DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING

Exhibit 10.2

 

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

by

and between

PARKWAY PROPERTIES LP,

as Borrower

and

JACK EDELBROCK

as Trustee

for the benefit of

TEACHERS INSURANCE AND ANNUITY ASSOCIATION

OF AMERICA

as Lender

Property Known As

This Deed of Trust Was Prepared By

After Recordation This Deed of Trust Should Be Returned To:

Randi Margolin, Esquire

c/o Teachers Insurance and Annuity

Association of America

730 Third Avenue

New York, New York 10017

 

 

                                                                                                                                                                                                                                               

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT made this 19 ^th day of December, 2005, by PARKWAY PROPERTIES LP (" Borrower "), a Delaware limited partnership, having its principal place of business c/o Parkway Properties, Inc., 188 East Capitol Street, Suite 1000, Jackson, Mississippi 39201-2195, Attn: Chief Financial Officer, to Jack Edelbrock, Esq. an individual having an address at 71 South Wacker Drive, Chicago, Illinois 60606 (" Trustee ") , for the benefit of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (" Lender "), a New York corporation, having an address at 730 Third Avenue, New York, New York 10017.

RECITALS

                        A.  Lender agreed to make and Borrower agreed to accept a loan (the " Loan ") in the maximum principal amount of $86,000,000.

 

                        B.  To evidence the Loan, Borrower executed and delivered to Lender a promissory note (the " Note "), dated the date of this Deed of Trust, in the principal amount of EIGHTY SIX MILLION AND NO/100 Dollars ($86,000,000.00) that amount or so much as is outstanding from time to time is referred to as the " Principal "), promising to pay the Principal with interest thereon to the order of Lender as set forth in the Note and with the balance, if any, of the Debt being due and payable on January 1, 2016 (the " Maturity Date ").

                        C.  To secure the Note, this Deed of Trust conveys, among other things, Borrower's fee interest in the real property located in the City of Houston, County of Harris, State of Texas more particularly described in Exhibit A (the " Land ").          

ARTICLE I

 

DEFINITIONS AND RULES OF CONSTRUCTION

            Section 1.1 .      Definitions.   Capitalized terms used in this Deed of Trust are defined in Exhibit B or in the text with a cross-reference in Exhibit B .

            Section 1.2 .      Rules of Construction . This Deed of Trust will be interpreted in accordance with the rules of construction set forth in Exhibit C .

                                                                                                                                                                                                                                               

ARTICLE II

 

GRANTING CLAUSES

            Section 2.1 .  Encumbered Property .   BORROWER HEREBY GRANTS, BARGAINS, SELLS, WARRANTS, CONVEYS, TRANSFERS AND ASSIGNS TO THE TRUSTEE AND ITS SUCCESSORS IN TRUST FOREVER WITH POWER OF SALE FOR THE BENEFIT OF THE LENDER, AND THE BORROWER GRANTS TO THE LENDER A CONTINUING SECURITY INTEREST IN, THE FOLLOWING PROPERTY, RIGHTS, INTERESTS AND ESTATES NOW OR IN THE FUTURE OWNED OR HELD BY BORROWER (THE "PROPERTY") FOR THE USES AND PURPOSES SET FORTH IN THIS DEED OF TRUST FOREVER (capitalized terms used in this Section 2.1 and not defined in this Deed of Trust have the meanings ascribed to them in the Uniform Commercial Code): 

       (i)  the Land;

(ii)  all buildings and improvements located on the Land (the " Improvements ");

(iii)  all easements; rights of way or use, including any rights of ingress and egress; streets, roads, ways, sidewalks, alleys and passages; strips and gores; sewer rights; water, water rights, water courses, riparian rights and drainage rights; air rights and development rights; oil and mineral rights; and tenements, hereditaments and appurtenances, in each instance adjoining or otherwise appurtenant to or benefiting the Land or the Improvements;

(iv)       all General Intangibles (including Software) and Goods, related to, attached to, contained in or used solely in connection with the Land or the Improvements (excluding personal property owned by tenants);

(v)  all agreements, ground leases, grants of easements or rights-of-way, permits, declarations of covenants, conditions and restrictions, disposition and development agreements, planned unit development agreements, cooperative, condominium or similar ownership or conversion plans, management, leasing, brokerage or parking agreements or other material documents affecting Borrower's interest in the Property, including the documents described on Exhibit D but expressly excluding the Leases (the " Property Documents ");

(vi)  all Inventory held for sale, lease or resale or furnished or to be furnished under contracts of service, or used or consumed in the ownership, use or operation of the Property, and all Documents of title evidencing any part of any of the foregoing;

(vii)  all Accounts, Documents, Goods, Instruments, money, Deposit Accounts, Chattel Paper, Letter-of-Credit Rights, Investment Property, General Intangibles and Supporting Obligations relating to the Property, including all deposits held from time to time by the Accumulations Depositary to provide reserves for Taxes and Assessments together with interest thereon, if any (the " Accumulations ");

                                                                                                                                                                                                                                               

(viii)  all awards and other compensation paid after the date of this Deed of Trust for any Condemnation (the " Condemnation Awards ");

(ix)  all proceeds of and all unearned premiums on the Policies (the " Insurance Proceeds ");

(x)  all licenses, certificates of occupancy, contracts, management agreements, operating agreements, operating covenants, franchise agreements, permits and variances relating to the Property;

 (xi)  all books, records and other information, wherever located, which are in Borrower's possession, custody or control or to which Borrower is entitled at law or in equity to the extent such items relate to the Property, including all computer hardware and software or other equipment used to record, store, manage, manipulate or access the information; and

(xii)  all after-acquired title to or remainder or reversion in any of the property described in this Section; all proceeds (excluding, however, sales or other dispositions of Inventory in the ordinary course of the business of operating the Land or the Improvements), replacements, substitutions, products, accessions and increases of or for the Property, all additions, accessions and extensions to, improvements of or for the Property; and all additional lands, estates, interests, rights or other property acquired by Borrower after the date of this Deed of Trust for use in connection with the Land or the Improvements, all without the need for any additional mortgage, assignment, pledge or conveyance to Lender but Borrower will execute and deliver to Lender, upon Lender's request, any documents reasonably requested by Lender to further evidence the foregoing.

                                                          

            Section 2.2 .      Habendum Clause.   The Property is conveyed to Lender to have and to hold forever in fee simple .   

           

            Section 2.3 .      Security Agreement.                          

            (a)  The Property includes both real and personal property and this Deed of Trust is a real property mortgage and also a "security agreement" and a "financing statement" within the meaning of the Uniform Commercial Code.  By executing and delivering this Deed of Trust, Borrower grants to Lender, as security for the Obligations, a security interest in the Property to the full extent that any of the Property may be subject to the Uniform Commercial Code.

            (b)  This Deed of Trust constitutes a fixture filing under the Laws of the state or commonwealth in which the Property is located and for such purpose, Borrower represents, as of the date hereof, that the following information set forth in clauses (i), (v) and (vi), is true and correct:

            (i)   The exact legal name and address of Debtor is :

Parkway Properties L P

188 East Capitol Street, Suite 1000

                                                                                                                                                                                                                                               

Jackson, Mississippi 39201-2195

            (ii) Name and address of Secured Party :

Teachers Insurance and Annuity Association of America

730 Third Avenue

New York, New York 10017

Attn:     Director of Portfolio Management

Mortgage and Real Estate Division

            (iii) Description of the types (or items) of

                        property covered by this Financing Statement :

all of the property described in subsections (ii)-(xii )of the Section entitled " Encumbered Property " described or referred to herein and included as part of the Property.

            (iv) Description of real estate to which collateral is

attached or upon which it is located :  Described in Exhibit A.

            (v)        Debtor Organizational Identification Number: 2702776

            (vi)       Debtor's chief executive office is located in the State of Mississippi and Debtor's state or commonwealth of formation is the State or Commonwealth of Delaware.

           

            Lender may file this Deed of Trust, or a reproduction thereof, in the real estate records or other appropriate index, as a financing statement for any of the items specified above as part of the Property.  Any reproduction of this Deed of Trust or of any other security agreement or financing statement is sufficient as a financing statement.

            Section 2.4 .      Conditions to Grant. .  This Deed of Trust is made on the express condition that if Borrower pays and performs  the Obligations in full in accordance with the Loan Documents, then, unless expressly provided otherwise in the Loan Documents, the Loan Documents will be released at Borrower's expense.

ARTICLE III

 

OBLIGATIONS SECURED

                                                                                                                                                                                                                                               

            Section 3.1 .  The Obligations .  This Deed of Trust secures the Principal, the Interest, the Late Charges (as defined in the Note), the Prepayment Premiums (as defined in the Note), the Expenses, any additional advances made by Lender in connection with the Property or the Loan and all other amounts payable under the Loan Documents (the " Debt ") and also secures both the timely payment of the Debt as and when required and the timely performance of all other obligations and covenants to be performed under the Loan Documents (the " Obligations "), provided that the foregoing does not limit, qualify or affect in any way the present, absolute nature of the Assignment.

Section 3.2 Future Advances .  This Deed of Trust secures both all present advances made by Lender to Borrower under the Note and the other Loan Documents, and all future advances and readvances to be made pursuant to the terms of the Loan Documents.  The amount of the present advances secured hereby is Eighty-Six-Eight Million and 00/100 Dollars ($86,000,000.00).  All such future advances and readvances shall be made between the date hereof and the date that is fifteen (15) years after the date hereof.  The maximum principal amount to be outstanding at any given time and secured by this Deed of Trust shall not exceed Eighty-Six-Eight Million and 00/100 Dollars ($86,000,000.00).

ARTICLE IV

 

TITLE AND AUTHORITY

            Section 4.1 .  Title to the Property . 

            (a)  Subject to the conveyance effectuated by this Deed of Trust, Borrower has and will continue to have good and marketable title in fee simple absolute to the Land and the Improvements and good and marketable title to the Fixtures and Personal Property, all free and clear of liens, encumbrances and charges except the Permitted Exceptions.  To Borrower's knowledge, there are no facts or circumstances that might give rise to a lien, encumbrance or charge on the Property.

            (b)  Borrower owns and will continue to own all of the other Property free and clear of all liens, encumbrances and charges except the Permitted Exceptions. 

            (c)  This Deed of Trust is and will remain a valid and enforceable first lien on and security interest in the Property, subject only to the Permitted Exceptions.

            Section 4.2 .  Authority.

            (a)  Borrower is and will continue to be (i) duly organized, validly existing and in good standing under the Laws of the state or commonwealth in which it was formed, organized or incorporated as set forth in Section 2.3 and (ii) duly qualified to conduct business, in good standing, in the state or commonwealth where the Property is located. 

            (b)  Borrower has and will continue to have all approvals required by Law or otherwise and full right, power and authority to (i) own and operate the Property and carry on Borrower's business as now conducted or as proposed to be conducted; (ii) execute and deliver the Loan Documents; (iii) grant, mortgage, warrant the title to, convey, assign and pledge the Property to Lender pursuant to the provisions of this Deed of Trust; and (iv) perform the Obligations. 

                                                                                                                                                                                                                                               

            (c)  The execution and delivery of the Loan Documents and the performance of the Obligations do not and will not conflict with or result in a default under any Laws or any Leases or Property Documents and do not and will not conflict with or result in a default under any agreement binding upon any party to the Loan Documents.

            (d)  The Loan Documents constitute and will continue to constitute legal, valid and binding obligations of all parties to the Loan Documents enforceable in accordance with their respective terms.

            (e) Borrower has not changed its legal name or its state or commonwealth of formation, as set forth in Section 2.3 , in the four months prior to the date hereof, except as Borrower has disclosed any such change to Lender in writing and delivered to Lender appropriate Uniform Commercial Code search reports in connection therewith.

            (f) Borrower has not (i) merged with or into any other entity or otherwise been involved in any reorganization or (ii) acquired substantially all of the assets of any other entity where Borrower became subject to the obligations of such entity, for a period of one year ending on the date hereof, except as Borrower has disclosed any such change, merger, reorganization or acquisition to Lender in writing and delivered to Lender appropriate Uniform Commercial Code search reports in connection therewith.

            Section 4.3 .      No Foreign Person.   Borrower is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code.

  

            Section 4.4 .  Litigation.   There are no Proceedings or, to Borrower's knowledge, investigations against or affecting Borrower or the Property and, to Borrower's knowledge, there are no facts or circumstances that might give rise to a Proceeding or an investigation against or affecting Borrower or the Property which could have a material adverse effect on the Borrower or the Property or Trustee's or Lender's Security interest in the Property. Borrower will give Lender prompt notice of the commencement of any Proceeding or investigation against or affecting the Property or Borrower which could have a material adverse effect on the Property or on Lender's interests in the Property or under the Loan Documents and, at Borrower's expense, will appear in and defend any such Proceeding or investigation.  Borrower also will deliver to Lender such additional information relating to the Proceeding or investigation as Lender may request from time to time.

ARTICLE V

 

PROPERTY STATUS, MAINTENANCE AND LEASES

            Section 5.1 .  Status of the Property .

                                                                                                                                                                                                                                               

            (a)  Borrower has obtained and will maintain in full force and effect all certificates, licenses, permits and approvals that are issued or required by Law or by any entity having jurisdiction over the Property or over Borrower or that are necessary for the Permitted Use, for occupancy and operation of the Property for the conveyance described in this Deed of Trust and for the conduct of Borrower's business on the Property in accordance with the Permitted Use. 

            (b)  The Property is and will continue to be serviced by all public utilities required for the Permitted Use of the Property.

            (c)  All roads and streets necessary for service of and access to the Property for the current or contemplated use of the Property have been completed, and unless prevented from doing so by a Condemnation Proceeding, Borrower will maintain the present access to the Property or provide alternative serviceable, physically open access, dedicated to and accepted by the Government for use by the public.

            (d)  The Property is free from damage caused by a Casualty.

            (e)  All costs and expenses of labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full.

                       

            Section 5.2 .  Maintenance of the Property .  Borrower will maintain the Property in thorough repair and good and safe condition, suitable for the Permitted Use, including, to the extent necessary, replacing the Fixtures and Personal Property with property at least equal in quality and condition to that being replaced and free of liens.  Borrower will not erect any new buildings, building additions or other structures on the Land or, except for tenant and common area improvements undertaken in the ordinary course of business,  otherwise materially alter the Improvements (except for tenant improvements made in accordance with Leases approved or not requiring approval of Lender)  without Lender's prior consent which may be withheld in Lender's sole discretion.  The Property will be managed by Parkway Realty Services, an Affiliate of Borrower, or a property manager satisfactory to Lender pursuant to a management agreement satisfactory to Lender and terminable by Borrower upon 30 days notice to the property  manager.  

            Section 5.3 .  Change in Use .  Borrower will use and permit the use of the Property for the Permitted Use and for no other purpose. 

            Section 5.4 .  Waste .  Borrower will not commit or permit any waste (including economic and non-physical waste), impairment or deterioration of the Property or, except for tenant and common area improvements undertaken in the ordinary course of business, any alteration, demolition or removal of any of the Property without Lender's prior consent which may be withheld in Lender's sole discretion. 

                                                                                                                                                                                                                                               

            Section 5.5 .  Inspection of the Property .  Subject to the rights of tenants under the Leases, Lender has the right to enter and inspect the Property on reasonable prior notice, except during the existence of an Event of Default, when no prior notice is necessary.  Lender has the right to engage an independent expert to review and report on Borrower's compliance with Borrower's obligations under this Deed of Trust to maintain the Property, comply with Law and refrain from waste, impairment or deterioration of the Property and the alteration, demolition or removal of any of the Property except as may be permitted by the provisions of this Deed of Trust.  If the independent expert's report discloses material failure to comply with such obligations or if Lender engages the independent expert after the occurrence of an Event of Default, then the independent expert's review and report will be at Borrower's expense, payable on demand.

            Section 5.6 .  Leases and Rents . 

            (a)  Borrower assigns the Leases and the Rents to Lender absolutely and unconditionally and not merely as additional collateral or security for the payment and performance of the Obligations, but subject to a license back to Borrower of the right to collect the Rents unless and until an Event of Default occurs at which time the license will terminate automatically, all as more particularly set forth in the Assignment, the provisions of which are incorporated in this Deed of Trust by reference.

            (b)  Borrower appoints Lender as Borrower's attorney-in-fact to, upon the occurrence of and Event of Default, execute unilaterally and record, at Lender's election, a document subordinating this Deed of Trust to the Leases, provided that the subordination will not affect (i) the priority of Lender's entitlement to Insurance Proceeds or Condemnation Awards or (ii) the priority of this Deed of Trust over intervening liens or liens arising under or with respect to the Leases.

 

            Section 5.7 .  Parking .  Borrower will provide, maintain and light parking areas within the Property and maintain security within such areas to the extent required by the Leases or applicable Law, including any sidewalks, aisles, streets, driveways, sidewalk cuts and rights-of-way to and from the adjacent public streets, in a manner consistent with the Permitted Use and sufficient to accommodate the greatest of: (i) the number of parking spaces required by Law; (ii) the number of parking spaces required by the Leases and the Property Documents; or (iii) 1,253 parking spaces.  The parking areas will be reserved and used exclusively for ingress, egress and parking for Borrower and the tenants under the Leases and their respective employees, customers and invitees and in accordance with the Leases and the Property Documents.

            Section 5.8 .      Separate Tax Lot .  The Property is and will remain assessed for real estate tax purposes as one or more wholly independent tax lots, separate from any property that is not part of the Property.

                       

            Section 5.9 .      Changes in Zoning or Restrictive Covenants .   Borrower will not (i) initiate, join in or consent to any change in any Laws pertaining to zoning, any restrictive covenant or other restriction which would restrict the Permitted Uses for the Property; (ii) permit the Property to be used to fulfill any requirements of Law for the construction or maintenance of any improvements on property that is not part of the Property; (iii) permit the Property to be used for any purpose not included in the Permitted Use; or (iv) impair the integrity of the Property as a single, legally subdivided zoning lot separate from all other property.

                                                                                                                                                                                                                                               

            Section 5.10 .    Lender's Right to Appear .  Lender has the right to appear in and defend any Proceeding brought regarding the Property and to bring any Proceeding, in the name and on behalf of Borrower or in Lender's name, which Lender, in its sole discretion, determines should be brought to protect Lender's interest in the Property.

ARTICLE VI

 

IMPOSITIONS AND ACCUMULATIONS

                       

            Section 6.1 .  Impositions .

            (a)  Borrower will pay or cause the Escrow Holder to pay each Imposition at least 10 days before the date (the " Imposition Penalty Date ") that is the earlier of (i) the date on which the Imposition becomes delinquent and (ii) the date on which any penalty, interest or charge for non-payment of the Imposition accrues.

            (b)  At least 10 days before each Imposition Penalty Date, Borrower will deliver or cause Escrow Holder to deliver to Lender a receipted bill or other evidence of payment.

            (c)  Borrower, at its own expense, may contest any Taxes or Assessments, provided that the following conditions are met:

(i)  not less than 30 days prior to the Imposition Penalty Date, Borrower delivers to Lender notice of the proposed contest;

(ii) the contest is by a Proceeding promptly initiated and conducted diligently and in good faith;

(iii) there is no Event of Default;

 

(iv)  the Proceeding suspends the collection of the contested Taxes or Assessments or Borrower either deposits with the Accumulations Depositary reserves or furnishes a bond or other security satisfactory to Lender, in either case in an amount sufficient to pay the contested Taxes or Assessments, together with all interest and penalties or Borrower pays all of the contested Taxes or Assessments under protest;

(v)  the Proceeding is permitted under and is conducted in accordance with the Leases and the Property Documents; and

(vi)  the Proceeding precludes imposition of criminal or civil penalties and sale or forfeiture of the Property and Lender will not be subject to any civil suit.

                                                                                                                                                                                                                                               

            (d)  Installment Payments .  If any Assessment is payable in installments, Borrower will nevertheless pay the Assessment in its entirety on the day the first installment becomes due and payable or a lien, unless Lender approves payment of the Assessment in installments or such installment payments will not result in a lien, or trigger any interest or penalty.  Except during the continuance of an Event of Default, Lender's consent to Borrower's payment of Assessments in installments in circumstances where such payment does not create the possibility of a lien, interest or penalty, shall be deemed.

            Section 6.2 .  Accumulations .

            (a)  Borrower made an initial deposit with either Lender or a mortgage servicer or financial institution designated or approved by Lender from time to time, acting on behalf of Lender as Lender's agent or otherwise such that Lender is the "customer", as defined in the Uniform Commercial Code, of the depository bank with respect to the deposit account into which the Accumulations are deposited, to receive, hold and disburse the Accumulations in accordance with this Section (the " Accumulations Depositary ").  The initial Accumulations Depositary is identified in the Tax Agreement.  On the first day of each calendar month during the Term Borrower will deposit with the Accumulations Depositary an amount equal to 1/12 ^th of the annual Taxes and Assessments as determined by Lender or its designee.  At least 30 days before each Imposition Penalty Date, or as soon thereafter as received by Borrower, Borrower will deliver to the Accumulations Depositary any bills and other documents that are necessary to pay the Taxes and Assessments.

            (b)  The Accumulations will be applied to the payment of Taxes and Assessments.  Any excess Accumulations after payment of Taxes and Assessments will be returned to Borrower or credited against future payments of the Accumulations, at Lender's election or as required by Law.  If the Accumulations are not sufficient to pay Taxes and Assessments, Borrower will pay the deficiency to the Accumulations Depositary within 5 days of demand.  At any time after an Event of Default occurs, Lender may apply the Accumulations as a credit against any portion of the Debt selected by Lender in its sole discretion.

            (c)  The Accumulations Depositary will hold the Accumulations as security for the Obligations until applied in accordance with the provisions of this Deed of Trust and any agreement among Borrower, Lender and the Accumulations Depositary. If Lender is not the Accumulations Depositary, the Accumulations Depositary will deliver the Accumulations to Lender upon Lender's demand at any time after an Event of Default.

                       

            (d)  If the Property is sold or conveyed other than by foreclosure or transfer in lieu of foreclosure, all right, title and interest of Borrower to the Accumulations will automatically, and without necessity of further assignment, be held for the account of the new owner, subject to the provisions of this Section and Borrower will have no further interest in the Accumulations.

 

            (e)  The Accumulations Depositary has deposited the initial deposit and will deposit the monthly deposits into a separate interest bearing account in the name of the Lender as secured  party, all in accordance with the Tax Agreement.

                                                                                                                                                                                                                                               

            (f)  Lender has the right to pay, or to direct the  Accumulations Depositary to pay, any Taxes or Assessments unless Borrower is contesting the Taxes or Assessments in accordance with the provisions of this Deed of Trust, in which event any payment of the contested Taxes or Assessments will be made under protest in the manner prescribed by Law or, at Lender's election, will be withheld.

            (g)  If Lender assigns this Deed of Trust, Lender will pay, or cause the Accumulations Depositary to pay, the unapplied balance of the Accumulations to or at the direction of the assignee in accordance with the Tax Agreement.  Simultaneously with the payment, Lender and the Accumulations Depositary will be released from all liability with respect to the Accumulations and Borrower will look solely to the assignee with respect to the Accumulations.  When the Obligations have been fully satisfied, any unapplied balance of the Accumulations will be returned to Borrower. At any time after an Event of Default occurs, Lender may apply the Accumulations as a credit against any portion of the Debt selected by Lender in its sole discretion.

            Section 6.3 .      Changes in Tax Laws .  If a Law requires the deduction of the Debt from the value of the Property for the purpose of taxation or imposes a tax, either directly or indirectly, on the Debt, any Loan Document or Lender's interest in the Property, Borrower will pay the tax with interest and penalties, if any.  If Lender determines that Borrower's payment of the tax may be unlawful, unenforceable, usurious or taxable to Lender, the Debt will become immediately due and payable on 60 days' prior notice unless the tax must be paid within the 60-day period, in which case, the Debt will be due and payable within the lesser period.

Section 6.4 .      Reserves .  Borrower made an initial deposit and will make monthly deposits into an account established as additional security for the payment and performance of the Obligations, to be held and disbursed in accordance with the Tax Agreement.

ARTICLE VII

INSURANCE, CASUALTY, CONDEMNATION

AND RESTORATION

            Section 7.1 .  Insurance Coverages .

            (a)  Borrower will maintain such insurance coverages and endorsements in form and substance and in amounts as Lender may require in its sole discretion, from time to time.  Until Lender notifies Borrower of changes in Lender's requirements, Borrower will maintain not less than the insurance coverages and endorsements Lender required for closing of the Loan.

            (b)  The insurance, including renewals, required under this Section will be issued on valid and enforceable policies and endorsements satisfactory to Lender (the " Policies ").          Each Policy will contain a standard waiver of subrogation and a replacement cost endorsement and will provide that Lender will receive not less than 30 days' prior written notice of any cancellation, termination or non-renewal of a Policy or any material change other than an increase in coverage and that Lender will be named under a standard mortgage endorsement as loss payee.

                                                                                                                                                                                                                                               

            (c)  The insurance companies issuing the Policies (the " Insurers ") must be authorized to do business in the State or Commonwealth where the Property is located, must have been in business for at least 5 years, must carry an A.M. Best Company, Inc. policy holder rating of A or better and an A.M. Best Company, Inc. financial category rating of Class X or better and must be otherwise satisfactory to Lender.  Lender may select an alternative credit rating agency and may impose different credit rating standards for the Insurers.  Notwithstanding Lender's right to approve the Insurers and to establish credit rating standards for the Insurers, Lender will not be responsible for the solvency of any Insurer.

            (d)  Notwithstanding Lender's rights under this Article, Lender will not be liable for any loss, damage or injury resulting from the inadequacy or lack of any insurance coverage.

            (e)  Borrower will comply with the provisions of the Policies and with the requirements, notices and demands imposed by the Insurers and applicable to Borrower or the Property.

(f)  Borrower will pay the Insurance Premiums for each Policy not less than 30 days before the expiration date of the Policy being replaced or renewed and will deliver to Lender an original or, if a blanket policy, a certificate evidencing coverage under the Policies marked "Paid" not less than 15 days prior to the expiration date of the Policy being replaced or renewed.  Borrower shall provide a certified copy of each Policy promptly upon receipt thereof.

            (g)  Borrower will not carry separate insurance concurrent in kind or form or contributing in the event of loss with any other insurance carried by Borrower.

            (h)  Borrower will not carry any of the insurance required under this Section on a blanket or umbrella policy without in each instance Lender's prior approval which may be withheld in Lender's sole discretion.  If Lender approves, Borrower will deliver to Lender a certified copy of the blanket policy which will allocate to the Property the amount of coverage required under this Section and otherwise will provide the same coverage and protection as would a separate policy insuring only the Property.

            (i)  If required by the Policy, Borrower will give the Insurers prompt notice of any change in ownership or occupancy of the Property.  This subsection does not abrogate the prohibitions on transfers set forth in this Deed of Trust.

            (j)  If the Property is sold at a foreclosure sale or otherwise is transferred so as to extinguish the Obligations, all of Borrower's right, title and interest in and to the Policies then in force , except blanket polices, will be transferred automatically to the purchaser or transferee.

            Section 7.2 .  Casualty and Condemnation .

            (a)  Borrower will give Lender notice of any Casualty immediately after it occurs and will give Lender notice of any Condemnation Proceeding immediately after Borrower receives notice of commencement or notice that such a Condemnation Proceeding will be commencing.  Borrower immediately will deliver to Lender copies of all documents Borrower delivers or receives relating to the Casualty or the Condemnation Proceeding, as the case may be.

                                                                                                                                                                                                                                               

            (b)  Borrower authorizes Lender, upon the occurrence and continuance of an Event of Default, at Lender's option, and in any event if the amount of the Casualty is reasonably expected to exceed $750,000, to act on Borrower's behalf to collect, adjust and compromise any claims for loss, damage or destruction under the Policies on such terms as Lender determines in Lender's sole discretion.  Borrower authorizes Lender to act, at Lender's option, on Borrower's behalf in connection with any Condemnation Proceeding.  Borrower will execute and deliver to Lender all documents requested by Lender and all documents as may be required by Law to confirm such authorizations.  Nothing in this Section will be construed to limit or prevent Lender from joining with Borrower either as a co-defendant or as a co-plaintiff in any Condemnation Proceeding.

            (c)  If Lender elects not to act on Borrower's behalf as provided in this Section, then Borrower promptly will file and prosecute all claims (including Lender's claims) relating to the  Casualty and will prosecute or defend (including defense of Lender's interest) any Condemnation Proceeding.  Borrower will have the authority to settle or compromise the claims or Condemnation Proceeding, as the case may be, provided that Lender has approved in Lender's sole discretion any compromise or settlement that exceeds $750,000.00.  Any check for Insurance Proceeds or Condemnation Awards, as the case may be (the " Proceeds ") will be made payable to Lender and Borrower.  Borrower will endorse the check to Lender immediately upon Lender presenting the check to Borrower for endorsement or if Borrower receives the check first, will endorse the check immediately upon receipt and forward it to Lender.  If any Proceeds are paid to Borrower, Borrower immediately will deposit the Proceeds with Lender, to be applied or disbursed in accordance with the provisions of this Deed of Trust.  Lender will be responsible for only the Proceeds actually received by Lender.

            Section 7.3 .  Application of Proceeds .  After deducting the costs incurred by Lender in collecting the Proceeds, Lender may, in its sole discretion, (i) apply the Proceeds as a credit against any portion of the Debt selected by Lender in its sole discretion; (ii) apply the Proceeds to restore the Improvements, provided that Lender will not be obligated to see to the proper application of the Proceeds and provided further that any amounts released for Restoration will not be deemed a payment on the Debt; or (iii) deliver the Proceeds to Borrower.

            Section 7.4 .  Conditions to Availability of Proceeds for Restoration .      Notwithstanding the preceding Section, after a Casualty or a Condemnation (a " Destruction Event "), Lender will make the Proceeds (less any costs incurred by Lender in collecting the Proceeds) available for Restoration in accordance with the conditions for disbursements set forth in the Section entitled " Restoration ", provided that the following conditions are met:

(a)  Parkway Properties LP or the transferee under a Permitted Transfer, if any, continues to be Borrower at the time of the Destruction Event and at all times thereafter until the Proceeds have been fully disbursed;

(b)  at the time that payment of the of the Proceeds is sought, there shall not then exist any failure to have paid any amount due under the Loan Documents at the time specified in the Loan Documents, regardless of any grace or cure period permitted with respect to such payment;

                                                                                                                                                                                                                                               

(c) all Leases of 6,000 square feet or greater in effect immediately prior to the Destruction Event and all Property Documents in effect immediately prior to the Destruction Event that are essential to the use and operation of the Property continue in full force and effect notwithstanding the Destruction Event;

(d)  if the Destruction Event is a Condemnation, Borrower delivers to Lender evidence satisfactory to Lender that the Improvements can be restored to an economically and architecturally viable unit;

(e)  Borrower delivers to Lender evidence satisfactory to Lender that the Proceeds are sufficient to complete Restoration or if the Proceeds are insufficient to complete Restoration, Borrower first provides a standby letter of credit in form and substance acceptable to Lender or deposits with Lender funds to be held in an interest bearing escrow account pursuant to a pledge agreement satisfactory to Lender  (" Additional Funds ") that when added to the Proceeds will be sufficient to complete Restoration;

(f)  if the Destruction Event is a Casualty, Borrower delivers to Lender evidence satisfactory to Lender that the Insurer under each affected Policy has not denied liability under the Policy as to Borrower or the insured under the Policy;

(g)  Lender is satisfied that the proceeds of any business interruption insurance in effect together with other available gross revenues from the Property are sufficient to pay Debt Service Payments after paying the Impositions, Insurance Premiums, reasonable and customary operating expenses and capital expenditures until Restoration is complete;

(h)  Lender is satisfied that Restoration will be completed on or before the date (the " Restoration Completion Date ") that is the earliest of: (A) 12 months prior to the Maturity Date; (B) 12 months after the Destruction Event; (C) the earliest date required for completion of Restoration under any Lease of 6,000 square feet or greater or any Property Document that is essential to the use and operation of the Property; or (D) any date required by Law; and

(i)  the annual Rents (excluding security deposits) under Leases in effect on the date of the Destruction Event are providing debt service coverage for the annual Debt Service Payments for the Subject Property of 1.15 (and no less than 1.0 for any individual property within the Subject Property as determined by Lender with respect to the loan amount allocated to such individual property) after payment of annual Insurance Premiums, Impositions and operating expenses of the Property (including ground rent, if any), provided that, if the Rents do not provide such debt service coverage, Borrower expressly authorizes and instructs Lender to apply an amount from the Proceeds to reduction of Principal without Prepayment Premium in order to reduce the annual Debt Service Payments sufficiently for such debt service coverage to be achieved.  The reduced debt service payments will be calculated using the Fixed Interest Rate and an amortization schedule that will achieve the same proportionate amortization of the reduced Principal over the then remaining Term as would have been achieved if the Principal and the originally scheduled Debt Service Payments had not been reduced.  Borrower will execute any documentation that Lender deems reasonably necessary to evidence the reduced Principal and debt service payments.

                                                                                                                                                                                                                                               

            Section 7.5 .      Restoration . 

(a)  If the total Proceeds for any Destruction Event are $750,000.00 or less and Lender elects or is obligated by Law or under this Article to make the Proceeds available for Restoration Lender will disburse to Borrower the entire amount received by Lender and Borrower will commence Restoration promptly after the Destruction Event and complete Restoration not later than the Restoration Completion Date.

(b)  If the Proceeds for any Destruction Event exceed $750,000.00 and Lender elects or is obligated by Law or under this Article to make the Proceeds available for Restoration, Lender will disburse the Proceeds and any Additional Funds (the " Restoration Funds ") upon Borrower's request as Restoration progresses, generally in accordance with normal construction lending practices for disbursing funds for construction costs, provided that the following conditions are met:

(i)  Borrower commences Restoration promptly after the Destruction Event and completes Restoration on or before the Restoration Completion Date;

(ii) if Lender requests, Borrower delivers to Lender prior to commencing Restoration, for Lender's approval, plans and specifications and a detailed budget for the Restoration;

(iii)  Borrower delivers to Lender satisfactory evidence of the costs of Restoration incurred prior to the date of the request and such other documents as Lender may request including mechanics' lien waivers and title insurance endorsements;

(iv)  Borrower pays all costs of Restoration whether or not the Restoration Funds are sufficient and, if at any time during Restoration, Lender determines that the undisbursed balance of the Restoration Funds is insufficient to complete Restoration, Borrower deposits with Lender, as part of the Restoration Funds, an amount equal to the deficiency within 30 days of receiving notice of the deficiency from Lender; and 

(v)  there is no default under the Loan Documents at the time Borrower requests funds or at the time Lender disburses funds.

(c)  If an Event of Default under the Loan Documents occurs at any time after the Destruction Event, then Lender will have no further obligation to make any remaining Proceeds available for Restoration and may apply any remaining Proceeds as a credit against any portion of the Debt selected by Lender in its sole discretion.

(d)  Lender may elect at any time prior to or during the course of Restoration to retain, at Borrower's expense, an independent engineer or other environmental consultant to review the plans and specifications, to inspect Restoration as it progresses and to provide reports.  If any matter included in a report by the engineer or consultant is unsatisfactory to Lender, Lender may suspend disbursement of the Restoration Funds until the unsatisfactory matters contained in the report are resolved to Lender's reasonable satisfaction.

                                                                                                                                                                                                                                               

(e)  If Borrower fails to commence and complete Restoration in accordance with the terms of this Article, then in addition to the Remedies, Lender may elect to restore the Improvements on Borrower's behalf and reimburse itself out of the Restoration Funds for costs and expenses incurred by Lender in restoring the Improvements or Lender may apply the Restoration Funds as a credit against any portion of the Debt selected by Lender in its sole discretion.

           

(f)  Lender may commingle the Restoration Funds with its general assets and will not be liable to pay any interest or other return on the Restoration Funds unless otherwise required by Law.  Lender will not hold any Restoration Funds in trust.  Lender will deposit the Restoration Funds with a depositary satisfactory to Lender under a disbursement and security agreement satisfactory to Lender provided Borrower executed such an agreement. 

(g)  Borrower will pay all of Lender's out-of-pocket expenses incurred in connection with a Destruction Event or Restoration.  If Borrower fails to do so, then in addition to the Remedies, Lender may from time to time reimburse itself out of the Restoration Funds.

(h)  If any excess Proceeds remain after Restoration, Lender shall deliver the excess to Borrower.

ARTICLE VIII

 

COMPLIANCE WITH LAW AND AGREEMENTS

            Section 8.1 .  Compliance with Law .  Borrower, the Property and the use of the Property comply and will continue to comply with Law and with all agreements and conditions necessary to preserve and extend all rights, licenses, permits, privileges, franchises and concessions (including zoning variances, special exceptions and non-conforming uses) relating to the Property or Borrower.  Borrower will notify Lender of the commencement of any investigation or Proceeding relating to a possible violation of Law immediately after Borrower receives notice thereof and, will deliver promptly to Lender copies of all documents Borrower receives or delivers in connection with the investigation or Proceeding.  Borrower will not alter the Property in any manner that would increase Borrower's responsibilities for compliance with Law.

                                                                                                                                                                                                                                               

            Section 8.2 .  Compliance with Agreements .  There are no defaults, events of defaults or events which, with the passage of time or the giving of notice, would constitute an event of default under the Property Documents.  Borrower will pay and perform all of its obligations under the Property Documents as and when required by the Property Documents.  Borrower will cause all other parties to the Property Documents to pay and perform their obligations under the Property Documents as and when required by the Property Documents.  Borrower will not amend or waive any provisions of the Property Documents; exercise any options under the Property Documents; give any approval required or permitted under the Property Documents that would adversely affect the Property or Lender's rights and interests under the Loan Documents; cancel or surrender any of the Property Documents that would adversely affect the Property or Lender's rights and interests under the Loan Documents; or release or discharge or permit the release or discharge of any party to or entity bound by any of the Property Documents, without, in each instance, Lender's prior approval (excepting therefrom all service contracts or other agreements entered into in the normal course of business that are cancelable upon not more than 30 days notice).   Borrower promptly will deliver to Lender copies of any notices of default or of termination that Borrower receives or delivers relating to any Property Document.

            Section 8.3 .  ERISA Compliance .

            (a)  Neither Borrower nor any of Borrower's constituent entities is or will be an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (" ERISA ") that is subject to Title I of ERISA or a "plan" as defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code, and neither the assets of Borrower or of Borrower's constituent entities are or will constitute "plan assets" of one or more such plans for purposes of Title I of ERISA or Section 4975 of the Code.

            (b)  Borrower will not engage in any transaction which would cause any obligation or any action under the Loan Documents, including Lender's exercise of the Remedies, to be a non-exempt prohibited transaction under ERISA.

     Section 8.4 . Anti-Terrorism . 

     (a)  None of Borrower, Indemnitor or their respective constituents or affiliates are in violation of any Laws relating to terrorism or money laundering, including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (the " Executive Order ") and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56, the " Patriot Act ").

                            

            (b) None of Borrower, Indemnitor, any of their respective constituents or affiliates, any of their respective brokers or other agents acting or benefiting in any capacity in connection with the Loan or, to Borrower's knowledge as of the date hereof, the Seller of the Subject Property (if any portion of the Subject Property is being acquired with proceeds of the Loan) is a " Prohibited Person " which is defined as follows:

(i)                  a person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 and relating to the Executive Order;

(ii)                a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order;

                                                                                                                                                                                                                                               

(iii)       a person or entity with whom Lender is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering Law, including the Executive Order and the Patriot Act;

(iv)       a person or entity who commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order; 

(v)        a person or entity that is named as a "specially designated national and blocked person" on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; and

(vi)              a person or entity who is affiliated with a person or entity listed above.

(c)  None of Borrower, Indemnitor, any of their respective affiliates or constituents, any of their respective brokers or other agents acting in any capacity in connection with the Loan or to Borrower's knowledge as of the date hereof the seller of the Subject Property (if any portion of the Property is being acquired with proceeds of the Loan), is or will (i) conduct any business or engage in any transaction or dealing with any Prohibited Person, including the making or receiving any contribution of funds, goods or services to or for the benefit of any Prohibited Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order or the Patriot Act.

            (d)        Borrower covenants and agree to deliver to Lender any certification or other evidence requested from time to time by Lender in its sole discretion, confirming Borrower's compliance with this section.

            Section 8.5 .  Section 6045(e) Filing .  Borrower will supply or cause to be supplied to Lender either (i) a copy of a completed Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Proceeds prepared by Borrower's attorney or other person responsible for the preparation of the form, together with a certificate from the person who prepared the form to the effect that the form has, to the best of the preparer's knowledge, been accurately prepared and that the preparer will timely file the form; or (ii) a certification from Borrower that the Loan is a refinancing of the Property or is otherwise not required to be reported to the Internal Revenue Service pursuant to Section 6045(e) of the Code.  Under no circumstances will Lender or Lender's counsel be obligated to file the reports or returns.

ARTICLE IX

 

ENVIRONMENTAL

            Section 9.1 .  Environmental Representations and Warranties .

                                                                                                                                                                                                                                               

            Except as disclosed in the Environmental Report and to Borrower's knowledge as of the date of this Deed of Trust:

(i)         no Environmental Activity has occurred or is occurring on the Property other than the use, storage, and disposal of Hazardous Materials which (A) is in the ordinary course of business consistent with the Permitted Use; (B) is in compliance with all Environmental Laws and (C) has not resulted in Material Environmental Contamination of the Property; and

(ii)        no Environmental Activity has occurred or is occurring on any property in the vicinity of the Property which has resulted in Material Environmental Contamination of the Property.

            Section 9.2 .  Environmental Covenants .

            (a) Borrower will not cause or permit any Material Environmental Contamination of the Property.

            (b)  No Environmental Activity will occur on the Property other than the use, storage and disposal of Hazardous Materials which (A) is in the ordinary course of business consistent with the Permitted Use; (B) is in compliance with all Environmental Laws; and (C) does not create a risk of Material Environmental Contamination of the Property.

            (c)  Borrower will notify Lender immediately upon Borrower becoming aware of (i) any Material Environmental Contamination of the Property or (ii) any Environmental Activity with respect to the Property that is not in accordance with the preceding subsection (b).  Borrower promptly will deliver to Lender copies of all documents delivered to or received by Borrower regarding the matters set forth in this subsection, including notices of Proceedings or investigations concerning any Material Environmental Contamination of the Property or Environmental Activity or concerning Borrower's status as a potentially responsible party (as defined in the Environmental Laws).  Borrower's notification of Lender in accordance with the provisions of this subsection will not be deemed to excuse any default under the Loan Documents resulting from the violation of Environmental Laws or the Material Environmental Contamination of the Property or Environmental Activity that is the subject of the notice.  If Borrower receives notice of a suspected violation of Environmental Laws in the vicinity of the Property that poses a risk of Material Environmental Contamination of the Property, Borrower will give Lender notice and copies of any documents received relating to such suspected violation. 

            (d)  From time to time at Lender's request, Borrower will deliver to Lender any information known and documents available to Borrower relating to the environmental condition of the Property.

                                                                                                                                                                                                                                               

            (e)  Lender may perform or engage an independent consultant to perform an assessment of the environmental condition of the Property and of Borrower's compliance with this Section on an annual basis, or at any other time for reasonable cause, or after an Event of Default.  In connection with the assessment:  (i) Lender or consultant may enter and inspect the Property and perform tests of the air, soil, ground water and building materials; (ii) Borrower will cooperate and use commercially reasonable efforts to cause tenants and other occupants of the Property to cooperate with Lender or consultant; (iii) Borrower will receive a copy of any final report prepared after the assessment, to be delivered to Borrower not more than 10 days after Borrower requests a copy and executes Lender's standard confidentiality and waiver of liability letter; (iv) Borrower will accept custody of and arrange for lawful disposal of any Hazardous Materials required to be disposed of as a result of the tests; (v) Lender will not have liability to Borrower with respect to the results of the assessment; and (vi) Lender will not be responsible for any damage to the Property resulting from the tests described in this subsection and Borrower will look solely to the consultants to reimburse Borrower for any such damage.  Lender shall cause such consultant to provide evidence of insurance satisfactory to Borrower and, if available, name Borrower as an additional insured on consultant's liability insurance at Borrower's expense.  The consultant's assessment and reports will be at Borrower's expense (i) if the reports disclose any material adverse change in the environmental condition of the Property from that disclosed in the Environmental Report; (ii) if Lender engaged the consultant when Lender had reasonable cause to believe Borrower was not in compliance with the terms of this Article and, after written notice from Lender, Borrower failed to provide promptly reasonable evidence that Borrower is in compliance; or (iii) if Lender engaged the consultant after the occurrence of an Event of Default.

            (f)  If Lender has reasonable cause to believe that there is Environmental Activity at the Property, Lender may elect in its sole discretion to direct the Trustee to release any portion of the Property affected by the Environmental Activity and Borrower will accept the release.

 

 

ARTICLE X

 

FINANCIAL REPORTING

            Section 10.1 Fiscal Year; Financial Statements; Reports of Parkway Properties, Inc. (the " Company ") and Borrower; SEC and Other Reports; Officer's Certificate .

The Company and the Borrower shall each maintain its fiscal year as a calendar year at all times.  Borrower shall deliver the following submissions to Lender with respect to the Company, and the Borrower shall make identical submissions for itself (except for those relating to Securities and Exchange Commission requirements) at the times required pursuant to clauses (a), (b), (d) and (e) below for the appropriate period:

(a)        Quarterly Statements - within 45 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

(A)       a consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of such quarter, and

                                                                                                                                                                                                                                               

(B)       consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Consolidated Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a financial officer of the Company as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 10.1(a);

(b)        Annual Statements - within 90 days after the end of each fiscal year of the Company, duplicate copies of,

(A)       a consolidated balance sheet of the Company and its Consolidated Subsidiaries, as at the end of such year, and

(B)       consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Consolidated Subsidiaries, for each such year,

setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by:

(1)        an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and

                                                                                                                                                                                                                                               

(2)        upon request of Lender, but only if an Event of Default shall exist, a certificate of such accountants stating that they have reviewed this Deed of Trust and the certificate of a financial officer of the Company provided pursuant to Section 10.1(d) in connection with such financial statements, and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a breach of any covenant contained in Article Four, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any such breach unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit),

provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (2) above, shall be deemed to satisfy the requirements of this Section 10.1(b);

(c)        Promptly upon their becoming available, one copy of (A) each financial statement, report, notice or proxy statement sent by the Company or any of its Subsidiaries to public securities holders generally, and (B) each regular or periodic report, each registration statement (without exhibits except as expressly requested by Lender), and each prospectus and all amendments thereto filed by the Company or any such Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any such Subsidiary to the public concerning developments that are material;

(d)        Each set of financial statements delivered to Lender pursuant to Section 10.1(a) or Section 10.1(b) hereof shall be accompanied by a certificate of a financial officer of the Company, in his or her capacity as such officer and without personal liability other than for fraudulent statements or omissions, setting forth a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company, the Borrower, and the Company's other Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company or Borrower (as applicable) shall have taken or proposes to take with respect thereto;

(e)        Promptly after Lender shall so request, such other reports and information as Lender shall reasonably request from time to time.

                                                                                                                                                                                                                                               

            Section 10.2 .    Annual Budget .  Not less than 30 days prior to the end of each Fiscal Year, Borrower will deliver to Lender a detailed comparative budget (the " Budget ") for the Property for the next succeeding Fiscal Year showing anticipated operating expenses, Insurance Premiums, Impositions, leasing commissions, capital improvement costs, tenant improvement costs and any other information Lender reasonably requests.  Unless Lender notifies Borrower within 60 days after Lender receives the Budget that Lender disputes information in the Budget, the Budget as submitted will constitute the Budget for the next succeeding Fiscal Year.  If Borrower concludes in good faith that a Budget needs material revision, Borrower will submit a revised Budget to Lender, together with a detailed explanation of the revisions.  Unless Lender notifies Borrower within 60 days after Lender receives the revised Budget that Lender disputes information in the revised Budget, the revised Budget as submitted will constitute the Budget for the remainder of the then Fiscal Year.  Borrower and Lender will use reasonable efforts to resolve promptly any differences over a Budget or revised Budget.  If Borrower and Lender fail to agree on a Budget or revised Budget, Borrower will continue to manage and operate the Property under the last undisputed Budget.  Borrower waives any defense or right of offset to the Obligations, and any claim or counterclaim against Lender, arising out of any discussions between Borrower and Lender regarding any Budget or revised Budget delivered to Lender or the resolution of any disagreements relating to a Budget or revised Budget including any defense, right of offset, claim or counterclaim alleging in substance, that by virtue of such delivery, discussions or resolution, Lender has interfered with, influenced or controlled Borrower or the operations at the Property.

            Notwithstanding the foregoing, the Borrower shall furnish the Budget to Lender for Lender's information only, and Lender shall have no rights of approval with respect to the Budget unless an Event of Default shall have occurred.  Nevertheless, Borrower agrees to respond to the reasonably inquiries and requests for clarification that Lender may pose to the Borrower with respect to the Budget. 

ARTICLE XI

 

EXPENSES AND DUTY TO DEFEND

            Section 11.1 .  Payment of Expenses .  

            (a)  Borrower is obligated to pay all fees and expenses (the " Expenses ") incurred by Lender or Trustee or that are otherwise payable in connection with the Loan, the Property or Borrower, including reasonable attorneys' fees and expenses (whether of outside or in-house counsel) and any fees and expenses relating to (i) the preparation, execution, acknowledgment, delivery and recording or filing of the Loan Documents; (ii) except as otherwise provided herein, any Proceeding or other claim asserted against Lender or any Proceeding described in the Section entitled " Lender's Right to Appear " ; (iii) except as otherwise provided herein, any inspection, assessment, survey and test permitted under the Loan Documents; (iv) any Destruction Event; (v) the preservation of Trustee's title, Lender's security and the exercise of any rights or remedies available at Law, in equity or otherwise; (vi) administration of the Loan; (vii) the Leases and the Property Documents; and (viii) any Proceeding in or for bankruptcy, insolvency, reorganization or other debtor relief or similar Proceeding relating to Borrower, the Property or any person liable under any guarantee, indemnity or other credit enhancement delivered in connection with the Loan. 

                                                                                                                                                                                                                                               

            (b)  Borrower will pay the Expenses immediately on demand, together with any applicable interest, premiums o