duly assign, transfer and deliver any of the properties and moneys held by said trustee hereunder to said successor or substitute Trustee. All references herein to "Trustee" shall be deemed to refer to Trustee (including any successor or substitute appointed and designated as herein provided) from time to time acting hereunder. (c) Trustee shall not be liable for any error of judgement or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee's negligence), except for Trustee's gross 56 66 negligence or willful misconduct. Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by him hereunder. Borrower hereby ratifies and confirms any and all acts which the herein-named Trustee or his successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof. Borrower will reimburse Trustee for, and save him harmless against, any and all liability and expenses which may be incurred by him in the performance of his duties. The foregoing indemnity shall not terminate upon discharge of the secured Debt or foreclosure, or release or other termination, of this Security Instrument. ARTICLE 23. LOCAL LAW PROVISIONS The provisions set forth on Exhibit B annexed hereto are incorporated herein by reference as if fully set forth herein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] 57 67 IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower the day and year first above written. BORROWER: A.T.C, L.L.C., a Virginia limited liability company By: /s/ Thomas Kappler -------------------------------- A.T. Center, Inc., a Virginia corporation By: Thomas Kappler, President 58 68 EXHIBIT A (Description of Land) ALL of that certain lot, piece or parcel of land, with the buildings and improvements thereon, situate, lying and being 69 EXHIBIT B Local Law Provisions None EX-10.3 4 ASSIGNMENT & ASSUMPTION AGREEMENT 1 EXHIBIT 10.3 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made this 8th day of October, 1998, by and among A.T.C., L.L.C., a Virginia limited liability company, having its principal place of business at 1010 Wisconsin Avenue, N.W., Suite 250, Washington, D.C. 20007 (Attn: Jeffrey Berman or Thomas Kappler) ("Assignor"), Ramco Virginia Properties, L.L.C., a Michigan limited liability company, having its principal place of business at 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034 (Attn: Dennis Gershenson) ("Assignee"), A.T. Center, Inc., a Virginia corporation, having an address at 1010 Wisconsin Avenue, N.W., Suite 250, Washington, D.C. 20007 (Attn: Jeffrey Berman or Thomas Kappler) ("Original Principal"), Ramco-Gershenson Properties Trust, a Maryland real estate investment trust, ("New Principal"), having an address at 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034 (Attn: Dennis Gershenson), and LaSalle National Bank, as trustee for the registered holders of GMAC Commercial Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 1998-C1, having its principal place of business at c/o GMAC Commercial Mortgage Corporation, as Master Servicer, 650 Dresher Road, Horsham, Pennsylvania 19044 (Attn: Servicing Manager) ("Beneficiary"). W I T N E S S E T H: WHEREAS, Assignor is the borrower under the loan documents (the "Loan Documents") pertaining to a loan (the "Loan"), in the principal amount of $15,225,000, made by GMAC Commercial Mortgage Corporation to Assignor, such loan documents including, without limitation, (i) that certain Promissory Note (the "Note"), dated February 27, 1998, (ii) that certain Deed of Trust and Security Agreement (the "Mortgage"), dated February 27, 1998, granted by Assignor to Beneficiary, recorded in Stafford County, Virginia, filed for record on _______________, in Deed Book ___________, page ______ (iii) that certain Assignment of Leases and Rents, dated February 27, 1998, recorded in Stafford County, Virginia, filed for record on _______________, in Deed Book ___________, page ______, (iv) that certain Environmental Indemnity Agreement (the "Environmental Indemnity"), dated February 27, 1998, executed by Assignor, Original Principal, Jeffrey Berman and Thomas Kappler, (v) that certain Guaranty of Recourse Obligations of Borrower (the "Recourse Guaranty"), dated February 27, 1998, executed by Original Principal, and (vi) the Other Security Documents (as defined in the Mortgage); WHEREAS, Assignor desires to transfer to Assignee, and Assignee desires to accept, the Property (as defined in the Mortgage); WHEREAS, in connection with such transfer of the Property, Assignor desires to assign to Assignee, and Assignee desires to assume, all of Assignor's rights and obligations under the Loan Documents; 2 WHEREAS, in connection with such assignment and assumption of the Loan Documents, Original Principal desires to assign to New Principal, and New Principal desires to assume, all of Original Principal's rights and obligations under the Recourse Guaranty; and WHEREAS, Assignor has requested Beneficiary's consent to the transfer of the Property and assignment and assumption of the Loan Documents, as aforesaid, and Beneficiary has consented thereto on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing, one Dollar ($1.00), the terms set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and with intent to be legally bound, the parties hereby agree as follows: 1. Assignor does hereby assign to Assignee and Assignee does hereby expressly assume and agree to be liable for and to pay and perform all of the terms, conditions, liabilities and obligations of Assignor under the Loan Documents, whether heretofore, now or hereafter arising or accruing, with the same force and effect as if the Assignee were the original obligor under the Loan Documents, effective as of the date of this Agreement. Assignee does hereby agree to be bound by each and every one of the representations, warranties, covenants, obligations and agreements made by Assignor set forth in the Loan Documents. From and after the date hereof, Assignor (together with Original Principal, Jeffrey Berman and Thomas Kappler) shall be released of any and all liability under the Loan Documents, except for liability in respect of this Agreement. 2. Assignee hereby (a) reaffirms all of Assignor's covenants, agreements, representations and warranties under the Loan Documents, and (b) without limiting the generality of paragraph 1 above, acknowledges that wherever the terms "Maker", "Borrower", "Grantor", or "Assignor" appear in the Loan Documents, such terms shall be deemed to include Assignee and shall no longer mean, refer to or include Assignor. 3. Assignee acknowledges and agrees that the Beneficiary's liens and security interests (collectively the "Liens") in the Property and other collateral described in the Loan Documents shall survive the assignment by Assignor and the assumption by Assignee of the Loan Documents, intact and unimpaired, and shall remain a valid and enforceable first priority perfected security interest. 4. Original Principal does hereby assign to New Principal and New Principal does hereby expressly assume and agree to be liable for all of the terms, conditions, liabilities and obligations of Original Principal under the Recourse Guaranty, whether heretofore, now or hereafter arising or occurring, with the same force and effect as if New Principal were the original guarantor thereunder, effective as of the date of this Agreement. New Principal does hereby agree to be bound by each and every one of the representations, warranties, covenants, obligations and agreements made by Original Principal set forth in the Recourse Guaranty. From and after the date hereof, Original 2 3 Principal shall be released of any and all liability under the Recourse Guaranty, except for liability in respect of this Agreement. 5. New Principal does hereby agree to assume and be liable for and to pay and perform all of the terms, conditions, liabilities and obligations of the indemnitor under the Environmental Indemnity, whether heretofore, now or hereafter arising, with the same force and effect as if New Principal were the original indemnitor thereunder. New Principal does hereby agree to be bound by each and every one of the representations, warranties, covenants, obligations and agreements made by Original Principal set forth in Environmental Indemnity. Original Principal shall remain liable under the Environmental Indemnity with respect only to losses and claims relating to conditions at the Mortgaged Property at or prior to the date of this Agreement. In respect of any such claims or losses, New Principal and Original Principal shall be jointly and severally liable under the Environmental Indemnity. 6. New Principal hereby (a) reaffirms all of Original Principal's covenants, agreements, representations and warranties under the Recourse Guaranty and the Environmental Indemnity, and (b) without limiting the generality of paragraphs 4 and 5 above, acknowledges that wherever the terms "Guarantor" or "Indemnitor" appear in such documents, such terms shall be deemed to include New Principal and shall no longer mean, refer to or include Original Principal. 7. Assignor, Assignee, Original Principal and New Principal hereby certify, represent and warrant the following facts to Beneficiary knowing that Beneficiary requires, and is relying upon, the certifications, representations and warranties contained in this paragraph as a condition to entering into this Agreement and that these certifications, representations and warranties shall be continuing throughout the term of the Loan: (a) As of the date hereof, Assignor, Assignee, Original Principal and New Principal have no rights of setoff, counterclaims or defenses, of any kind or description against Beneficiary as holder of the Note, beneficiary under the Mortgage or otherwise. (b) The Loan Documents are the valid and binding obligations of Assignee, enforceable against Assignee in accordance with their terms. (c) The Recourse Guaranty and the Environmental Indemnity are the valid and binding obligations of New Principal enforceable against New Principal in accordance with their terms. (d) The Environmental Indemnity, as modified by this Agreement, is the valid and binding obligation of New Principal, enforceable against New Principal in accordance with its terms as modified hereby. (e) Neither Assignor, Assignee, Original Principal nor New Principal is in default under any of the Loan Documents. 3 4 (f) Assignee and New Principal are solvent and the execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not render Assignee or New Principal insolvent; the value of each of Assignee's and New Principal's assets exceeds the amount of their respective liabilities (both direct and contingent), and each of Assignee and New Principal has the ability to pay their respective debts as they become due or mature. (g) Assignor, Assignee, Original Principal and New Principal have the full power and authority to enter into this Agreement, and the other documents and instruments required under or contemplated by this Agreement, and the execution, delivery and performance of this Agreement, and such other documents and instruments are within their organizational powers, have been duly authorized, and are not in contravention of their organizational documents or the terms of any indenture, mortgage contract or other agreement to which any of them is a party or by which any of them or their property are bound. (h) Neither Assignor, Assignee, Original Principal nor New Principal has any present intent to (i) file a voluntary petition under any Chapter of the United States Bankruptcy Code, or in any manner to seek relief, protection, reorganization, liquidation, dissolution or similar relief for debtors under any local, state, federal or other insolvency laws or laws providing for relief of debtors, or in equity, or directly or indirectly, to file any such petition or to seek any such relief, either at the present time or at any time hereafter, or (ii) directly or indirectly to cause any involuntary petition under any Chapter of the United States Bankruptcy Code to be filed against any of such parties or directly or indirectly to cause any of such parties to become the subject of any proceedings pursuant to any local, state, federal or other insolvency laws or laws providing for the relief of debtors, or in equity, either at the present time, or at any time hereafter, or (iii) directly or indirectly to cause any collateral securing the Loan, or any portion thereof or any interest of Assignee or New Principal therein, to become the property of any bankruptcy estate or the subject of any local, state, federal or other bankruptcy, dissolution, liquidation or insolvency proceedings, or in equity, either at the present time or at any time hereafter. All parties agree that the filing of any such petition or the seeking of any such relief or the participation in such filing or seeking of such relief, whether directly or indirectly, for the purpose in whole or in part of adversely affecting Beneficiary's rights hereunder, would be deemed a bad faith filing which would entitle Beneficiary to obtain an immediate dismissal under Section 1112 of the Bankruptcy Code. (i) In the event that Assignor, Assignee, Original Principal or New Principal becomes a debtor in any proceeding, under Chapter 11 or Chapter 7 of the Bankruptcy Code, as from time to time amended, in which Beneficiary is or becomes a creditor of any such party in respect of the Loan Documents, such party, as debtor or debtor-in-possession, will consent (and, to the fullest extent permitted by law, does hereby presently consent) to the immediate entry of an order in such proceeding granting Beneficiary relief from the automatic stay under Section 362 of the Bankruptcy Code, as amended from time to time, to enable Beneficiary to exercise its rights and remedies under the Loan Documents (i) to foreclose the Mortgage, (ii) to foreclose any and all 4 5 other security interests granted by the Loan Documents; and (iii) to exercise any of its other rights and remedies in respect of the collateral under the Loan Documents. (j) Assignor, Assignee, Original Principal and New Principal shall, to the fullest extent permitted by law, take no steps in any such bankruptcy proceeding for the purpose of, in whole or in part, objecting, hindering or delaying the exercise of Beneficiary's rights and remedies under the Loan Documents, including, without limitation, any action or proceeding by Beneficiary against any such party. Without limiting the foregoing, it is the express intent of the parties hereto that no injunctive relief against Beneficiary be sought under Section 105 or any other provision of the Bankruptcy Code by Assignor, Assignee, Original Principal or New Principal, nor shall any expansion be sought of the stay provided by Section 362 of the Bankruptcy Code as against Beneficiary. 8. Beneficiary reserves all rights, remedies, claims, actions, causes of action, and defenses under the Loan Documents, and no defaults or Events of Default (whether declared, undeclared, known or unknown) under the Loan Documents are waived by Beneficiary, nor shall Beneficiary's execution hereof be deemed a waiver of any such default, Event of Default, right or remedy to which Beneficiary is entitled to exercise. A breach of any representation, warranty or agreement set forth in this Agreement shall constitute an Event of Default under the Loan Documents if such breach continues for more than 10 days after notice from Beneficiary to Assignee. 9. Upon the written request of Beneficiary, Assignor, Assignee, Original Principal and New Principal shall promptly do, execute, acknowledge and deliver all further acts, deeds, conveyances, transfers and assurances necessary or proper for the better assuring, conveying, assigning, establishing, reestablishing and confirming unto the Beneficiary its Liens in the Property, and the other collateral for the Loan, and the products and proceeds thereof, including, without limitation, the execution, acknowledgment and delivery of such mortgages, deeds of trust, assignments, financing statements, or other security documents for the purposes of confirming, perfecting, or continuing perfection of the Beneficiary's first priority Liens in such property. 10. This Agreement, and the representations, warranties, covenants and agreements contained herein, shall (a) continue until satisfaction in full of the Loan, notwithstanding any action or inaction of the Beneficiary with respect to the Loan, (b) not be affected or in any way impaired by the insolvency or bankruptcy of the Assignor, Assignee, Original Principal or New Principal, or any party liable for payment of the amounts payable under the Loan Documents, and (c) be binding upon the Assignor, Assignee, Original Principal and New Principal and their respective successors and assigns, and shall inure to the benefit of the Beneficiary and its successor and assigns. 11. All recitals set forth hereinabove are hereby reiterated in their entirety and incorporated herein by reference. 12. Beneficiary hereby acknowledges and consents to the transfer of the Property and the assignment and assumption of the Loan Documents as set forth in 5 6 this Agreement. In no event shall Beneficiary's consent hereunder be deemed to constitute Beneficiary's consent to any future transfer of the Property or assignment and assumption of the Loan Documents. 13. The parties hereto hereby agree that this Agreement shall be interpreted, construed and enforced according to the laws of the State of Virginia. 14. Assignee's and New Principal's Addresses for notices under the Loan Documents are as set forth above in the introductory paragraph hereof. 15. This Agreement may be executed in multiple counterparts, each of which shall be fully effective as an original and all of which, together, shall constitute one and the same instrument. 6 7 IN WITNESS WHEREOF, the parties hereto have set their signatures hereon as of the day and year first above written. ASSIGNOR: A.T.C., L.L.C., a Virginia limited liability company By: A.T. Center, Inc., a Virginia corporation, its managing member By:/s/ Authorized Signature ------------------------ Name: --------------------- Title: -------------------- ASSIGNEE: RAMCO VIRGINIA PROPERTIES, L.L.C., a Michigan limited liability company By: Ramco Virginia Management, L.L.C., a Michigan limited liability company, its managing member By: Ramco SPC II, Inc., a Michigan corporation, its managing member By:/s/ Authorized Signature ------------------------ Name: ---------------------- Title: --------------------- ORIGINAL PRINCIPAL: A.T. CENTER, INC., a Virginia corporation By:/s/ Authorized Signature ------------------------ Name: ---------------------- Title: --------------------- 7 8 NEW PRINCIPAL: RAMCO-GERSHENSON PROPERTIES TRUST, a Maryland real estate investment trust By:/s/ Authorized Signature ------------------------ Name: ---------------------- Title: --------------------- BENEFICIARY: LaSalle National Bank, as trustee for the registered holders of GMAC COMMERCIAL MORTGAGE SECURITIES, INC. MORTGAGE PASS-THROUGH CERTIFICATES, Series 1998-C1, without recourse By: GMAC Commercial Mortgage Corporation as Master Servicer on Behalf of LaSalle National Bank By:/s/ Authorized Signature ------------------------ Name: ---------------------- Title: --------------------- 8 EX-10.4 5 EXCHANGE RIGHTS AGREEMENT 1 EXHIBIT 10.4 EXCHANGE RIGHTS AGREEMENT THIS EXCHANGE RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September 4, 1998, is entered into by and among RAMCO-GERSHENSON PROPERTIES TRUST, a Maryland real estate investment trust (the "COMPANY"), and A.T.C., L.L.C., a Virginia limited liability company (the "NEW LIMITED PARTNER"). R E C I T A L S: A. Ramco-Gershenson Properties, L.P., a Delaware limited partnership (the "OPERATING PARTNERSHIP"), was formed pursuant to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated May 10, 1996, as thereafter amended as of June 25, 1996, September 29, 1996, October 3, 1997, October 8, 1997, October 14, 1997, December 18, 1997, December 31, 1997, January 8, 1998 and September 4, 1998 (the "PARTNERSHIP AGREEMENT"). B. Pursuant to the Partnership Agreement, the New Limited Partner and the Original Limited Partners (collectively, the "LIMITED PARTNERS") hold units of limited partnership interest ("OP UNITS") in the Operating Partnership. C. The Company has agreed to provide the New Limited Partner with certain rights to exchange its OP Units for the Company's shares of beneficial interest, par value $.10 per share ("REIT SHARES"). Accordingly, the parties hereto do hereby agree as follows: ARTICLE 1 DEFINED TERMS The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "ASSIGNEE" means a Person to whom one or more OP Units have been transferred in a manner determined under the Partnership Agreement, but who has not become a substituted limited partner in accordance therewith. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. "CASH AMOUNT" means an amount of cash per OP Unit equal to the Value on the Valuation Date of the REIT Shares Amount. "DECLARATION OF TRUST" means the RGPT Trust Declaration of Trust, dated as of October 2, 1997, as amended. "EXCHANGE FACTOR" means 1.0, provided, that in the event that the Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares; (ii) subdivides its outstanding REIT shares; or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Exchange Factor shall be adjusted by multiplying the Exchange Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination assuming for such purpose that such dividend, distribution, subdivision or combination has occurred as of such time, and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination. Any adjustment to the Exchange Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 2 "EXCHANGING PARTNER" has the meaning set forth in Section 2.1 hereof. "EXCHANGE RIGHT" has the meaning set forth in Section 2.1 hereof. "LIEN" means any lien, security interest, mortgage, deed of trust, charge, claim, encumbrance, pledge, option, right of first offer or first refusal and any other right or interest of others of any kind or nature, actual or contingent, or other similar encumbrance of any nature whatsoever. "NOTICE OF EXCHANGE" means the Notice of Exchange substantially in the form of Exhibit B to this Agreement. "REIT SHARES AMOUNT" means that number of REIT Shares equal to the product of the number of OP Units offered for exchange by the Exchanging Partner, multiplied by the Exchange Factor as of the Valuation Date, provided, that in the event the Company issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "rights"), then the REIT Shares Amount shall also include such rights that a holder of that number of REIT Shares would be entitled to receive. "SEC" means the Securities and Exchange Commission. "SPECIFIED EXCHANGE DATE" means the tenth (10th) Business Day after receipt by the Company and by the Operating Partnership of a Notice of Exchange. "VALUATION DATE" means the date of receipt by the Company of a Notice of Exchange or, if such date is not a Business Day, the first Business Day thereafter. "VALUE" means, with respect to a REIT Share, the average of the daily market price for the five (5) consecutive trading days immediately preceding the Valuation Date. The market price for each such trading day shall be: (i) if the REIT Shares are listed or admitted to trading on any national securities exchange or the NASDAQ National Market System, the closing price on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the REIT Shares are not listed or admitted to trading on any national securities exchange or the NASDAQ National Marker System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Company; or (iii) if the REIT Shares are not listed or admitted to trading on any national securities exchange or the NASDAQ National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than five (5) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the five (5) days prior to the date in question, the Value of the REIT Shares shall be determined by the independent trustees of the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the REIT Shares Amount includes rights that a holder of REIT Shares would be entitled to receive, then the Value of such rights shall be determined by the Company acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE 2 EXCHANGE RIGHT SECTION 2.1 EXCHANGE RIGHT. A. Subject to Sections 2.1.B, 2.1.C, 2.1.D and 2.1.E hereof, the Company hereby grants to the New Limited Partner and the New Limited Partner does hereby 2 3 accept the right (the "EXCHANGE RIGHT"), exercisable on or after the date one (1) year after September 4, 1998, to exchange on a Specified Exchange Date all or a portion of the OP Units held by the New Limited Partner at an exchange price equal to and in the form of the REIT Shares Amount to be paid by the Company. The Exchange Right shall be exercised pursuant to a Notice of Exchange delivered to the Company and to the Operating Partnership by the New Limited Partner (the "EXCHANGING PARTNER"); provided, however, that the Operating Partnership may exchange the OP Units subject to the Notice of Exchange in accordance with Section 2.1.B. The New Limited Partner may not exercise the Exchange Right for less than one thousand (1,000) OP Units or, if the New Limited Partner holds less than one thousand (1,000) OP Units, all of the OP Units held by the New Limited Partner. Any Assignee of the New Limited Partner may exercise the rights of the New Limited Partner pursuant to this Section 2.1, and the New Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Assignee. In connection with any exercise of such rights by an Assignee on behalf of the New Limited Partner, the REIT Shares Amount shall be paid by the Operating Partnership directly to such Assignee and not to the New Limited Partner. B. Notwithstanding the provisions of Section 2.1.A, after receiving a Notice of Exchange the Operating Partnership may, in its sole and absolute discretion, elect to satisfy the Exchanging Partner's Exchange Right by paying to the Exchanging Partner the Cash Amount on the Specified Exchange Date. If the Operating Partnership shall elect to exercise its right to purchase OP Units for the Cash Amount under this Section 2.1.B with respect to a Notice of Exchange, it shall so notify the Exchanging Partner within five Business Days after the receipt by it of such Notice of Exchange. In the event the Operating Partnership shall elect to satisfy the Exchanging Partner's Exchange Right by exchanging REIT Shares for the OP Units offered for exchange, the Exchanging Partner agrees to execute such documents as the Operating Partnership may reasonably require in connection with the issuance of REIT Shares upon exercise of the Exchange Right. C. Notwithstanding the provisions of Section 2.1.A and Section 2.1.B, the New Limited Partner shall not be entitled to exercise the Exchange Right pursuant to Section 2.1.A if the delivery of REIT Shares to the New Limited Partner on the Specified Exchange Date by the Company pursuant to Section 2.1.A (regardless of whether or not the Operating Partnership would in fact exercise its rights under Section 2.1.B) would be prohibited under the Declaration of Trust of the Company. D. Notwithstanding the provisions of Section 2.1.A and Section 2.1.B, the Exchange Right may be exercised prior to the date which is one (l) year after September 4, 1998 (i) with the prior written consent of at least a majority of the Company's independent trustees or (ii) in the event of the death of the New Limited Partner prior to such date, to the minimum extent necessary to permit the estate of the New Limited Partner to acquire REIT Shares pursuant to Section 2.1.A or cash pursuant to Section 2.1.B that could be utilized to fund the payment of any estate taxes that may be payable at such time. E. The Exchange Right shall expire with respect to any OP Units for which an Exchange Notice has not been delivered to the Company and to the Operating Partnership on or before December 31, 2094. F. Any exchange of OP Units pursuant to this Article 2 shall be deemed to have occurred as of the Specified Exchange Date for all purposes, including without limitation the payment of distributions or dividends in respect of OP Units or REIT shares, as applicable. Any OP Units acquired by the Operating Partnership pursuant to an exercise by the New Limited Partner of an Exchange Right shall be deemed to be acquired by and reallocated or reissued to the Operating Partnership. The Company, as general partner of the Operating Partnership, shall amend the Partnership Agreement to reflect each such exchange and reallocation or reissuance of OP Units and each corresponding recalculation of the OP Units of the New Limited Partner. The number of OP Units to be reallocated or reissued to the Operating Partnership shall 3 4 equal the number of REIT Shares issued to the New Limited Partner upon exercise of an Exchange Right. G. Except in connection with a merger, business combination or other reorganization transaction, the Company shall not exchange any of its OP Units as long as there are any other holders of OP Units. ARTICLE 3 OTHER PROVISIONS SECTION 3.1 COVENANTS OF THE COMPANY. A. At all times during the pendency of the Exchange Right, the Company shall reserve for issuance such number of REIT Shares as may be necessary to enable the Company to issue such shares in full payment of the REIT Shares Amount in regard to all OP Units held by Limited Partners which are from time to time outstanding. B. During the pendency of the Exchange Right, the Company shall deliver to the New Limited Partner in a timely manner all reports filed by the Company with the SEC to the extent the Company also transmits such reports to its shareholders and all other communications transmitted from time to time by the Company to its shareholders generally. C. The Company shall notify the New Limited Partner, upon request, of the then current Exchange Factor. SECTION 3.2 FRACTIONAL SHARES. No fractional REIT Shares shall be issued upon exchange of OP Units. The number of full shares of REIT Shares which shall be issuable upon exchange of OP Units (or the cash equivalent amount thereof if the Cash Amount is paid) shall be computed on the basis of the aggregate amount of OP Units so surrendered. Instead of any fractional REIT Shares which would otherwise be issuable upon exchange of any OP Units, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the Cash Amount of an OP Unit multiplied by such fraction. ARTICLE 4 GENERAL PROVISIONS SECTION 4.1 ADDRESSES AND NOTICE. Any notice, demand, request or report required or permitted to be given or made to the New Limited Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the New Limited Partner or Assignee at the address listed on the records of the Partnership. Notice to the Company shall be made to the following address: 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48036, Attn: Chairman. SECTION 4.2 TITLES AND CAPTIONS. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" and "Sections" are to Articles and Sections of this Agreement. SECTION 4.3 PRONOUNS AND PLURALS. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. 4 5 SECTION 4.4 FURTHER ACTION. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. SECTION 4.5 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. SECTION 4.6 WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. SECTION 4.7 COUNTERPARTS. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all of the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. SECTION 4.8 APPLICABLE LAW. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof. SECTION 4.9 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. RAMCO-GERSHENSON PROPERTIES TRUST, a Maryland real estate investment Trust By:/s/ Bruce Gershenson -------------------------------------------------- Its:Executive Vice President ------------------------------------------ A.T.C., L.L.C., a Virginia limited liability company By: A.T. CENTER, INC., a Virginia corporation, Its Managing Member By:/s/ Thomas Kappler ------------------ Thomas Kappler Its: President 5 6 EXHIBIT "A" NOTICE OF EXCHANGE 6 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEETS STATEMENT OF OPERATIONS STATEMENT OF SHAREHOLDERS EQUITY STATEMENT OF CASH FLOW AND NOTES TO CONSOLIDATED FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 4,743 0 7,057 0 0 0 518,494 23,154 525,607 20,041 325,696 0 0 0 133,546 525,607 0 55,668 0 14,421 13,882 0 18,688 8,677 0 0 0 0 0 6,077 .73 .72
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