UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2007 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ________________________
Commission file number: 0001368757
GTJ REIT, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 20-5188065
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Merrick Road, Lynbrook, New York 11563
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (516) 881-3535
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked priced of such common equity, as of
[the last business day of the registrant's most recently completed second fiscal
quarter]: N/A
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Check one:
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X]or a smaller reporting company [ ]
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 30, 2008, there were 13,472,281 shares of common stock issued and outstanding.
GTJ REIT, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS...............................................1
ITEM 1A. RISK FACTORS...........................................23
ITEM 1B. UNRESOLVED STAFF COMMENTS..............................32
ITEM 2. PROPERTIES.............................................33
ITEM 3. LEGAL PROCEEDINGS......................................35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.......................................35
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.........................36
ITEM 6. SELECTED FINANCIAL DATA................................37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............F-1 - F-51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.............................................53
ITEM 9A. CONTROLS AND PROCEDURES................................53
ITEM 9B. OTHER INFORMATION......................................53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT.........................................54
ITEM 11. EXECUTIVE COMPENSATION.................................58
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .................................71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........71
ITEM 14. PRINCIPAL ACCOUNTANT'S FEES AND SERVICES...............74
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.............75
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PART I
FORWARD-LOOKING STATEMENTS
Certain information included in this Annual Report contains or may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Historical results and trends should not be taken as indicative of future operations. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects," or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative or regulatory changes, including changes to laws governing the taxation of REITs; availability of capital; interest rates; our ability to service our debt; competition; supply and demand for operating properties in our current and proposed market areas; generally accepted accounting principles; and policies and guidelines applicable to REITs; and litigation. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Although we believe the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved. The forward-looking statements are made as of the date of this Annual Report, and the Registrant assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements.
ITEM 1. BUSINESS
Introduction
The use of the words "we", "us" or "our" refers to GTJ REIT, Inc., a Maryland corporation, and its subsidiaries, except where the context otherwise requires.
We were formed on June 23, 2006. On July 24, 2006, we entered into, and subsequently closed on March 29, 2007, merger agreements (the "Agreements") by and between TRIBORO COACH CORP., a New York corporation ("Triboro"); JAMAICA CENTRAL RAILWAYS, INC., a New York corporation ("Jamaica"); GREEN BUS LINES, INC., a New York corporation ("Green" and together with Triboro and Jamaica, collectively referred to as the "Bus Companies" and each referred to as a "Bus Company"); and TRIBORO ACQUISITION, INC., a New York corporation ("Triboro Acquisition"); JAMAICA ACQUISITION, INC., a New York corporation ("Jamaica Acquisition"); and GREEN ACQUISITION, INC., a New York corporation ("Green Acquisition" and together with Jamaica Acquisition and Triboro Acquisition collectively referred to as the "Acquisition Subsidiaries" and each referred to as an "Acquisition Subsidiary"). The result of the mergers was to effect a reorganization (the "Reorganization") of the Bus Companies whereby each of the Bus Companies would become a wholly-owned subsidiary of us by merging with and
into one of the Acquisition Subsidiaries. The Bus Companies had long historical roots in the operation of private bus routes in New York City. The bus businesses of the Bus Companies had been acquired by New York City in late 2005 and early 2006, leaving the Bus Companies with (a) a portfolio of real property comprised of six rentable parcels, (b) outdoor maintenance businesses, and (c) a paratransit business. There is also an insurance subsidiary which insured the former bus company operations, and is being wound down as cases are resolved.
Effective July 1, 2007 we will be taxed as a real estate investment trust ("REIT") under Section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code").
We currently own seven rentable parcels of real property, four of which are leased to the City of New York, two of which are leased to commercial tenants (all six on a triple net basis), and one of which is used by one of our subsidiaries and the remainder of which is leased to a commercial tenant. There is an additional property of negligible size which is not rentable. In addition, we operate a group of outdoor maintenance businesses and a paratransit business. There is also an insurance subsidiary which insured the former bus company operations, and is being wound down as cases are resolved.
Description of REIT Business
Our REIT business consists of the acquisition, ownership and management of real properties. We currently own seven rentable parcels of real property. For a description, please see "Portfolio of Real Properties". We intend to develop a real property portfolio beyond these seven parcels.
Investing in real properties
We seek to acquire quality real properties at favorable prices rather than lesser real properties at low prices. We believe that quality tenants seek well-managed properties that offer superior and dependable services, particularly in competitive markets.
We believe that a critical success factor in property acquisition lies in possessing the flexibility to move quickly when an opportunity presents itself to buy or sell a property. We believe that employing highly qualified industry professionals will allow us to better achieve this objective.
We intend to acquire fee ownership of real properties, but may also enter into joint venture arrangements. We seek to maximize current and long-term net income and the value of our assets. Our policy is to acquire assets where we believe opportunities exist for reasonable investment returns.
Decisions relating to the purchase or sale of properties are made by our Board of Directors. Our Board of Directors is responsible for monitoring the administrative procedures, investment operations and performance of our company to ensure our policies are carried out. Our Board of Directors reviews our investment policies to determine that our policies are in the best interests of our stockholders and set forth their determinations in the minutes of the board meetings. Stockholders have no voting rights with respect to implementing our
investment objectives and policies, all of which are the responsibility of our Board of Directors and may be changed at any time.
Types of investments
We intend to invest primarily in quality real properties. To the extent it is in the interests of our stockholders, we will seek to invest in a diversified portfolio of real properties within our geographic area that will satisfy our primary investment objectives of providing our stockholders with stable cash flow, preservation of capital and growth of income and principal without taking undue risk. Because a significant factor in the valuation of income-producing real property is the potential for future income, we anticipate that the majority of properties we acquire will have both the potential for growth in value and providing cash distributions to stockholders.
We intend to acquire properties with mortgage or other debt. We may also acquire properties for shares of our common stock. As to real properties purchased using our revolving credit, we anticipate we will incur mortgage indebtedness by obtaining loans secured by selected properties, if favorable financing terms are available. The proceeds from such loans would be used to restore funds borrowed under our revolving credit.
We do not intend to incur aggregate indebtedness in excess of 75% of the gross fair market value of our real properties. Fair market value will be determined by an internal or independent certified appraiser and in a similar manner as the fair market determination at the time of purchase satisfactory to our Board of Directors.
Considerations related to possible real property acquisitions
The following considerations are evaluated by us in relation to potential purchases of real property:
o geographic location and type;
o construction quality and condition;
o potential for capital appreciation;
o the general credit quality of current and potential tenants;
o the potential for rent increases;
o the interest rate environment;
o potential for economic growth in the tax and regulatory environment of the community in which the property is located;
o potential for expanding the physical layout of the property;
o occupancy and demand by tenants for properties of a similar type in the same geographic vicinity;
o prospects for liquidity through sale, financing or refinancing of the real property;
o competition from existing properties and the potential for the construction of new properties in the area; and
o treatment under applicable federal, state and local tax and other laws and regulations.
We will not close the purchase of any property unless and until we obtain an environmental assessment, a Phase I review, for each real property purchased and are generally satisfied with the environmental status of the real property.
In determining whether to purchase a particular real property, we may obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the real property is not purchased, and is normally credited against the purchase price if the real property is purchased.
In purchasing real properties, we will be subject to risks, including:
o changes in general economic or local conditions;
o changes in supply of or demand for similar competing properties in an area;
o changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;
o changes in tax, real estate, environmental and zoning laws;
o periods of high interest rates and tight money supply which may make the sale of properties more difficult;
o tenant turnover; and
o general overbuilding or excess supply in the market area.
We anticipate that the purchase price of properties we acquire will vary depending on a number of factors, including size and location. In addition, our cost will vary based on the amount of debt we incur in connection with financing the acquisition. We may not be able to purchase a diverse portfolio of real properties unless we find sources of financing. It is difficult to predict the actual number of properties that we will actually acquire because the purchase prices of properties varies widely and our investment in each will vary based on the amount and cost of leverage we use.
Real property acquisition process
We intend to acquire real properties using our wholly-owned subsidiaries. In addition to fee simple interests, we may acquire long-term ground leases. Other methods of acquiring a real property may be used when advantageous. For example, we may acquire properties through a joint venture or the acquisition of
substantially all of the interests of an entity that in turn owns a parcel of real property.
We currently have a $72.5 million revolving line of credit with a financial institution, which we plan to use to facilitate our acquisition opportunities, with the intention of placing permanent financing on the acquired property at a later date and restoring our revolving line of credit with the proceeds. We believe our line of credit will allow us to secure acquisition contracts faster after we identify a strategic property, and will be an attractive feature of our bids to sellers seeking to complete a sale quickly. As of March 30, 2008, we have approximately $43,000,000 outstanding under our line of credit.
We may commit to purchase real properties subject to completion of construction in accordance with terms and conditions specified by our Board of Directors. In such cases, we will be obligated to purchase the real property at the completion of construction, provided that (1) the construction conforms to definitive plans, specifications and costs approved by us in advance and embodied in the construction contract and (2) an agreed upon percentage of the real property is leased beforehand. We would receive a certificate of an architect, engineer or other appropriate party, stating that the real property complies with all plans and specifications. Our intent is to leave development risk with the developer.
If remodeling is required prior to the purchase of a real property, we would anticipate paying a negotiated maximum amount either upon completion or in installments commencing prior to completion. Such amount would be based on the estimated cost of such remodeling. In such instances, we would also have the right to review the seller's books during and following completion of the remodeling to verify actual costs. In the event of substantial disparity between estimated and actual costs, an adjustment in purchase price may be negotiated.
We are not specifically limited in the number or size of real properties we may acquire. The number and mix of properties we may acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our real properties.
Joint ventures
We may invest in general partnership and joint venture arrangements with other real estate investors. You should note that there is a potential risk that we or our joint venture partner will be unable to agree on a matter material to the joint venture on joint venture decisions and we may not control the decision. Furthermore, we cannot assure you that we will have sufficient financial resources to exercise any right of first refusal that may be part of a partnership or joint venture agreement.
Our policies with respect to borrowing
We presently anticipate that we will borrow funds to acquire real properties. We may later refinance or increase mortgage indebtedness by obtaining additional loans secured by selected properties. We will use the proceeds from such loans to restore our revolving credit, which can then be used to acquire additional real properties for the purpose of increasing our cash flow and providing further diversification. We anticipate that aggregate borrowings, both secured and unsecured, will not exceed 75% of our real property fair market value. Our Board of Directors reviews our aggregate borrowings to ensure that such borrowings are reasonable in relation to our assets. We may also incur indebtedness to finance improvements to properties and, if necessary, for working capital needs or to meet the distribution requirements applicable to us under the federal tax laws.
When incurring secured debt, we will seek to incur nonrecourse indebtedness, which means that the lenders' rights in the event of our default generally will be limited to foreclosure on the property that secured the obligation, but we may have to accept recourse financing, where we remain liable for any shortfall between the debt and the proceeds of sale of the mortgaged real property. If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year, although some mortgages are likely to provide for one large payment and we may incur floating or adjustable rate financing when our Board of Directors determines it to be in our best interest.
Our Board of Directors controls our policies with respect to borrowing and may change such policies at any time without stockholder approval.
Sale or other disposition of our real property
Our Board of Directors determines whether a particular real property should be sold or otherwise disposed of after consideration of the relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving our principal investment objectives.
When appropriate to minimize our tax liabilities, we may structure the sale of a real property as a "like-kind exchange" under the federal income tax laws so that we may acquire qualifying like-kind replacement property meeting our investment objectives without recognizing taxable gain on the sale. Furthermore, our general policy will be to reinvest in additional real properties proceeds from the sale, financing, refinancing or other disposition of our real properties that represent our initial investment in such real property or, secondarily, to use such proceeds for the maintenance or repair of existing properties or to increase our reserves for such purposes. The objective of reinvesting such portion of the sale, financing and refinancing proceeds is to increase the total value of real estate assets that we own, and the cash flow derived from such assets to pay distributions to our stockholders.
Despite this policy, our Board of Directors may determine to distribute to our stockholders all or a portion of the proceeds from the sale, financing, refinancing or other disposition of real properties. In determining whether any of such proceeds should be distributed to our stockholders, our Board of Directors considers, among other factors, the desirability of real properties
available for purchase, real estate market conditions and compliance with the REIT distribution requirements. Alternatively, our Board of Directors may determine not to make distributions of capital.
In connection with a sale of a property, our preference will be to obtain an all-cash sale price. However, we may accept a purchase money obligation secured by a mortgage on the property as partial payment. There are no limitations or restrictions on our taking such purchase money obligations. The terms of payment upon sale will be affected by custom in the area in which the property being sold is located and the then economic conditions. To the extent we receive notes, securities or other property instead of cash from sales, such proceeds, other than any interest payable on such proceeds, will not be included in net sale proceeds available for distribution until and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed of. Thus, the distribution of the proceeds of a sale to you as a stockholder, may be delayed until such time. In such cases, we will receive payments in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.
A real property may be sold before the end of the planned holding period if:
o in the judgment of our Board of Directors, the value of a property may decline;
o an opportunity has arisen to improve other or acquire properties;
o we can increase cash flow through the disposition of the property; or
o in our judgment, the sale of the property is otherwise in our best interest.
The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of the relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation. We cannot assure you that this objective will be realized. The selling price of a property will be determined in large part by the amount of rent payable under the lease. If a tenant has a repurchase option at a formula price or if operating expenses increase without a commensurate increase in rent under our gross leases, we may be limited in realizing any appreciation. In connection with our sales of properties, we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.
We do not intend to sell the real properties we acquired from the Bus Companies for a period of 10 years after we made our REIT election, until that is, July, 2017. Under current tax law, if a real property thus acquired is sold within such 10 year period, we would be taxed on the gain from the sale of such real property in the hands of the Bus Companies, and a distribution of any of the profits would be taxed to the stockholder as a dividend. This would result in high and double taxation.
Purchases of Leases
To the extent consistent with REIT status, we may acquire long-term ground leases, or master leases for real property we can then sublet as determined by our Board of Directors.
Making loans and investments in mortgages
We do not plan to make loans to other entities or persons unless secured by mortgages, although we may advance funds to our subsidiaries. We will not make or invest in mortgage loans unless we obtain an appraisal concerning the underlying property from a certified independent appraiser. In addition to the appraisal, we will obtain a customary lender's title insurance policy or commitment as to the priority of the mortgage or condition of the title.
We will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including the loans of our company, would exceed an amount equal to 75% of the fair market value of the property, unless we find substantial justification due to the presence of other underwriting criteria.
Investment in securities
We will not invest in equity securities of another entity, other than a wholly-owned subsidiary, directly or indirectly, unless our Board of Directors approves the investment as part of a real property investment. We may purchase our own securities if the Board of Directors determines such purchase to be in our best interests. We may in the future acquire some, all or substantially all of the securities or assets of other REITs or similar entities where that investment would be consistent with our investment policies and REIT qualification requirements. There are no limitations on the amount or percentage of our total assets that may be invested in any one issuer, other than those imposed by the gross income and asset tests that we must satisfy to qualify as a REIT. In any event, we do not intend that our investments in securities will require us to register as an "investment company" under the Investment Company Act of 1940, and we would intend to divest securities before any registration would be required.
Changes in our investment objectives
Subject to the limitations in our charter, our bylaws and the Maryland General Corporation Law ("MGCL"), our business and policies will be controlled by our Board of Directors. Our Board of Directors has the right to establish policies concerning investments and the right, power and obligation to monitor our procedures, investment operations and performance of our company. Thus, stockholders must be aware that the Board of Directors, acting consistently with our organizational documents, applicable law and their fiduciary obligations, may elect to modify our objectives and policies from time to time.
Distribution policy
We cannot assure you that we will make distributions. In order to continue to qualify as a REIT for federal income tax purposes, we are required, among other things, to distribute each taxable year at least 90% of our net REIT income, other than net capital gains, but we may be unable to do so.
We have a policy of making distributions on a quarterly basis. We will seek to avoid, to the extent possible, the fluctuations in distributions that might result if distribution payments were based solely on actual cash received during the distribution period. To implement this policy, we may use cash received during prior periods or cash received subsequent to the distribution period and prior to the payment date for such distribution payment, to pay annualized distributions consistent with the distribution level established from time to time by our Board of Directors. Our ability to maintain this policy will depend upon the availability of cash and applicable requirements for qualification as a REIT under the federal income tax laws. Therefore, we cannot assure you that there will be cash available to pay distributions or that distributions will not fluctuate. If cash available for distribution is insufficient to pay distributions to you as a stockholder, we may obtain the necessary funds by borrowing, issuing new securities or selling assets. These methods of obtaining funds could affect future distributions by increasing operating costs.
To the extent that distributions to our stockholders are made out of our current or accumulated earnings and profits, such distributions would be taxable as ordinary income. To the extent that our distributions exceed our current and accumulated earnings and profits, such amounts will constitute a return of capital to our stockholders for federal income tax purposes, to the extent of their basis in their stock, and thereafter will constitute capital gain.
One Time Earnings and Profits Distribution
On August 20, 2007, the Board of Directors of GTJ REIT declared a one time special distribution of accumulated earnings and profits on GTJ REIT's common stock of $6.40 per share, payable in cash and in common stock. For the purposes of the special distribution, our common stock was valued at $11.14. The special distribution totaled $62,057,728. The holders of our shares, and the holders of shares of the Bus Companies, as of the close of business on August 20, 2007, the record date for the special distribution (the "Holders"), were eligible for the special distribution. The Holders were required to make an election as to the amount of our shares and/or cash the Holders wished to receive as such Holders' respective portion of the special distribution. Holders were advised, due to the limitation of the aggregate amount of cash available for the special distribution, that their actual distribution may not be in the proportion of cash and shares they elected, but could be based on a pro ration of the available cash after all elections (ie: not on a first come-first served basis). In October 2007, we paid or accrued approximately $20,000,000 in cash and issued 3,775,400 of our shares, valued at approximately $42,000,000, to our stockholders in connection with the special distribution.
Portfolio of Real Properties
165-25 147th Avenue. 165-25 147th Avenue, Jamaica, New York (the "147th Avenue Property") is owned in fee simple. The 147th Avenue Property consists of a 151,068 square foot industrial building located on 6.567 acres. The 147th Avenue Property is comprised of three parcels. The main parcel contains an entire block which is bordered by Rockaway Boulevard to the South, 167th Avenue to the North, 146th Avenue to the West and 147th Avenue to the East. A second parcel is located on the SE corner of 147th Avenue and 167th Street and a third parcel is located on the NE corner of 147th Avenue and 167th Street. The real property is leased to New York City as a bus depot for an initial term of twenty-one years with a first year rent of $2,795,000 which rent escalates to a 21st year rent of $4,092,000. Rent continues to escalate during the following two fourteen year extension terms.
49-19 Rockaway Beach Boulevard. 49-19 Rockaway Beach Boulevard, Queens, New York (the "Rockaway Beach Property") is owned in fee simple. The Rockaway Beach Property consists of a 28,790 square foot industrial building on 3.026 acres. The Rockaway Beach Property is located on both the north and south side of Rockaway Beach Boulevard. One parcel is located on the South side of Rockaway Beach Boulevard between Beach 47th and Beach 49th Street. This parcel is developed with a 28,790 square foot industrial building. The second parcel which is comprised of six contiguous tax lots is located on the North side of Rockaway Beach Boulevard between Beach 49th Street and Beach 50th Street. The Rockaway Beach property has been leased to New York City as a bus depot for an initial term of 21 years with a first year rent of $605,000 escalating over the term to a 21st year rent of $886,000. The rent escalates during the following two fourteen year extension terms.
85-01 24th Avenue. 85-01 24th Avenue, East Elmhurst, New York (the "24th Avenue Property") is owned in fee simple. The 24th Avenue Property consists of a 118,430 square foot industrial building on 6.432 acres. The 24thAvenue Property is located on the block front bordered by 23rd Avenue to the North, 24th Avenue to the South, 85th Street to the West and 87th Street to the East in East Elmhurst, New York. The 24th Avenue Property has been leased to New York City as a bus depot for an initial term of 21 years, with a first year rent of $2,585,000 escalating during the term to a 21st year rent of $3,785,000. The rent escalates during the two fourteen year extension terms.
114-15 Guy Brewer Boulevard. 114-15 Guy Brewer Boulevard, Jamaica, New York (the "Guy Brewer Property") is owned in fee simple. The Guy Brewer Property consists of a 75,800 square foot industrial building on 4.616 acres. The Guy Brewer Property is located on the NE corner of 115th Avenue and Guy Brewer Boulevard in Jamaica, New York. The Guy Brewer Property has been leased to New York City as a bus depot for an initial term of twenty one years with a first year rent of $1,515,000 escalating to a 21st year rent of $2,218,000. Escalations continue during the following two fourteen year renewal terms.
612 Wortman Avenue. 612 Wortman Avenue, Brooklyn, New York (the "Wortman Property") is owned in fee simple. The Wortman Property consists of an industrial building of 27,250 square feet located on 10.389 acres. The Wortman Property is located along the entire block front surrounded by Wortman Avenue to the North, Cozine Avenue to the Sourth, Fountain Avenue to the East and Montauk Avenue to the West. An additional parcel made up of three tax lots is located along the entire block front bordered by Cozine Avenue, Milford Avenue, Flatlands Avenue and Logan Street. The Wortman Property is primarily leased to
Varsity Bus Co., Inc. ("Varsity Bus") as a bus depot, which purchased certain bus routes and buses from the Bus Companies in 2003 (see "Related Party Transactions"). Varsity has occupied a portion of the Wortman Property since 2003 based on an oral agreement, and has now entered into a written lease related to its tenancy. Under the lease, Varsity is leasing 195,813 square feet of outdoor parking and approximately 11,852 square feet of indoor maintenance and office space for $231,800 per year from September 2005 to January 2006 and for $311,800 per year from February 2006 to August 2006, increasing by the cost of living index from September 2006 to August 2010, when the term ends. Varsity also pays a 60% share of utility and building maintenance costs. Varsity has the right to terminate the term on six months' notice at an earlier date. Varsity also has the right to lease the space for up to four-five year consecutive extension terms after 2010 at a rental rate equal to 90% of then fair market value at the beginning of the first extension term, with rent for following years at a compounding of annual CPI index increases. The balance of the Wortman Property is occupied by Transit Facility Management, Inc. ("TFM"), a subsidiary of the Company, as a bus depot. TFM operates a fleet of buses. Rent is accrued at the rate of approximately $150,000 per year at the present time for its use of the Wortman Property. In the event TFM is not able to renew its agreement with the Metropolitan Transit Authority, it is anticipated that TFM will vacate its space at the Wortman Property. In such event, we anticipate we will be able to lease such vacated space to one or more third parties for vehicle parking and servicing.
23-85 87th Street. 23-85 87th Street, East Elmhurst, New York (the "87th Street Property") is owned in fee simple. The 87th Street Property consists of a 52,020 square foot industrial building on 7.016 acres. The 87th Street Property is located on the block front bordered by 23rd Avenue to the North, 24th Avenue to the South, 87th Street to the West and 89th Street to the East in East Elmhurst, New York. The 87th Street Property is leased to Avis Rent-A-Car Systems, Inc. as an automobile leasing and maintenance depot under a lease dated October 31, 2003 with a term ending October 31, 2023, with a base rent of $1,800,000 per year. For the sixth, eleventh and sixteenth years, the base rent will be increased by the greater of 105% of the immediately preceding base rent or the cumulative cost of living index increase for the preceding five years but not in excess of 115% of the immediately preceding base rent. The initial base rent has been reduced to $1,530,000 per year until rezoning takes place at which time the initial base rent will be increased to $1,800,000 per year.
8 Farm Springs Road. 8 Farm Springs Road, Farmington, Connecticut (the "Farm Springs Property") is owned in fee simple. The Farm Springs Property consists of a 107,654 square foot industrial building on approximately 10.53 acres. The Farm Springs Property has been leased to the Hartford Insurance Company as a an office building for a term of 10 years with current annual rent of $2,161,692 escalating to $2,290,877 in 2012, in which year the lease expires.
No plans for renovation or improvement
Our real properties except for the 87th Street Property and the Farm Spring Property, are used as bus depots. We have no plans or obligations to renovate or develop any of our real properties.
Financing
On July 2, 2007, we and certain subsidiaries (the "Borrowers") entered into a Loan Agreement, dated as of June 30, 2007 (the "Loan Agreement") with ING USA Annuity And Life Insurance Company; ING Life Insurance and Annuity Company; Reliastar Life Insurance Company; and Security Life Of Denver Insurance Company (the "Lenders"). Pursuant to the terms of the Loan Agreement, the Lenders are providing multiple loan facilities in the amounts and on the terms and conditions set forth in such Loan Agreement. The aggregate of all loan facilities under the Loan Agreement shall not exceed $72,500,000. Interest on the loan is paid monthly. The principal shall be paid on the maturity date pursuant to the terms set forth in the Loan Agreement, namely July 1, 2010 unless otherwise extended or renewed.
The loan facilities are collateralized by: (1) an Assignment of Leases and Rents on four bus depot properties (the "Depots") owned by certain of the Borrowers and leased to the City of New York, namely (a) 49-19 Rockaway Beach Boulevard; (b) 165-25 147th Avenue; (iii) 85-01 24th Avenue and (d) 114-15 Guy Brewer Boulevard; (2) Pledge Agreements under which (i) the Company pledged its 100% stock ownership in each of: (a) Green Acquisition, Inc.; (b) Triboro Acquisition, Inc. and (c) Jamaica Acquisition, Inc., (ii) Green Acquisition, Inc. pledged its 100% ownership interest in each of (a) 49-19 Rockaway Beach Boulevard, LLC and (b) 165-25 147th Avenue, LLC, (iii) Triboro Acquisition, Inc. pledged its 100% ownership interest in 85-01 24th Avenue, LLC, and (d) Jamaica Acquisition, Inc. pledged its 100% membership interest in 114-15 Guy Brewer Boulevard, LLC, and (3) a LIBOR Cap Security Agreement under which GTJ Rate Cap LLC, a wholly owned subsidiary of the Company, pledged its interest in an interest rate cap transaction evidenced by the Confirmation and ISDA Master Agreement, dated as of December 13, 2006, with SMBC Derivative Products Limited. The Company had assigned its interest in the interest rate cap transaction to GTJ Rate Cap LLC prior to entering into the Loan Agreement. $1,000,000 of the loan is secured by a mortgage in the amount of $1,000,000 on the Depots collectively.
In addition to customary non-financial covenants, the Borrowers are
obligated to comply with the following financial ratio covenants (1) the
Borrowers will not permit the ratio of (a) Consolidated net Operating Income for
any period of four consecutive Fiscal Quarters to (b) Consolidated Debt Service
for such period, to be less than 1.3 to 1.0; (2) the Borrowers will not permit
the ratio of (a) Consolidated Net Operating Income from Unencumbered Assets for
any period of four consecutive Fiscal Quarters to (b) Consolidated Unsecured
Debt Service for such period, to be less than 1.3. to 1.0; (3) the Borrowers
will not permit the ratio of (a) Consolidated Debt at any time to (b) Total
Assets Value at such time, of (a) Total Unencumbered Assets Value at any time to
(b) Consolidated Unsecured Debt at such time, to be less than 1.5 to 1.0.
As of March 30, 2008, we had borrowed an aggregate of approximately $43,000,000 under the Loan Agreement.
Competitive Position of Our Real Properties
We believe our real properties dedicated to use as bus depots, located in New York City, are in a favorable competitive position, as we believe that there are not many sites in Queens and Brooklyn, New York that are suitable as bus depots or for the mass parking of automobiles. We believe the Farm Springs Property is in a favorable competitive position since it is located in an area of Hartford, Connecticut which also is the residence of many corporate
executives, and offers very short commutation times for such persons, and in addition, is close to major highways and has substantial parking.
Insurance Coverage
Our real properties are covered under an umbrella liability insurance policy. We believe that our insurance is adequate in amount and coverage.
Occupancy
Our real properties are fully occupied. New York City is the sole tenant of four of the real properties, (147th Avenue Property, Rockaway Beach Property, 24th Avenue Property and Guy Brewer Property) Avis Rent A Car is the sole tenant of the fifth real property (87th Property), Varsity Bus is the majority tenant of the sixth real property (Wortman Property), the balance of which is occupied by TFM, and Hartford Life Insurance is the sole tenant of the seventh property (Farm Springs Property). The loss of these above-mentioned tenants or their inability to pay rent could have a material adverse effect on our business and results of operation. Notwithstanding this, it is possible that TFM will not occupy a portion of the Wortman property after September 2008, and we believe we can find another tenant to park and service vehicles at such location.
Expiration of Our Leases
The New York City leases expire in 2026 and 2027. The Avis Rent A Car lease expires in 2023. The Hartford lease expires in 2012. Such lease represents approximately 19% of our building space, approximately 22% of our land and approximately 19% of our gross rental income. The Varsity Bus lease expires in 2010. Such lease represents approximately 9% of our building space, 15% of our land and approximately 3% of our gross rental income. The TFM usage is expected to expire in September 2008. As our subsidiary, it does not make rent payments. If such usage terminates as anticipated, we will seek to lease such space as a vehicle depot and maintenance facility.
Depreciation
The following table provides information on depreciation of our real
property:
Depreciation Remaining
Tax Basis Method Life
------------------------------------------------------------ ---------------- ------------ ---------
147th Street Property and Rockaway Beach Property $ 3,448,262 MACRS 20 years
24th Avenue Property $ 1,993,628 MACRS 20 years
Guy Brewer Property $ 2,520,674 MACRS 20 years
Wortman Property and 87th Street Property $ 3,589,790 MACRS 20 years
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Real property taxes
The following table provides information on real property taxes of our real property. We are not planning any improvements to any of the real property.
Current
Tax Annual
Rate Amount
------------------------------------------------------------------------------- ------- ---------------
147th Street Property 10.0590 % $ 376,435
Rockaway Beach Property 10.0590 % $ 67,822
24th Avenue Property 10.0590 % $ 346,281
Guy Brewer Property 10.0590 % $ 147,809
Wortman Property 10.0590 % $ 131,281
87th Street Property 10.0590 % $ 489,180
Farm Springs Property 2.595 % $ 222,279
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Certain Rental Data
The following table sets forth certain rental data of our real property. It should be noted that rentals include outdoor parking and indoor maintenance and office space. For purposes of the following, aggregate rent is divided by aggregate square footage used, since the leases do not differentiate between outdoor parking and indoor maintenance and office space. No data prior to 2006 is provided for the real properties leased to New York City since before then, the same were used by the Bus Companies for their bus operations. No data prior to 2003 is provided for the 87th Street Property and Wortman Property, since before then, the same were used by the Bus Companies for their operations.
Rental Per Square
Foot For 2007
Building Land
------------------------------------------------------------------------------- --------------- ---------
147th Avenue Property (New York City) $18.50 $9.77
Rockaway Beach Property (New York City) $21.01 $4.59
24th Avenue Property (New York City) $21.83 $9.23
Guy Brewer Property (New York City) $19.99 $7.53
Wortman Property (Varsity Bus lease only) $12.29 $0.74
87th Street Property (Avis Rent A Car) $29.41 $5.13
Farm Springs Property (Hartford Insurance) $20.08 $4.71
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Environmental Matters
The Company's real property, except for the Farm Springs Property, has had activity regarding removal and replacement of underground storage tanks. Upon removal of the old tanks, any soil found to be unacceptable was thermally treated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place at certain locations. In July 2006, the Company entered into an informal agreement with the New York State Department of Environmental Conservation ("NYSDEC") whereby the Company has committed to a three-year remedial investigation and feasibility study (the "Study") for all site locations. In conjunction with this informal agreement, the Company has retained the services of an environmental engineering firm to assess the cost of the Study.
The Company's engineering report has an estimated cost range in which the low-end of the range, of approximately $5.2 million (of which the Company's portion is $1.4 million) was only for the Study. In addition, a high-end range estimate, of approximately $10.4 million (of which the Company's portion was $2.8) was included which provided a "worst case" scenario whereby the Company would be required to perform full remediation on all site locations. While management believes that the amount of the Study and related remediation is likely to fall within the estimated cost range, no amount within that range can be determined to be the better estimate. Therefore, management believes that recognition of the low-range estimate is appropriate. While additional costs associated with environmental remediation and monitoring are probable, it is not possible at this time to reasonably estimate the amount of any future obligation until the Study has been completed.
As of December 31, 2007, the Company has recorded a liability of $1,033,136 related to its portion of the Study as disclosed in the engineering report. Presently, the Company is not aware of any claims or remediation requirements from any local, state or federal government agencies. Each of the properties is a commercial zone and is still used as transit depots, including maintenance of vehicles.
Our tenants are responsible for environmental conditions which occur during their tenancies, based on the terms of their respective leases.
Competition for Additional Real Properties
Our real property operations are subject to normal competition with other investors to acquire real property and to profitably manage such real property. Numerous other REITs, banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with GTJ REIT in seeking properties for acquisition and for tenants. Many of these competitors have significantly greater financial resources than us. Since our real properties are leased under long-term lease arrangements that are not due to expire in the next twelve months, except for a portion of the Wortman property, we do not currently face any immediate competitive re-leasing pressures except for the same.
Employees
Our executive offices are located at 444 Merrick Road, Lynbrook, New York. We have four employees involved on a full time or part time basis with respect to its REIT operations we believe that our relationship with such employees is good.
Outdoor Maintenance and Paratransit Business Operations
We, through our wholly-owned subsidiary, Shelter Express Corp., operate a group of outdoor maintenance businesses and a paratransit business. These are not REIT subsidiaries and are taxed as ordinary businesses. The majority of these operations are based in the New York metropolitan area, with additional operations based in the Los Angeles, California and Phoenix, Arizona metropolitan areas. This group also includes a number of other subsidiaries which are inactive and have little or no assets. The active subsidiaries are described below.
New York metropolitan area operations
These operations include MetroClean Express Corp. ("MetroClean"), Shelter Express Corp. ("Shelter Express"), Shelter Electric Maintenance Corp. ("Shelter Electric"), and Transit Facility Management Corp. ("TFM").
MetroClean
MetroClean was founded in 1998 and has two major divisions, the outdoor advertising service division and the traffic control services division.
The outdoor advertising service division provides services to outdoor advertising agencies for which we install and maintain bus shelters, urban panels, banners, murals, kiosks, automated pay toilets, video screens and information centers. The work provided under these contracts is for the installation and maintenance of these structures, as well as the posting of advertisements in their customers' illuminated and nonilluminated display boxes.
The traffic control services division provides operation support to engineering and construction companies for which it protects road crews working on highways and roadways. With the use of safety barriers and vehicles equipped with protectors and attenuators, our crews secure work areas to allow contractors to conduct their services. Other aspects of this division are the installation of concrete barriers which provide protection and security on
highways and buildings. In addition, this division owns and offers for lease bucket trucks, light towers, cargo vans, back-up trucks, display boards, arrow boards, concrete barriers, wooden barriers, man-lifts and under bridge inspection units.
Shelter Express
In 2006, a new contract was awarded by New York City to Cemusa USA ("Cemusa"), a Spanish corporation currently doing business in Miami, Boston and San Antonio under the contract. Cemusa is expected to replace the existing 3,200 New York City bus shelters, install over 330 newsstands and construct 20 automated pay toilets. On June 26, 2006, Shelter Express entered into an agreement with Cemusa to provide labor, equipment and supervision to service existing bus shelters throughout New York City. During the five year term, Shelter Express will maintain all shelters existing at the beginning of the term which are not subsequently removed. Removals are expected to begin in year 3 of the term and will be carried out for Cemusa by Shelter Express. Shelter Express is negotiating with Cemusa for the installation and maintenance of replacement shelters. There can be no assurance this latter agreement will be entered into, and Shelter Express does not believe a failure to enter into the same will be materially adverse to its present business.
Shelter Electric
Shelter Electric is a licensed electrical contractor which provides support services for the activities of MetroClean Express and Shelter Express and services other customers. Based on the growth and development of outdoor furniture advertising, Shelter Electric clients now also include Clear Channel Outdoor for electrification of bus shelters in Westchester County, New York and wall hangings in malls and Titan Outdoor for outdoor kiosks, CBS Outdoor for urban panels.
Los Angeles metropolitan area operations
Shelter Clean, Inc. is based in Los Angeles, California. Shelter Clean, Inc. was established in 2000 and provides support services for outdoor furniture advertisements to advertising agencies. Shelter Clean also engages in the installation, maintenance, posting repair and cleaning of bus shelters, kiosks and other related structures where additional displays are located. Shelter Clean's major contracts at the present time are with CBS Outdoor, JC DeCaux Outdoor, Van Wagner Outdoor, Orange County Transit Authority and the City of Los Angeles Department of Transportation. As part of its services Shelter Clean provides its customers with site selection and marking, permit acquisition and execution, sub-contractor liaison, assembly and installation, record keeping, cost analysis and inventory control. Its services include cleaning, trash containment, damage repair, graffiti removal, glass replacement, lighting repair and repainting.
Phoenix area operations
On May 1, 2006 Shelter Clean of Arizona commenced outdoor maintenance operations in Phoenix, Arizona with a three year contract and the possibility of a two year extension option. This operation requires capital expenditures for leased premises and trucks and other equipment. At present, we operate 24 vehicles providing bus shelter maintenance services for the City of Phoenix and other services for the adjoining City of Glendale.
Transit Facility Management
TFM is one of several private paratransit bus companies in New York City under contract to the Metropolitan Transit Authority as part of the joint plan between the Metropolitan Transit Authority and the New York City Department of Transportation to provide paratransit service. This service is provided by the Metropolitan Transportation Authority to comply with the Americans with Disabilities Act of 1990. TFM began operating paratransit service in October 2001, providing door-to-door public transportation service to people with disabilities unable to use conventional public transit services. The routes held by TFM include transit services in each of the five boroughs of New York City.
Starting with a fleet of 50 vans in 2001 TFM has expanded and is now operating 95 vans and 5 sedans with approximately 208,000 service vehicle hours and carrying 303,000 passengers annually. The vans are purchased by the New York City Transit Authority and provided without charge to TFM. These vehicles provide seating capacity for 7 passengers and availability of up to three wheelchair passengers.
The paratransit service is regulated by the New York City Transit Authority. Based on the need for this particular service for the disabled community, there is growth potential over the next several years. TFM's contract with the Metropolitan Transit Authority, as extended, expires on September 30, 2008. At the present time, TFM's agreement will not be renewed, in which event TFM will wind up its operations following such expiration.
Employees
Shelter Express, MetroClean and Shelter Electric had a total of 211 employees as of March 1, 2008, 165 of whom are union members. TFM had 227 employees as of March 1, 2008, 171 of whom are union members. Shelter Clean, Inc. (California) had 90 employees as of March 1, 2008, none of whom are union members. Shelter Clean of Arizona, Inc. had 28 employees as of March 1, 2008, none of whom are union members. The union agreements expire in 2009 for Shelter Electric while Shelter Express and Metro Clean union agreements expire in 2010. TFM's union agreement expires in 2011. We consider our relations with these employees to be good.
Litigation
The outdoor maintenance and paratransit businesses are presently not parties to any litigation except litigation in the ordinary course of their business, carrying no material liabilities for such businesses.
Competition
Each of the outdoor maintenance businesses faces substantial competition in its respective market. Competition is based on price and level of service. These companies compete with companies with greater financial and physical resources, including greater numbers of vehicles and other equipment. The Company believes that its outdoor services operations are significant in each market in which it operates as a percentage of all such services in the market.
Our Compliance with Governmental Regulations
Many laws and government regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.
Costs of Compliance with the Americans with Disabilities Act.
Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. We may incur additional costs in connection with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA or any other legislation, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and pay liquidating distributions could be adversely affected.
Costs of Government Environmental Regulation and Private Litigation.
Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.
Use of Hazardous Substances by Some of Our Tenants.
Some of our tenants may handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require the tenants, in their leases, to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.
Other Federal, State and Local Regulations.
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely
affect our ability to make liquidating distributions to our stockholders. We believe, based in part on engineering reports which we generally obtain at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay liquidating distributions could be adversely affected.
ITEM 1A. RISK FACTORS
You should carefully consider the specific factors listed below, together with the cautionary statement under the caption "Cautionary Statement Regarding Forward Looking Statements" and the other information included in this Report on Form 10-K. If any of the following risks actually occur, our business, financial condition or results of operations could be adversely affected. In such case, a stockholder may lose all or part of any investment in our common stock.
Risks Related to our Organization and Structure
Our company is newly formed, which makes our future performance and the performance of your investment difficult to predict.
Our company was incorporated on June 23, 2006. We have no prior operating history as a REIT. Therefore, our future performance and the performance of an investment in our common stock can not be predicted at this time.
Our failure to qualify as a REIT would subject us to corporate income tax, which would materially impact funds available for distribution.
We are operating in a manner so as to qualify as a REIT for federal income tax purposes beginning with the tax year July 1, 2007 to December 31, 2007. Qualifying as a REIT will require us to meet several tests regarding the nature of our assets and income on an ongoing basis. A number of the tests established to qualify as a REIT for tax purposes are factually dependent. Therefore, you should be aware that while we intend to qualify as a REIT, it is not possible at this early stage to assess our ability to satisfy these various tests on a continuing basis. Therefore, we cannot assure you that our company will in fact qualify as a REIT or remain qualified as a REIT.
If we fail to qualify as a REIT in any year, we would pay federal income tax on our net income. We might need to borrow money or sell assets to pay that tax. Our payment of income tax would substantially decrease the amount of cash available to be distributed to our stockholders. In addition, we no longer would be required to distribute substantially all of our taxable income to our stockholders. Unless our failure to qualify as a REIT is excused under relief provisions of the federal income tax laws, we could not re-elect REIT status until the fifth calendar year following the year in which we failed to qualify.
In addition, even if we qualify as a REIT in any year, we would still be subject to federal taxation on certain types of income. For example, we would be
subject to federal income taxation on the net income earned by our "taxable REIT subsidiaries", that is, our corporate subsidiaries with respect to which elections are made to treat the same as separate, taxable subsidiaries, presently including our outdoor maintenance and paratransit businesses.
We may have to spin off our taxable REIT subsidiaries, which would reduce our value.
On a going forward basis, at least 75% of our assets must be those which may be held by REITs. Our outdoor maintenance and paratransit business assets, and any other assets we may add to that group, are not qualified to be held directly by a REIT. Accordingly, we may be required, in the future, to spin off these businesses in order to protect our status as a REIT. If we do so, we may be distributing a significant portion of our assets, which could materially and adversely affect the value of our common stock. It should be noted, however, that such distribution would be made to the then holders of our common stock.
Real property business risks
The majority of our real properties are currently comprised of six rentable real properties in the New York area, and we may not grow or diversify our real estate portfolio substantially in the future, leaving us vulnerable to New York area problems.
We own seven income producing real properties, six of which are located in New York City and one of which is located near Hartford, Connecticut. The six New York City real properties are commercial and are located in Queens and Brooklyn, New York. New York City is the sole tenant of four of the properties. The lack of diversity in the properties which we own, and their principal tenant, New York City, should we not diversify, could increase your risk of owning our shares. Adverse conditions at that limited number of properties or in the location in which the properties exist would have a direct negative impact on your return as a stockholder.
Negative characteristics of real property investments
Financing of our real property could lead to loss of the same if there is a default.
The growth and diversification of our real property business is expected to be financed by borrowed funds. We may borrow sums up to 75% of the value of our real property portfolio. Such loans may result in substantial interest charges which can materially reduce distributions to our stockholders. The documentation related to such loans is expected to contain covenants regulating the manner in which we may conduct our businesses and may restrict us from pursuing opportunities which could be beneficial to our stockholders. In addition, if we are unable to meet our payment or other obligations to our lenders, we risk loss of some or all of our real property portfolio.
We depend upon our tenants to pay rent in a timely manner, and their inability or refusal to pay rent will substantially reduce our collections and payment of our indebtedness, leading to possible defaults, and reduce cash available for distribution to our stockholders.
Our real property, particularly those we may purchase in the future, will be subject to varying degrees of risk that generally arise from such ownership. The underlying value of our properties and the ability to make distributions to
you depend upon the ability of the tenants of our properties to generate enough income to pay their rents in a timely manner. Their inability or unwillingness to do so may be impacted by employment and other constraints on their finances, including debts, purchases and other factors. Additionally, the ability of commercial tenants of commercial properties would depend upon their ability to generate income in excess of their operating expenses to make their lease payments to us. Changes beyond our control may adversely affect our tenants' ability to make lease payments and consequently would substantially reduce both our income from operations and our ability to make distributions to you. These changes include, among others, the following:
o changes in national, regional or local economic conditions;
o changes in local market conditions; and
o changes in federal, state or local regulations and controls affecting rents, prices of goods, interest rates, fuel and energy consumption.
Due to these changes or others, tenants may be unable to make their lease payments. A default by a tenant, the failure of a tenant's guarantor to fulfill its obligations or other premature termination of a lease could, depending upon the size of the leased premises and our ability to successfully find a substitute tenant, have a materially adverse effect on our revenues and the value of our common stock or our cash available for distribution to our stockholders.
If we are unable to find tenants for our properties, particularly those we may purchase in the future, or find replacement tenants when leases expire and are not renewed by the tenants, our revenues and cash available for distribution to our stockholders will be substantially reduced.
Competition may adversely affect acquisition of properties and leasing operations. We compete for the purchase of commercial property with many entities, including other publicly traded REITs. Many of our competitors have substantially greater financial recourses than ours. In addition, our competitors may be willing to accept lower returns on their investments. If our competitors prevent us from buying the properties that we have targeted for acquisition, we may not be able to meet our property acquisition and development goals. We may incur costs on unsuccessful acquisitions that we will not be able to recover. The operating performance of our property acquisitions may also fall short of our expectations, which could adversely affect our financial performance.
If our competitors offer space at rental rates below our current rates or the market rates, we may lose current or potential tenants to other properties in our markets and we may need to reduce rental rates below our current rates in order to retain tenants upon expiration of their leases. As a result, our results of operations and cash flow may be adversely affected.
Lack of diversification and liquidity of real estate will make it difficult for us to sell underperforming properties or recover our investment in one or more properties.
Our business is subject to risks associated with investment primarily in real property. Real property investments are relatively illiquid. Our ability to vary our portfolio in response to changes in economic and other conditions will be limited. We cannot assure you that we will be able to dispose of a property when we want or need to. Consequently, the sale price for any property we may purchase in the future may not recoup or exceed the amount of our investment.
Our real property portfolio currently includes six real properties which have been, and continue to be, used as a bus depot or automobile facility and has certain environmental conditions resulting in continuing exposure to environmental liabilities.
Generally our real property have had activity regarding removal and replacement of underground storage tanks and soil removal. Upon removal of the old tanks, any soil found to be unacceptable was heated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place. Closures of existing New York State Department of Environmental Control spill numbers may be warranted if it can be shown that the remaining degree of impact is non threatening and within acceptable levels. Each of the properties is in a commercial zone and is still used as a transit depot including maintenance of vehicles. We can not assess what further liability may arise from these sites.
Discovery of previously undetected environmentally hazardous conditions at our real properties would result in additional expenses, resulting in a decrease in our revenues and the return on your shares of common stock.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to you.
A number of risks to which our real properties may be exposed may not be covered by insurance, which could result in losses which are uninsured.
We could suffer a loss due to the cost to repair any damage to properties that are not insured or are underinsured. There are types of losses, generally
of a catastrophic nature, such as losses due to terrorism, wars, earthquakes or acts of God, that are either uninsurable or not economically insurable. We may acquire properties that are located in areas where there exists a risk of hurricanes, earthquakes, floods or other acts of God. Generally, we will not obtain insurance for hurricanes, earthquakes, floods or other acts of God unless required by a lender or we determine that such insurance is necessary and may be obtained on a cost-effective basis. If such a catastrophic event were to occur, or cause the destruction of one or more of our properties, we could lose both our invested capital and anticipated profits from such property.
You may not receive any distributions from the sale of one of our properties, or not receive such distributions in a timely manner, because we may have to provide financing to the purchaser of such property, resulting in an inability or delay of distributions to stockholders.
If we sell a property or our company, you may experience a delay before receiving your share of the proceeds of such liquidation. In a forced or voluntary liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We may take a purchase money obligation secured by a mortgage as partial payment. To the extent we receive promissory notes or other property instead of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be available for distribution until the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In many cases, we will receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. Therefore, you may experience a delay in the distribution of the proceeds of a sale until such time.
Our outdoor maintenance businesses and paratransit business depend on large direct or indirect municipal contracts, which are subject to the conduct of customers and municipalities and require substantial capital, which may be difficult to obtain.
We operate several outdoor maintenance businesses including bus shelters, bill boards advertising displays and outdoor construction and maintenance support. Much of this business is related to large customer contracts with municipalities. The loss by customers of one or more of those contracts would have a material adverse effect on our business. In addition, these businesses have required significant capital and may require significant additional capital in the future. In addition to the risk related to additional investment, the capital may have to be funded by borrowing or asset sales since funding from our REIT operations is not likely, increasing the cost of such capital.
There will be a discontinuance of our paratransit operations
In February 2008, we were notified by the New York City Transit Agency of the Metropolitan Transit Authority (the "Agency") that a Request for Proposal to renew our existing paratransit service contract after September 30, 2008 would not be considered by the Agency. We are determining what action it should take in response to such notification. The paratransit operations have contributed losses to our operations for relevant periods. However, we had made a bid for a new contract commencing after September 30, 2008, which, if accepted, would have resulted in profitable operations. The paratransit operations represent about 25% of our non-REIT revenues.
Risks related to possible conflicts of interest
Our officers and directors may have other interests which may conflict with their duties to us and our stockholders, and which may have adverse effects on the interests of us and our stockholders
Our officers and directors may have other interests which could conflict with their duties to us and our stockholders, and which may have adverse effects on the interests of us and our stockholders. For example, certain of such persons may have interests in other real estate related ventures and may have to determine how to allocate an opportunity between us and such other ventures. Also, such persons may have to decide on whether we should purchase or dispose of real property from or to an entity with which they are related, or conduct other transactions, and if so, the terms thereof. Such determinations may either benefit us or be detrimental to us. Our officers and directors are expected to behave in a fair manner toward us, and we require that potential conflicts be brought to the attention of our Board of Directors and that determinations will be made by a majority of directors who have no interest in the transaction. As of this time, only one officer and director, Paul Cooper, conducts a real property business apart from his activities with us.
Risks related to our common stock
The absence of a public market for our common stock will make it difficult for a stockholder to sell shares, which may have to be held for an indefinite period.
Prospective stockholders should understand that our common stock, is illiquid, and they must be prepared to hold their shares of common stock for an indefinite length of time. There has been no public market for our common stock, and initially we do not expect a market to develop. We have no current plans to cause our common stock to be listed on any securities exchange or quoted on any market system or in any established market either immediately or at any definite time in the future. While our Board of Directors may attempt to cause our common stock to be listed or quoted in the future, there can be no assurance that this event will occur. Accordingly, stockholders will find it difficult to resell their shares of common stock. Thus, our common stock should be considered a long-term investment. In addition, there are restrictions on the transfer of our common stock. In order to qualify as a REIT, our shares must be beneficially owned by 100 or more persons at all times and no more than 50% of the value of our issued and outstanding shares may be owned directly or indirectly by five or fewer individuals and certain entities at all times. Our charter provides that no person may own more than 9.9% of the issued and outstanding shares of our common stock. Any attempted ownership of our shares that would result in a violation of one or more of these limits will result in such shares being transferred to an "excess share trust" so that such shares will be disposed of in a manner consistent with the REIT ownership requirements. In addition, any attempted transfer of our shares that would cause us to be beneficially owned by less than 100 persons will be void ab initio (i.e., the attempted transfer will be considered to never have occurred).
Our stockholders' interests may be diluted by issuances under our 2007 Incentive Award Plan and other common stock issuances, which could result in lower returns to our stockholders.
We have adopted the 2007 Incentive Award Plan, under which 1,000,000 shares of common stock is reserved for issuance, and under which we may grant stock options, restricted stock and other performance awards to our officers, employees, consultants and independent directors. The effect of these grants, including the subsequent exercise of stock options, could be to dilute the value of the stockholders' investments.
In addition, our Board of Directors is authorized, without stockholder approval, to cause us to issue additional shares of our common stock, or shares of preferred stock on which it can set the terms, and to raise capital through the issuance of options, warrants and other rights, on terms and for consideration as the Board of Directors in its sole discretion may determine, subject to certain restrictions in our charter in the instance of options and warrants. Any such issuance could result in dilution to stockholders. The Board of Directors may, in its sole discretion, authorize us to issue common stock or other interests or our securities to persons from whom we purchase real property or other assets, as part or all of the purchase price. The Board of Directors, in its sole discretion, may determine the value of any common stock or other equity or debt securities issued in consideration of property or services provided, or to be provided, to us.
Federal income tax requirements
The requirement to distribute at least 90% of our net income may require us to incur debt, sell assets or issue additional securities for cash, which would increase the risks associated with your investment.
In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our net income, other than any net capital gains. To the extent that we distribute at least 90% but less than 100% of our net income in a calendar year, we will incur no federal corporate income tax on our distributed net income, but will incur a federal corporate income tax on any undistributed amounts. In addition, we will incur a 4% nondeductible excise tax if the actual amount we distribute to our stockholders in a calendar year is less than a minimum amount specified under federal income tax law. We intend to distribute at least 90% of our net income to our stockholders each year so that we will satisfy the distribution requirement and avoid the 4% excise tax. However, we could be required to include earnings in our taxable income before we actually receive the related cash. That timing difference could require us to borrow funds or raise additional capital to meet the distribution requirement and avoid corporate income tax and the 4% excise tax in a particular year. In case we don't distribute 100% of our net income, we will be subject to taxation at the REIT level on the amount of undistributed net income and to the extent we distribute such amount, you will be subject to taxation on it at the stockholder level.
The minimum distribution requirements for REIT's may require us to borrow, sell assets or issue additional securities for cash to make required distributions, which would increase the risks associated with your investment in our company.
Under existing tax law, we would be taxed at the corporate level if, within 10 years of our election to be taxed as a REIT, we sell any real property acquired in the Reorganization in a taxable transaction. For that reason, we presently intend to hold such real property for at least 10 years of our election to be taxed as a REIT. This policy would eliminate a sale as a way to obtain liquidity and would prevent a sale which would otherwise be made to take advantage of favorable market conditions.
Distributions may include a return of capital, or an amount which would be taxable as a capital gain to our stockholders.
Distributions payable to stockholders may include a return of capital, as distinct from a return on capital. To the extent that our distributions exceed our undistributed earnings and profits, such amounts will constitute a return of capital for federal income tax purposes, to the extent of a stockholder's basis in the stock, and thereafter will constitute capital gain. We borrowed approximately $20,000,000 to make a portion of the $20 million cash payment as part of the one-time special distribution of earnings and profits. In addition, we may be required, in the future to borrow to make all or a portion of the distribution of real property related income required to retain its status as a REIT, or in the alternative, to sell equity securities to obtain funds for such purpose.
Acquisition risks
Our inability to identify or find funding for acquisitions could prevent us from diversification or growth and could adversely impact the value of an investment in us.
We may not be able to identify or obtain financing to acquire additional real properties. We are required to distribute at least 90% of our net income, excluding net capital gains, to our stockholders in each taxable year, and thus our ability to retain internally generated cash is very limited. Also, acquisition capital may be required by our outdoor maintenance and paratransit businesses. Accordingly, our ability to acquire properties or to make capital improvements to or remodel properties will depend on our ability to obtain debt financing from third parties or the sellers of properties.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of additional properties. If we place mortgage debt on our current properties, we will run the risk of being unable to refinance the additional properties when the loans become due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income would be reduced. We may be unable to refinance properties. If any of these events occurs, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital.
We plan to incur mortgage and other indebtedness, which could result in material damage to our business if there is a default.
Significant borrowings by us will increase the risks of owning shares of our company. If there is a shortfall between the cash flow generated by our properties and the cash flow needed to service our indebtedness, then the amount available for distributions to our stockholders will be reduced or eliminated. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties.
Additionally, when providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur
additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, merge with another company, or discontinue insurance coverage. These or other limitations may limit our flexibility and our ability to achieve our operating plans. Our failure to meet such restrictions and covenants could result in an event of default under our line of credit and result in the foreclosure of some or all of our properties.
Investing in properties through joint ventures creates a risk of loss to us as a result of the possible inaction or misconduct of a joint venture partner.
Joint venture investments may involve risks not present in a direct acquisition, including, for example:
o the risk that our co-venturer or partner in an investment might become bankrupt;
o the risk that such co-venturer or partner may at any time have economic or business interests or goals which are inconsistent with our business interests or goals; or
o the risk that such co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, such as selling a property at a time when it would have adverse consequences for our stockholders.
Actions by such a co-venturer or partner might have the result of subjecting the applicable property to liabilities in excess of those otherwise contemplated and may have the effect of reducing our cash available for distribution. It also may be difficult for us to sell our interest in any such joint venture or partnership in such property.
Borrowings may increase our business risks
Income distributions may cause us to borrow, resulting in borrowing costs and risk of defaults.
We are required to distribute at least 90% of our net income, excluding net capital gains to our stockholders in each taxable year. However, depending on the size of our operations, we will require a minimum amount of capital to fund our daily operations. In addition, we may require working capital for our outdoor maintenance businesses and paratransit business. We may have to obtain financing from either affiliated or unaffiliated sources to meet such cash needs. This financing may not be available to us on acceptable terms or at all, which could adversely affect our operations and decrease the value of your investment in our company.
In addition, in October, 2007, we utilized $20,000,000 from our ING loan facility in connection with our distribution of undistributed historical earnings and profits to our stockholders.
As we incur indebtedness which will be needed for operations, we increase the expenses of our operations, which could result in a decrease in cash available for distribution to our stockholders.
The risk associated with your ownership of our common stock depends upon, among other factors, the amount of debt we incur. We intend to incur indebtedness in connection with our acquisition of properties. We may also borrow for the purpose of maintaining our operations or funding our working capital needs. Lenders may require restrictions on future borrowings, distributions and operating policies. We also may incur indebtedness if necessary to satisfy the federal income tax requirement that we distribute at least 90% of our net income, excluding net capital gains, to our stockholders in each taxable year. Borrowing increases our business risks.
Debt service increases the expense of operations since we will be responsible for retiring the debt and paying the attendant interest, which may result in decreased cash available for distribution to you as a stockholder. In the event the fair market value of our properties were to increase, we could incur more debt without a commensurate increase in cash flow to service the debt. In addition, our Board of Directors can change our policy relating to the incurrence of debt at any time without stockholder approval.
We will incur indebtedness secured by our properties, which may subject our properties to foreclosure in the event of a default.
Incurring mortgage indebtedness increases the risk of possible loss. Most of our borrowings to acquire properties would be secured by mortgages on our properties. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan which would adversely affect distributions to stockholders. For federal tax purposes, any such foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage and, if the outstanding balance of the debt secured by the mortgage exceeds the basis of the property to our company, there could be taxable income upon a foreclosure. Such taxes would be payable by us if the sale was of our current real properties and took place within 10 years after our REIT election. To the extent lenders require our company to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure.
Increases in interest rates will increase the amount of our debt payments and increased interest payments will adversely affect our ability to make cash distributions to our stockholders.
A change in economic conditions which results in higher interest rates would increase debt service requirements on variable rate debt and could reduce the amounts available for distribution to you as a stockholder. A change in economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if we are in need of capital to repay indebtedness in accordance with its terms or otherwise, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.
Difficulty obtaining permanent financing would limit the possible growth in our real property operations.
The United States is presently experiencing a reduction in available credit. When we acquire real property using our revolving credit facility, we plan to refinance the same with permanent mortgage lending on the real property.
If due to a lending contraction we are unable to find such financing with terms acceptable to us, we would be unable to restore the borrowings made under our revolving credit facility and we would be limited in further acquirements of real property. At the present time, we have approximately $30 million available for such purpose under our revolving credit facility.
Our ability to change policies without a stockholder vote
Our policies, including the limits on debt, may be changed or eliminated by our Board of Directors at any time without a vote of our stockholders.
Our policies, including policies intended to protect you as a stockholder and the policies described in this annual report with respect to acquisitions, financing, limitations on debt and investment limitations, have been determined by our Board of Directors and can be changed at any time without a vote of our stockholders or notice to you as a stockholder if our Board of Directors so determines in the exercise of its duties. Therefore, these policies and limitations may not be meaningful to protect your interests as a stockholder.
Possible adverse consequences of limits on ownership and transfer of our shares
The limitation on ownership of our stock in our charter will prevent you from acquiring more than 9.9% of our common stock and may force you to sell common stock back to us.
Our charter limits the beneficial and constructive ownership of our capital stock by any single stockholder to 9.9% of the number of outstanding shares of each class or series of our stock including our common stock. We refer to these limitations as the ownership limits. Our charter also prohibits the beneficial or constructive ownership of our capital stock by any stockholder that would result in (1) our capital stock being beneficially owned by fewer than 100 persons, (2) five or fewer individuals, including natural persons, private foundations, specified employee benefit plans and trusts, and charitable trusts, owning more than 50% of our capital stock, applying broad attribution rules imposed by the federal tax laws, (3) our company otherwise failing to qualify as a REIT for federal tax purposes. In addition, any attempted transfer of our capital stock that would result in the Company being beneficially owned by less than 100 persons will be void ab initio (i.e., such transfer will be considered to never have happened). If you acquire shares in excess of the ownership limits or in violation of the ownership limitations, we:
o will consider the transfer (in whole or part) to be null and void;
o will not reflect the transaction on our books;
o may institute legal action to enjoin the transaction;
o will not pay dividends or other distributions to you with respect to those excess shares;
o will not recognize your voting rights for those excess shares; and
o will consider the excess shares held in trust for the benefit of a charitable beneficiary.
If such shares are transferred to a trust for the benefit of a charitable beneficiary, you will be paid for such excess shares a price per share equal to the lesser of the price you paid or the "market price" of our stock. Unless shares of our common stock are then traded on a national securities exchange or quoted on a national market system, the market price of such shares will be a price determined by our Board of Directors in good faith. If shares of our common stock are traded on a national securities exchange or quoted on a national market system, the market price will be the average of the last sales prices or the average of the last bid and ask prices for the date of determination.
If you acquire our common stock in violation of the ownership limits or the restrictions on transfer described above:
o you may lose your power to dispose of the stock;
o you may not recognize profit from the sale of such stock if the "market price" of the stock increases; and
o you may incur a loss from the sale of such stock if the "market price" decreases.
Anti-takeover provisions related to us
Our Stockholder Rights Agreement is designed to discourage takeover attempts without approval of our Board of Directors, which could discourage a potential takeover bid and the related payment to our stockholders.
The Stockholder Rights Agreement provides that a right is deemed to be issued and outstanding in conjunction with each outstanding share of our common stock. If any person or group, as defined in the agreement, acquires more than 15% of our outstanding common stock without the approval of our Board of Directors, each holder of a right, other than such 15% or more holder(s), will be entitled to purchase 1000th of a share of our Series A preferred stock for $50.00 which is convertible into our common stock at one-half of the market value of our common stock, or to purchase, for each right, $50.00 of our common stock at one-half of the market value. The effect of this provision is to materially dilute the holdings of such 15% or more holders and substantially increase the cost of acquiring a controlling interest in us. These types of provisions generally inhibit tender offers or other purchases of a controlling interest in a company such as ours.
Limitations on share ownership and transfer may deter a sale of our company in which you could profit.
The limits on ownership and transfer of our equity securities in our charter may have the effect of delaying, deferring or preventing a transaction or a change in control of our company that might involve a premium price for your common stock. The ownership limits and restrictions on transferability will continue to apply until our Board of Directors determines that it is no longer in our best interest to continue to qualify as a REIT.
Our ability to issue preferred stock with terms fixed by the Board of Directors may include a preference in distributions superior to our common stock and also may deter or prevent a sale of our company in which a stockholder could otherwise profit.
Our ability to issue preferred stock and other securities without your approval also could deter or prevent someone from acquiring our company. Our charter authorizes our Board of Directors to issue up to 10 million shares of preferred stock. Our Board of Directors may establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock designed to prevent, or with the effect of preventing, someone from acquiring control of our company.
Maryland anti-takeover statute restrictions may deter others from seeking to acquire our company in a transaction in which a stockholder could profit.
Maryland law contains many provisions, such as the business combination statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from acquiring control of our company without approval of our Board of Directors. Our bylaws exempt our company from the control share acquisition statute (which eliminates voting rights for certain levels of shares that could exercise control over us) and our Board of Directors has adopted a resolution opting out of the business combination statute (which prohibits a merger or consolidation of us and a 10% stockholder for a period of time) with respect to affiliates of our company. However, if the bylaw provisions exempting our company from the control share acquisition statute or the board resolution opting out of the business combination statute were repealed by the Board of Directors, in its sole discretion, these provisions of Maryland Law could delay or prevent offers to acquire our company and increase the difficulty of consummating any such offers.
Because of our staggered Board of Directors, opposition candidates would have to be elected in two separate years to constitute a majority of the Board of Directors, which may deter a change of control from which a stockholder could profit.
We presently have a seven person Board of Directors. Each director has or will have a three year term, and only approximately one-third of the directors will stand for election each year. Accordingly, in order to change a majority of our Board of Directors, a third party would have to wage a successful proxy contest in two successive years, which is a situation that may deter proxy contests.
Certain provisions of our charter make stockholder action more difficult, which could deter changes beneficial to our stockholders.
We have certain provisions in our charter and bylaws that require super-majority voting and regulate the opportunity to nominate directors and to bring proposals to a vote by the stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Portfolio of Real Estate Investments
The following table sets forth information relating to each of our real estate investments in addition to the specific mortgages encumbering the properties:
----------------------------------------------------------------------------------------------------------------------
Portfolio of Real Properties as of March 30, 2008:
----------------------------------------------------------------------------------------------------------------------
Property and Year Leasable space Average Annual Total Mortgage Depreciated
Location Acquired - approximate Occupancy Rate Annualized Balance Cost of Land,
sq. ft. Rents Based on $(000) Buildings &
Occupancy Equipment $(000)
$(000)
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
147th Avenue A Building 151,068 100% $2,795,000 $1,000 B $ 749,000
Property, Land 286,057
Jamaica, NY
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
Rockaway Beach A Building 28,790 100% $ 605,000 $1,000 B $ 558,000
Property, Queens, Land 131,802
NY
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
24th Avenue A Building 118,430 100% $2,585,000 $1,000 B $39,083,000
Property, Land 280,180
Elmhurst, NY
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
Guy Brewer A Building 75,800 100% $1,515,000 $1,000 B $23,106,000
Property, Land 201,078
Jamaica, NY
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
Wortman Property, A Building 27,250 100% $ 334,936 $0 $14,468,000
Brooklyn, NY Land 452,535
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
87th Street A Building 52,020 100% $1,584,665 $0 $ 9,024,000
Property, East Land
Elmhurst, NY 309,142
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
Farm Springs 2008 Building 107,654 100% $2,161,292 $0 Not presently
Property, Land 458,687 available.
Hartford, CT
------------------- ------------- ----------------- ---------------- ---------------- -------------- -----------------
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A. Acquired by the Company in 2007 upon the reorganization. The Bus Companies acquired these properties from 10 to 70 years ago.
B. These properties are all subject to a mortgage to ING in the principal amount of $1,000,000.
For additional information about our portfolio of real estate investments, see Item 1 - Business-Portfolio of Real Properties.
Insurance
We believe that we have property and liability insurance with reputable, commercially rated companies. We also believe that our insurance policies contain commercially reasonable deductibles and limits, adequate to cover our properties. We expect to maintain this type of insurance coverage and to obtain similar coverage with respect to any additional properties we acquire in the near future. Further, we have title insurance relating to our properties in an aggregate amount that we believe to be adequate.
Regulations
Our real properties, as well as any other real properties that we may acquire in the future, are subject to various federal, state and local laws, ordinances and regulations. They include, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our properties.
Real Property Used By Us in Our Businesses
The real properties used by us for the day to day conduct of our business are as
follows (all of which are leased):
------------------------------ ------------------------- ------------------------ -------------------------
Square Footage/ Monthly Rent/
Location Facility Expiration Purpose
------------------------------ ------------------------- ------------------------ -------------------------
Lynbrook, NY 7,000 office $16,713 / 8/31/10 Executive Offices
------------------------------ ------------------------- ------------------------ -------------------------
Long Island City, NY 14,000 building on $16,667 / monthly Shelter Express Corp,
50,000 lot MetroClean New York,
Shelter Electric Corp.
------------------------------ ------------------------- ------------------------ -------------------------
Long Island City, NY 6,000 lot $4,000 / 1/31/10 Shelter Electric Corp.
------------------------------ ------------------------- ------------------------ -------------------------
New Rochelle, NY 13,000 building and land $6,382.57 / 7/31/13 Metroclean Express Corp
New York
------------------------------ ------------------------- ------------------------ -------------------------
Wortman Avenue, NY 144,533 square feet $12,500 / monthly TFM
------------------------------ ------------------------- ------------------------ -------------------------
Phoenix, AZ 6,200 building on $3,200 / 4/30/09 Shelter Clean of
20,478 lot Arizona, Inc.
------------------------------ ------------------------- ------------------------ -------------------------
Burbank, CA 10,000 building on $10,000 Shelter Clean, Inc.
20,000 lot per month
/ 4/30/10
------------------------------ ------------------------- ------------------------ -------------------------
Signal Hill, CA 6,256 building on $5,000 per month / Shelter Clean, Inc.
20,250 lot 6/30/10
------------------------------ ------------------------- ------------------------ -------------------------
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ITEM 3. LEGAL PROCEEDINGS
On March 26, 2007, there was a joint special meeting of the shareholders of
the Bus Companies. The business considered at the meeting was the merger of:
Green with and into Green Acquisition, Inc.; Triboro with and into Triboro
Acquisition, Inc.; and Jamaica with and into Jamaica Acquisition, Inc. Appraisal
rights were perfected by shareholders of the Bus Companies who would have
received approximately 366,133 shares of our common stock to be issued following
the mergers. The mergers were carried out on March 29, 2007. Consequently, we
made good faith offers to such shareholders based on the value of our common
share of $7.00 per share, eighty percent (80%) of which was advanced to them. On
May 25, 2007, Green Acquisition, Triboro Acquisition and Jamaica Acquisition,
commenced appraisal proceedings in Nassau County Supreme Court, as required by
the New York Business Corporation Law. Eight of the shareholders (the
"Claimants") who sought appraisal rights (the others had either settled or
withdrawn their demands) have answered the petition filed in connection with the
appraisal proceeding and moved for pre-trial discovery. In March 2008, certain
pre-trial discovery was ordered by the Court and provided by the Bus Companies.
In addition, a tentative hearing date was set for early September, 2008.
Collectively, the Claimants have been paid $1,351,120 pursuant to the Registrant's good faith offer. The Claimants would have received approximately 241,272 shares of the Registrant's common stock following the mergers of the Bus Companies. The Registrant's ultimate liability cannot presently be determined. The Registrant is vigorously defending the action. In addition, two shareholders have been paid an aggregate of $435,457 pursuant to the good faith offer. These shareholders would have received approximately 62,208 shares.
In addition to the above, we are involved in several lawsuits and other disputes which arose in the ordinary course of business; however, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Registrant's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Equity
There is no public market for our common stock, and we do not expect a market to develop in the near future. We have no current plans to cause our common stock to be listed on any securities exchange or quoted on any market system in any established market either immediately or at any definite time in the future. Therefore, it is likely that a stockholder may not be able to sell such stockholder's common stock at a time or price acceptable to the stockholder.
Outstanding Common Stock and Holders
As of March 30, 2008, we had 13,472,281 shares issued and outstanding, held by approximately 384 shareholders of record.
Distributions
Our Board of Directors declares and pays distributions on a quarterly basis. For the period July 1, 2007 (the date as of which we elected REIT status) to December 31, 2007, we declared aggregate distributions of $0.215, per share to the holders of record. This does not include a one time special distribution of accumulated earnings and profits of $6.40 per share paid in October, 2007. The following table shows the declaration dates and the amounts distributed per share.
-------------------------------------- ---------------------------------------- --------------------------------------
Declaration Date Distribution Date Amount Paid Per Share
-------------------------------------- ---------------------------------------- --------------------------------------
September 30, 2007 October 15, 2007 $0.11
-------------------------------------- ---------------------------------------- --------------------------------------
December 20, 2007 January 15, 2008 $0.105
-------------------------------------- ---------------------------------------- --------------------------------------
Total $0.215
-------------------------------------- ---------------------------------------- --------------------------------------
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Although we intend to continue to declare and pay quarterly distributions, no assurances can be made as to the amounts of any future payments. The declaration of any future distributions is within the discretion of the Board of Directors and will be dependent upon, among other things, our earnings, financial condition and capital requirements, as well as any other factors deemed relevant by the Board of Directors. Two principal factors in determining the amounts of distributions are (i) the requirement of the Internal Revenue Code that a REIT distribute to shareholders at least 90% of its REIT taxable income, and (ii) the amount of available cash.
Equity Compensation Plan Information
We have reserved 1,000,000 shares of common stock for issuance under our 2007 Incentive Award Plan. The 2007 Incentive Award Plan was approved by our stockholders on February 7, 2008. We have not issued any shares of common stock under this plan. See Item 11 of this Report Form 10-K for additional information regarding our 2007 Stock Incentive Plan.
The following information is provided as of December 31, 2007 with respect to compensation plans, including individual compensation arrangements, under which our equity securities are authorized for issuance:
------------------------------ --------------------------- --------------------------- -------------------------------
(a) (b) (c)
------------------------------ --------------------------- --------------------------- -------------------------------
Number of securities
remaining available for
Number of securities to Weighted-average exercise future issuance under equity
be issued upon exercise price of outstanding compensation plans (excluding
of outstanding options, options warrants and securities reflected in
warrants and rights rights column (a)
------------------------------ --------------------------- --------------------------- -------------------------------
Plan category
------------------------------ --------------------------- --------------------------- -------------------------------
Equity compensation plans
approved by security holders
(1) 255,000 11.14 745,000
------------------------------ --------------------------- --------------------------- -------------------------------
Equity compensation plans
not approved by security
holders - - -
------------------------------ --------------------------- --------------------------- -------------------------------
Total 255,000 - 745,000
------------------------------ --------------------------- --------------------------- -------------------------------
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(1) This equity compensation is under the 2007 Stock Incentive Award Plan. The Plan was approved by stockholders on February 7, 2008.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not have a plan for the purchase of any shares of our common stock, and did not purchase any of the same in the year ended December 31, 2007.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for the year ended December 31, 2007 are derived from our financial statements and the notes thereto both of which appear elsewhere in this annual report that have been audited by Weiser LLP, our independent registered public accounting firm. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our financial statements and notes thereto.
Selected Financial Data
(in thousands, except per share data)
Year Ended December 31, 2007 2006 2005 2004 2003
-------------------------------------- ------------ ----------- ----------- ------------- -------------
Balance Sheet Data:
Total Assets $ 124,697 $ 23,942 $ 27,082 $ 27,397 $ 26,360
============ =========== =========== ============= =============
Notes Payable and Credit Facility $ 20,000 $ - $ - $ - $ -
============ =========== =========== ============= =============
Operating Data:
Total Revenues $ 43,072 $ 3,908 $ - $ - $ -
============ =========== =========== ============= =============
Total Expenses $ 36,420 $ 940 $ 317 $ 332 $ 357
============ =========== =========== ============= =============
Income (Loss) from Continuing
Operations $ 5,724 $ 1,551 $ 389 $ 63 $ (3,404)
============ =========== =========== ============= =============
Per Share Data:
Income from Continuing Operations
Basic and Diluted $ 0.70 $ 411.29 $ 103.20 $ 16.64 $ (878.66)
============ =========== =========== ============= =============
Other Data:
Net Cash Flow (Used in) Provided by:
Operating activities $ (279) $ (2,619) $ (1,846) $ 1,267 $ 2,427
============ =========== =========== ============= =============
Investing Activities $ 7,957 $ 11,427 $ (32) $ (71) $ (844)
============ =========== =========== ============= =============
Financing Activities $ (5,277) $ (300) $ (301) $ (42) $ (606)
============ =========== =========== ============= =============
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions contain forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this report under "Forward-Looking Statements" and under "Risk Factors." You should read the following discussion in conjunction with "Selected Financial Data" and our consolidated financial statements and notes appearing elsewhere in this filing.
Executive Summary
The Company, a REIT, is a fully integrated, self-administered and self-managed real estate company, engaged in the acquisition, ownership and management of real properties. The Company currently owns seven rentable parcels of real property, four of which are leased to the City of New York, two of which are leased to commercial tenants (all six on a triple net basis), and one of which is used by one of the Company's subsidiaries and also leased to a commercial tenant. There is an additional property of negligible size which is not rentable. Additionally, in connection with the Tax Relief Extension Act of 1999 ("RMA"), the Company is permitted to participate in activities outside the normal operations of the REIT so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code, as amended (the "Code"), subject to certain limitations. In addition, the Company owns a group of outdoor maintenance businesses and a paratransit business. The Company will consider other investments through taxable REIT subsidiaries should suitable opportunities arise.
The Company continues to seek opportunities to acquire stabilized properties. To the extent it is in the interests of our stockholders, the
Company will seek to invest in a diversified portfolio of real properties within the Company's geographic area that will satisfy the Company's primary investment objectives of providing the Company's stockholders with stable cash flow, preservation of capital and growth of income and principal without taking undue risk. Because a significant factor in the valuation of income-producing property is the potential for future income, the Company anticipates that the majority of properties that it will acquire will have both the potential for growth in value and provide for cash distributions to stockholders.
Critical Accounting Policies
Critical accounting policies are those that are both important to the presentation of the Company's financial condition and results of operations and require management's most difficult, complex or subjective judgments. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of the Company's accounting policies included in Note 1 to the consolidated financial statements of the Company.
Revenue Recognition-Real Estate Operations:
The Company recognizes revenue in accordance with Statement of Financial Accounting Standards No. 13,"Accounting for Leases", as amended, referred to herein as SFAS 13. SFAS 13 requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The properties are being leased to tenants under operating leases. Minimum rental income is recognized on a straight-line basis over the term of the lease.
Property operating expense recoveries from tenants of common area maintenance, real estate and other recoverable costs are recognized in the period the related expenses are incurred.
Revenue Recognition--Outside Maintenance and Shelter Cleaning Operations:
Cleaning and maintenance revenue is recognized upon completion of the related service.
Revenue Recognition--Paratransit Operations:
Paratransit revenues are recognized upon completion of the related transportation service.
Accounts Receivable:
Accounts receivable consist of trade receivables recorded at the original invoice amount, less an estimated allowance for uncollectible accounts. Trade
credit is generally extended on a short-term basis; thus trade receivables generally do not bear interest. Trade receivables are periodically evaluated for collectibility based on past credit histories with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables.
Real Estate Investments:
Real estate assets are stated at cost, less accumulated depreciation and amortization. All capitalizable costs related to the improvement or replacement of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.
Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and buildings improvements) and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases) in accordance with SFAS No. 141, "Business Combinations." The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property "as-if-vacant." The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company's history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property "as-if-vacant," determined as set forth above.
Above and below market leases acquired are recorded at their fair value. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company's evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The value of in-place leases are amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible asset is expensed.
Asset Impairment:
The Company applies SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", to recognize and measure impairment of long-lived assets. Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment's use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties. These assessments have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.
Income Taxes:
Effective July 1, 2007, the Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, the Company will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements as defined under Section 856 through 860 of the Code.
In connection with Tax Relief Extension Act of 1999 ("RMA"), the Company is permitted to participate in certain activities so long as these activities are conducted in entities which elected to be treated as taxable subsidiaries under the Code. As such the Company is subject to federal, state and local taxes on the income from these activities. The Company accounts for income taxes under the asset and liability method, as required by the provisions of SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Results of Operations
The following results of operations pertain solely to Green Bus Company, Inc., and Subsidiary for the years ended December 31, 2005 and 2006 and the period January 1, 2007 to March 31, 2007 and GTJ REIT, Inc. for the period April 1, 2007 to December 31, 2007. The results of operations for Triboro, Jamaica and GTJ for the period from March 29, 2007 to March 31, 2007 are not reflected in the accompanying consolidated statements of income of the Company for the year ended December 31, 2007 as such amounts were not deemed to be material in relation to the Company's consolidated financial statements as a whole.
Year Ended December 31, 2007 vs. Year Ended December 31, 2006
The following table sets forth the results of operations of the Company for
the years indicated (in thousands):
Years Ended December 31,
---------------- ---------------
2007 2006
---------------- ---------------
Revenues:
Property rentals $ 9,451 $ 3,908
Outdoor maintenance and cleaning operations 24,084 -
Paratransit operations 9,537 -
---------------- ---------------
Total revenues 43,072 3,908
Operating expenses:
General and administrative expenses 9,167 659
Equipment maintenance and garage expenses 3,612 -
Transportation expenses 7,240 -
Contract maintenance and station expenses 10,778 -
Insurance and safety expenses 2,724 -
Operating and highway taxes 1,758 -
Other operating expenses 575 -
Depreciation and amortization expense 566 281
---------------- ---------------
Total operating expenses 36,420 940
Operating income 6,652 2,968
Other income (expense):
Interest income 887 -
Interest and debt expense (including
amortization of deferred financing
costs of $101) (812) -
Change in insurance reserves 254 -
Other (127) -
---------------- ---------------
Total other income (expense): 202 -
Income from continuing operations before income
taxes and equity in earnings (loss) of affiliated
companies 6,854 2,968
Provision for income taxes (1,190) (916)
Equity in earnings (loss) of affiliated companies,
net of tax 60 (501)
---------------- ---------------
Income from continuing operations 5,724 1,551
Discontinued Operation:
Loss from operations of discontinued
operation, net of taxes (324) (7,995)
Gain on sale of discontinued operation, net of
taxes - 8,269
---------------- ---------------
(Loss) income from discontinued operation, net
of taxes (324) 274
Net income $ 5,400 $ 1,825
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Property Rental Revenues
Property rentals revenue of $9,451,000 for the year ended December 31, 2007, primarily represents revenue from the Company's rental properties. Property rental for the year ended December 31, 2006 represented revenue only from Green which had rental operations revenue of $3,908,000.
Outside Maintenance Operations Revenues
Outside Maintenance Operations revenue of $24,084,000 for the year ended December 31, 2007 represents revenue from the Company's Outdoor Maintenance and Cleaning Operations segment. There were no comparable revenues in 2006.
Paratransit Operations Revenues
Paratransit Operations revenue of $9,537,000 for the year ended December 31, 2007, represents revenue from the Company's Paratransit Operations. There were no comparable revenues in 2006.
Operating Expenses
Operating expenses for the year ended December 31, 2007 were $36,420,000 versus $940,000 for the year ended December 31, 2006. Operating expenses for 2007 included expenses for the newly merged company, whereas operating expenses for 2006 only included the expenses of Green.
Other Income (Expense)
Other income for the year ended December 31, 2007 was income of $202,000 versus $0 for the year ended December 31, 2006, as other income (expense) for the year ended December 31, 2006 aggregated an expense of $8,269,000 which was included in discontinued operations, which primarily pertains to the pension related expenses that were recorded in 2006.
Provision for Income Taxes
The provision for income taxes represents federal, state and local taxes on income before income taxes. The provision for income taxes was $1,190,000 for an effective tax rate of 17.4% for the year ended December 31, 2007 and $916,000 for an effective tax rate of 51.0% for the year ended December 31, 2006.
Equity in Earnings (Loss) Of Affiliated Companies, Net of Taxes
Equity in earnings of affiliated companies, net of taxes was $60,000 for the year ended December 31, 2007 compared to a loss $501,000 for the year ended December 31, 2006. Since the affiliated companies are owned 100% by the Company after the reorganization on March 29, 2007, the results of operations of such former affiliated companies are included in the consolidated results of operations of the Company.
Loss from Discontinued Operation, Net of Taxes
(Loss) income from discontinued operation, net of taxes reflects the operating results of Green's bus operations. The discontinued operation reflected a loss of $324,000 for the year ended December 31, 2007. The 2007 loss primarily pertains to the winding down of the bus operations with no corresponding income. The discontinued operation reflected a loss from operations of $7,995,000 offset by the gain from the sale of the discontinued operation of $8,269,000 for the year ended December 31, 2006 resulting in net income from discontinued operations of $274,000.
Net Income
For the year ended December 31, 2007, the Company had net income of $5,400,000 versus net income of $1,825,000 for the year ended December 31, 2006. Net income for 2007 is attributable to continuing operations of $5,724,000 and loss from discontinued operations of $324,000. The net income for 2006 is attributable to income from continuing operations of $1,551,000 and income from discontinued operations of $274,000.
Year Ended December 31, 2006 vs. Year Ended December 31, 2005
The following table sets forth the results of operations of the Company for the years indicated (in thousands):
Year Ended December 31,
2006 2005
------------------ ---------------
$ 3,908 $ -
Property rentals revenue
------------------ ---------------
Operating expenses:
General and administrative expenses 659 -
Depreciation and amortization expense 281 317
------------------ ---------------
Total operating expenses 940 317
Operating income (loss) 2,968 (317)
------------------ ---------------
Income from continuing operations before income taxes and equity in earnings
(loss) of affiliated companies 2,968 (317)
Provision for income taxes (916) (684)
Equity in earnings (loss) of affiliated companies, net of tax (501) 1,390
------------------ ---------------
Income from continuing operations 1,551 389
Discontinued Operation:
(Loss) income from operations of discontinued operation, net of taxes (7,995) 1,338
Gain on sale of discontinued operation, net of taxes 8,269 -
------------------ ---------------
Income from discontinued operation, net of taxes 274 1,338
Net Income $ 1,825 $ 1,727
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Property Rentals
Operating revenue and subsidies for 2006 represents rental income from New York City for the recently signed leases for Green's real properties. Such leases were not applicable in 2005.
General and Administrative Expenses
For 2006, general and administrative expenses were $659,000 and were primarily related to $462,000 of environmental clean-up costs and professional fees and other expenses totaling $197,000. There were no such expenses in 2005.
Depreciation and Amortization Expense
For 2006, depreciation and amortization expense decreased by $36,000 from $281,000 in 2006 to $317,000 in 2005. Depreciation and amortization expense represents depreciation on Green's owned real properties.
Provision for Income Taxes
The provision for income taxes represents federal, state, and local taxes on income before income taxes. For 2006, the provision for taxes was $916,000 compared to a provision for taxes of $684,000 in 2005.
Equity in Earnings (Loss) of Affiliated Companies, Net of Tax
For 2006, equity in earnings (loss) of affiliated companies, net of tax was ($501,000), versus $1,390,000 for 2005, for a decrease of $1,891,000. The decrease was related to decreased earnings from Green's forty percent interest in GTJ and Command.
Income from Discontinued Operation, Net of Tax
Income from discontinued operation, net of tax reflects the operating results of Green's bus operations. For 2006, the discontinued operation reflected a loss from operations of $7,995,000 offset by the gain from the sale of the discontinued operation of $8,269,000 versus income from discontinued operations of $1,338,000 in 2005.
Gain on Sale of Discontinued Operation, Net of Taxes
Gain on sale of discontinued operation, net of taxes reflects the gain on the sale of Green's bus operations to New York City in 2006.
Net Income
For 2006, Green had net income of $1,825,000 versus net income of $1,727,000 for 2005. The change was due to the factors discussed above.
Liquidity and Capital Resources
At December 31, 2007, the Company had unrestricted cash and cash equivalents of $11,920,000 compared to $9,519,000 at December 31, 2006. The Company funds operating expenses and other short-term liquidity requirements, including debt service and dividend distributions from operating cash flows; the Company also has used its secured revolving credit facility for these purposes. The Company believes that its net cash provided by operations, coupled with availability under the revolving credit, will be sufficient to fund its short-term liquidity requirements for 2008 and to meet its dividend requirements to maintain its REIT status.
Financings
On July 2, 2007, GTJ REIT entered into a Loan Agreement, dated as of June 30, 2007 (the "Loan Agreement"), among GTJ REIT and certain direct and indirect subsidiaries of GTJ REIT, namely, Green Acquisition, Inc., Triboro Acquisition, Inc. and Jamaica Acquisition, Inc., 165-25 147th Avenue, LLC, 49-19 Rockaway Beach Boulevard, LLC, 85-01 24th Avenue, LLC, 114-15 Guy Brewer Boulevard, LLC, (collectively, the "Borrowers"); and ING USA Annuity and Life Insurance Company; ING Life Insurance and Annuity Company; Reliastar Life Insurance Company; and Security Life Of Denver Insurance Company (collectively, the "Initial Lenders" and, together with any other Lenders from time to time party hereto, the "Lenders"). Pursuant to the terms of the Loan Agreement, the Lenders will provide multiple loan facilities in the amounts and on the terms and conditions set forth in such Loan Agreement. The aggregate of all loan facilities under the Loan Agreement shall not exceed $72,500,000. On July 2, 2007, the Initial
Lenders made an initial $17,000,000 term loan. In addition to the initial term loan, the Lenders collectively made a mortgage loan of $1,000,000 to the Borrowers. Interest on the loans shall be paid monthly. The interest rate on both loans aggregates to 6.59% per annum. The principal shall be paid on the maturity date pursuant to the terms set forth in the Loan Agreement, namely July 1, 2010, unless otherwise extended or renewed. The revolving credit under the Loan Agreement has a maximum amount of $54,500,000.
The loan facilities are collateralized by: (1) an Assignment of Leases and Rents on four bus depot properties (the "Depots") owned by certain of the Borrowers and leased to the City of New York, namely (a) 49-19 Rockaway Beach Boulevard; (b) 165-25 147th Avenue; (c) 85-01 24th Avenue and (d) 114-15 Guy Brewer Boulevard; (2) Pledge Agreements under which (i) the Registrant pledged its 100% stock ownership in each of: (a) Green Acquisition, Inc.; (b) Triboro Acquisition, Inc. and (c) Jamaica Acquisition, Inc. (ii) Green Acquisition, Inc. pledged its 100% membership interest in each of (a) 49-19Rockaway Beach Boulevard, LLC and (b) 165-25 147th Avenue, LLC, (iii) Triboro Acquisition pledged its 100% membership interest in 85-01 24th Avenue, LLC, and (d) Jamaica Acquisition pledged its 100% membership interest in 114-15 Guy Brewer Boulevard, LLC, and (3) a LIBOR Cap Security Agreement under which GTJ Rate Cap LLC, a wholly owned subsidiary of the Registrant, pledged its interest in an interest rate cap transaction evidenced by the Confirmation and ISDA Master Agreement, dated as of December 13, 2006, with SMBC Derivative Products Limited. The Registrant had assigned its interest in the interest rate cap transaction to GTJ Rate Cap LLC prior to entering into the Loan Agreement. $1,000,000 of the loan is secured by a mortgage in the amount of $1,000,000 on the Depots collectively ($250,000 for each Depot).
In addition to customary non-financial covenants, the Borrowers are obligated to comply with the following financial covenants (1) the Borrowers will not permit the ratio of (a) Consolidated Net Operating Income for any period of four consecutive Fiscal Quarters to (b) Consolidated Debt Service for such period, to be less than 1.3 to 1.0; (2) the Borrowers will not permit the ratio of (a) Consolidated Net Operating Income from Unencumbered Assets for any period of four consecutive Fiscal Quarters to (b) Consolidated Unsecured Debt Service for such period, to be less than 1.3 to 1.0; (3) the Borrowers will not permit the ratio of (a) Consolidated Debt at any time to (b) Total Assets Value at such time, to be greater than 0.6 to 1.0; and (4) the Borrowers will not permit the ratio of (a) Total Unencumbered Assets Value at any time to (b) Consolidated Unsecured Debt at such time, to be less than 1.5 to 1.0.
As March 31, 2008, $43,214,528 was outstanding under this Loan Agreement.
Earnings and Profit Distribution
In 2007, the Company was required to make a one-time distribution of undistributed historical earnings and profits of the Bus Companies. On August 20, 2007, the Board of Directors of GTJ REIT declared a special distribution of accumulated earnings and profits on GTJ REIT's common stock of $6.40 per GTJ REIT share, payable in $20,000,000 of cash and in 3,775.400 shares of GTJ REIT common stock. For the purposes of the special distribution, common stock was valued at $11.14, as indicated in the proxy statement/prospectus dated February 9, 2007 filed with the Securities and Exchange Commission and distributed to the stockholders of the Bus Companies in connection with the March 26, 2007 special joint meeting of the stockholders of the Bus Companies at which meeting such stockholders voted on a reorganization of those companies with and into GTJ
REIT. The special distribution aggregated $62,060,000. The holders of GTJ REIT shares, and the holders of shares of the Bus Companies, as of the close of business on August 20, 2007, the record date for the special distribution (the "Holders"), were eligible for the special distribution. The Holders were required to make an election as to the amount of GTJ REIT shares and/or cash the Holders wished to receive as their respective portion of the special distribution. Holders were advised, due to the limitation of the aggregate amount of cash available for the special distribution, that their actual distribution might not be in the proportion of cash and GTJ REIT shares they elected, but could be based on a pro ration of the available cash after all elections (ie: not on a first come-first served basis). GTJ REIT calculated the proportion of cash and GTJ REIT shares that were distributed to the Holders based upon the Holder's election and the amount of cash available for the special distribution.
In October 2007, cash of $20,000,000 and shares of 3,775,400 of GTJ REIT stock, valued at an estimated $42,060,000 were distributed, or reserved for distribution, to the Holders. Such cash was borrowed against the revolving credit from the Lenders.
Contractual Obligations
GTJ REIT through its subsidiaries leases certain operating facilities and
certain equipment under operating leases, expiring at various dates through
fiscal year 2014. In addition, GTJ REIT through its subsidiaries has a revolving
credit as described in detail above. The table below summarizes the principal
balances of the Company's obligations for indebtedness and lease obligations as
of December 31, 2007 in accordance with their required payment terms (in
thousands):
Payments due by calendar year period
-------------------------------------------------------------------------
Total 2008 2009-2010 2011-2012 Thereafter
-------------------------------------------------------------------------
Contractual Obligations-Credit Facility $ 20,000 $ - $ 20,000 $ - $ -
Operating Lease Obligations 2,809 689 1,180 610 330
-------------------------------------------------------------------------
$ 22,809 $ 689 $ 21,180 $ 610 $ 330
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Net Cash Flows
Year Ended December 31, 2007 vs. Year Ended December 31, 2006
Operating Activities
Net cash used in operating activities was $279,000 for 2007 versus net cash
used in operating activities of $2,619,000 in 2006. For 2007, cash provided by
operating activities was primarily related to (i) income from continuing
operations of $5,724,000 and a decrease in operating subsidies receivable of
$3,184,000, reduced by (ii) a decrease in income taxes payable of $5,890,000,
(iii) an increase in accounts receivable of $1,909,000 and (iv) an increase of
due from affiliates of $1,535,000. For 2006, cash used in operating activities
of $2,619,000 was primarily related to (i) net cash used in the discontinued
operation of $5,610,000, (ii) a decrease in accounts payable and accrued
expenses of $3,036,000, (iii) provisions for injuries and damages of $2,470,000,
reduced by (iv) a decrease in operating subsidies receivable of $4,792,000 and
(v) an increase in income taxes payable of $3,912,000.
Investing Activities
Net cash provided by investing activities was $7,957,000 in 2007 versus $11,427,000 in 2006. The 2007 balance primarily pertains to cash acquired in the merger of $8,670,000 and proceeds from the sale of investments of $970,000. The 2006 balance primarily pertains to the proceeds from the sale of the discontinued operation of $11,143,000.
Financing Activities
Net cash used in financing activities in 2007 of $5,277,000 primarily pertains to the E&P distribution of $19,094,000, principal payments on the notes payable of $2,086,000 and the buy-back of common stock of $1,787,000, reduced by the proceeds from the revolving credit facility. Cash used in financing activities was $300,000 for 2006 and related to the payment of dividends
Year Ended December 31, 2006 vs. Year Ended December 31, 2005
Operating Activities
Cash used in operating activities for 2006 was $2,619,000 as compared to
cash used in operations of $1,846,000 in 2005, a difference of $773,000. For
2006, cash used in operating activities of $2,619,000 was primarily related to
(i) provisions for injuries and damages claims of $2,470,000, (ii) provision for
deferred taxes of $117,000, (iii) increases in deferred leasing commissions of
$1,221,000, (iv) decreases in accounts payable of $3,036,000, (v) decreases in
other current liabilities of $1,138,000, and (vi) decreases in cash used in
discontinued operation of $5,610,000. These decreases in cash flow were
partially offset by (i) net earnings from continuing operations of $1,551,000,
(ii) decreases in operating subsidies and other amounts due from the City of New
York of $4,792,000, (iii) decreases in prepaid expenses and other assets of
$216,000, (iv) decreases in prepaid income taxes of $104,000, (v) increases in
income tax payable of $3,912,000, (vi) equity in loss of affiliated companies of
$501,000, and (vi) decrease in due from affiliates of $610,000.
Investing Activities
Cash provided by investing activities of $11,427,000 for 2006 increased $11,459,000 versus $32,000 used in investing activities for 2005. The increase was primarily related to cash proceeds received from the sale of discontinued operation totaling $11,143,000.
Financing Activities
Cash used in financing activities was $300,000 for 2006 and $301,000 for 2005. Cash used in financing activities in 2006 and 2005 related to the payment of dividends.
Possible Acquisitions
The Board of Directors of GTJ REIT intends to expand its real property holdings. This would be done through cash purchases of properties that the Board of Directors determines to be consistent with the investment policies of GTJ REIT which would be funded initially from the revolving credit. It is anticipated that once these properties are purchased using the revolving credit, permanent mortgage financing will be placed on the real properties and the revolving credit will be paid down accordingly. It is also possible that GTJ and its subsidiaries will desire to make an acquisition, some of which may need to be funded by GTJ REIT. GTJ REIT would, in that case, and subject to the direction of the Board of Directors, provide such financing, which again is expected to be obtained from the $72,500,000 revolving credit facility. On February 1, 2008, the Company entered into an agreement to purchase a property located in the Hartford, Connecticut area. In connection with this agreement, the Company has made an initial deposit in the amount of $2,300,000. The purchase price of the property is approximately $23,300,000. The closing of this transaction occurred on March 3, 2008. The acquisition cost was funded from the Company's secured credit facility.
Cash payments for financing
Payment of interest under the $72,500,000 revolving credit, and under permanent mortgages, will consume a portion of the cash flow of GTJ REIT, reducing net income and the resulting distributions to be made to the stockholders of GTJ REIT.
Trend in financial resources
Other than the revolving credit facility discussed above under ING Financing Agreement, GTJ REIT can expect to receive additional rent payments over time due to scheduled increases in rent set forth in the leases on its real properties. It should be noted, however, that the additional rent payments are expected to result in an approximately equal obligation to make additional distributions to stockholders, and will therefore not result in a material increase in working capital.
Environmental Matters
The Company's real property has had activity regarding removal and replacement of underground storage tanks. Upon removal of the old tanks, any soil found to be unacceptable was thermally treated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place at certain locations. In July 2006, the Company entered into an informal agreement with the New York State Department of Environmental Conservation ("NYSDEC") whereby the Company has committed to a three-year remedial investigation and feasibility study (the "Study") for all site locations.
In conjunction with this informal agreement, the Company has retained the services of an environmental engineering firm to assess the cost of the Study. The Company's engineering report has an estimated cost range in which the low-end of the range, of approximately $5.2 million (of which the Company's portion is $1.4 million) was only for the Study. In addition, a high-end range estimate, of approximately $10.4 million (of which the Company's portion was $2.8) was included which provided a "worst case" scenario whereby the Company would be required to perform full remediation on all site locations. While management believes that the amount of the Study and related remediation is likely to fall within the estimated cost range, no amount within that range can be determined to be the better estimate. Therefore, management believes that
recognition of the low-range estimate is appropriate. While additional costs associated with environmental remediation and monitoring are probable, it is not possible at this time to reasonably estimate the amount of any future obligation until the Study has been completed. As of December 31, 2007, the Company has recorded a liability of $1,033,000 related to its portion of the Study as disclosed in the engineering report. Presently, the Company is not aware of any claims or remediation requirements from any local, state or federal government agencies. Each of the properties is a commercial zone and is still used as transit depots, including maintenance of vehicles.
Inflation
Low to moderate levels of inflation during the past several years have favorably impacted the Company's operations by stabilizing operating expenses. At the same time, low inflation has had the indirect effect of reducing the Company's ability to increase tenant rents. However, the Company's properties have tenants whose leases include expense reimbursements and other provisions to minimize the effect of inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk on its variable-rate mortgage loan payable and secured revolving credit facility. The Company will, when advantageous, hedge its interest rate risk using derivative financial instruments. The Company is not subject to foreign currency risk.
The Company is exposed to interest rate changes primarily through the secured floating-rate revolving credit facility used to maintain liquidity, fund capital expenditures and expand its real estate investment portfolio. The Company's objectives with respect to interest rate risk are to limit the impact of interest rate changes on operations and cash flows, and to lower its overall borrowing costs. To achieve these objectives, the Company may borrow at fixed rates and may enter into derivative financial instruments such as interest rate caps in order to mitigate its interest rate risk on a related variable-rate financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
At December 31, 2007, debt consisted of variable-rate mortgage loans payable, and the variable-rate secured revolving credit facility. The average interest rate on the $20.0 million of indebtedness outstanding was 6.9%, maturing in 2010. Based on the amount of variable-rate debt outstanding at December 31, 2007, if interest rates either increase or decrease by 1%, the Company's net income would decrease or increase respectively by approximately $200,000 per annum.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GTJ REIT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm........................................................F-1
Consolidated Balance Sheets as of December 31, 2007 and 2006...................................................F-2
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005.........................F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2007, 2006 and 2005..........F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005.....................F-5
Notes to Consolidated Financial Statements.....................................................................F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of GTJ REIT, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of GTJ REIT, Inc. and Subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in Notes 12 and 16 to the consolidated financial statements, the December 31, 2006 consolidated financial statements have been restated to reflect the correction of an error related to federal and state income taxes. The error and certain disclosures in connection with the presentation of liabilities, income and cash flows have been restated to correct the error and to provide additional disclosure. The effect of this adjustment is to increase net income by approximately $600,000 or $159.29 per common share for the year ended December 31, 2006.
Weiser LLP
New York, New York
April 30, 2008
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
------------------------------------------
ASSETS 2007 2006
-------------------- ---------------------
(Restated)
Real estate at cost:
Land $ 85,051 $ 434
Buildings and improvements 7,974 6,591
------------------ -----------------
93,025 7,025
Less: accumulated depreciation and amortization (6,036) (5,476)
------------------ -----------------
Net real estate for investment 86,989 1,549
Cash and cash equivalents 11,920 9,519
Available for sale securities 4,815 1,219
Restricted cash 2,852 451
Accounts receivable 8,477 -
Operating subsidies receivable - 492
Due from affiliates - 5,402
Investments in affiliates - 1,971
Other assets, net 6,259 2,108
Deferred charges, net of accumulated amortization 2,462 1,221
Machinery and equipment, net 923 10
------------------ -----------------
Total assets $ 124,697 $ 23,942
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured revolving credit facility $ 20,000 $ -
Accounts payable and accrued expenses 2,170 18
Income taxes payable - 4,240
Due to affiliates - 1,183
Unpaid losses and loss adjustment expenses 2,959 -
Other liabilities, net 5,355 907
------------------ ------------------
30,484 6,348
------------------ ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized
and none issued and outstanding - -
Common stock, $.0001 par value; 100,000,000 shares authorized
and 13,472,281 shares issued and outstanding at December 31, 2007
and common stock, no par value, 4,750 shares authorized and
3,766.50 shares issued and outstanding at December 31, 2006 1 377
Additional paid-in capital 136,687 -
Cumulative distributions in excess of net income at December 31,
2007 and retained earnings at December 31, 2006 (42,985) 16,789
Accumulated other comprehensive income 510 428
------------------ ------------------
94,213 17,594
----------------- ------------------
Total liabilities and stockholders' equity $ 124,697 $ 23,942
================== ==================
|
The accompanying notes and report of independent registered public accounting firm should be read in conjunction with the consolidated financial statements.
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Years Ended December 31,
------------------------------------------------------------------
2007 2006 2005
--------------------- --------------------- -------------------
Revenues: (Restated)
Property rentals $ 9,451 $ 3,908 $ -
Outdoor maintenance and cleaning operations 24,084 - -
Paratransit operations 9,537 - -
--------------------- --------------------- -------------------
Total revenues 43,072 3,908 -
--------------------- --------------------- -------------------
Operating expenses:
General and administrative expenses 9,167 659 -
Equipment maintenance and garage expenses 3,612 - -
Transportation expenses 7,240 - -
Contract maintenance and station expenses 10,778 - -
Insurance and safety expenses 2,724 - -
Operating and highway taxes 1,758 - -
Other operating expenses 575 - -
Depreciation and amortization expense 566 281 317
--------------------- --------------------- -------------------
Total operating expenses 36,420 940 317
Operating income (loss) 6,652 2,968 (317)
Other income (expense):
Interest income 887 - -
Interest and debt discount expense (including
amortization of deferred financing costs of $101) (812) - -
Change in insurance reserves 254 - -
Other (127) - -
--------------------- --------------------- -------------------
Total other income (expense): 202 - -
Income (loss) from continuing operations before income
taxes and equity in earnings (loss) of affiliated
companies 6,854 2,968 (317)
Provision for income taxes (1,190) (916) (684)
Equity in earnings (loss) of affiliated companies, net
of tax 60 (501) 1,390
--------------------- --------------------- -------------------
Income from continuing operations 5,724 1,551 389
Discontinued Operation:
Income (loss) from operations of discontinued
operation, net of taxes (324) (7,995) 1,338
Gain on sale of discontinued operation, net of taxes - 8,269 -
--------------------- --------------------- -------------------
Income (loss) from discontinued operation, net of (324) 274 1,338
taxes
Net income $ 5,400 $ 1,825 $ $1,727
==================== ==================== ==================
Income per common share--basic and diluted:
Income from continuing operations $ 0.70 $ 411.79 $ 103.20
==================== ==================== ==================
Income (loss) from operations of discontinued
operation, net of taxes $ (0.04) $ (2,122.78) $ 355.31
==================== ==================== ==================
Gain on sale of discontinued operation, net of
taxes $ - $ 2,195.52 $ -
==================== ==================== ==================
Net income $ 0.66 $ 484.53 $ 458.51
==================== ==================== ==================
Weighted-average common shares outstanding--basic and
diluted 8,126,995 3,766.50 3,766.50
==================== ==================== ==================
|
The accompanying notes and report of independent registered public accounting firm should be read in conjunction with the consolidated financial statements.
GTJ REIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
Preferred Stock Common Stock
Cumulative Distributions in
Excess of Net Income at Accumulated
Out- Out- Additional December 31, 2007 and Other Total
standing standing Paid- Retained Earnings at Comprehensive Stockholders'
Shares Amount Shares Amount In-Capital December 31, 2006 Income Equity
---------- ------- --------- --------- ------------- --------------------- -------------- -------------
Balance at December 31, 2004 - - 3,767 $377 $ - $13,839 $ (7,955) $ 6,261
Dividends paid, $79.80 per
share - - - - - (301) - (301)
Comprehensive income:
Net income - - - - - 1,727 - 1,727
Unrealized loss on
available-for-sale
securities, net - - - - - - (8) (8)
Additional minimum pension
liability, net of tax of
$2,498,735 - - - - - - (3,748) (3,748)
Additional minimum pension
liability, investment in
affiliate - - - - - - (544) (544)
-------------
Total comprehensive (loss) - - - - - - - (2,573)
---------- ------- --------- --------- ----------- ----------------- -------------- -------------
Balance at December 31, 2005 - - 3,767 377 - 15,265 (12,255) 3,387
Dividends paid, $79.80 per
share - - - - - (301) - (301)
Comprehensive income:
Net income, as restated - - - - - 1,825 - 1,825
Minimum pension liability
adjustment - - - - - - 12,255 12,255
Unrealized gain on
available-for-sale
securities, net - - - - - - 428 428
-------------
Total comprehensive income - - - - - - - 14,508
---------- ------- --------- --------- ----------- ----------------- -------------- -------------
Balance at December 31, 2006 - - 3,767 377 - 16,789 428 17,594
Dividends paid, $39.82 per
share - - - - - (150) - (150)
Shares issued in connection
with merger - - 10,000,361 1 (1) - - -
Recapitalization of company - - (3,767) (377) 96,417 - - 96,040
Buy back of shares due to
appraisal rights - - (303,480) - (1,786) - - (1,786)
Dividends paid, $0.05 per
share - - - - - (485) - (485)
Earnings & profits
distribution paid, $0.11
per share - - - - - (1,067) - (1,067)
Earnings & profits
distribution paid, $0.105
per share - - - - - (1,415) - (1,415)
Distribution of historical
earnings & profits, $11.14
per share - - 3,775,400 - 42,057 (62,057) - (20,000)
Comprehensive income:
Net income - - - - - 5,400 - 5,400
Unrealized gain on
available-for-sale
securities, net - - - - - - 82 82
-------------
Total comprehensive income - - - - - - - 5,482
---------- ------- --------- --------- ----------- ----------------- -------------- -------------
Balance at December 31, 2007 - $ - 13,472,281 $ 1 $ 136,687 $(42,985) $ 510 $ 94,213
========== ======= ========= ========= =========== ================= ============== =============
|
The accompanying notes and report of independent registered public accounting firm should be read in conjunction with the consolidated financial statements.
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------------------------------------
2007 2006 2005
-------------- ---------------- -----------------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,400 $ 1,825 $ 1,727
Loss from discontinued operation 324 (274) (1,338)
-------------- ---------------- -----------------
Income from continuing operations 5,724 1,551 389
Adjustments to reconcile net income to net cash used in operating
activities
Cash provided by (used in) operating activities:
Provisions for deferred taxes 242 (117) 203
Changes in insurance reserves (1,382) - -
Provisions for injuries and damages claims - (2,470) (1,481)
Equity in earnings of affiliated companies, net of tax (60) 501 (1,390)
Depreciation and amortization 566 281 317
Unrealized gain (loss) on available for sale securities 60 (428) 8
Other 71 - -
Amortization of deferred charges 148
Changes in operating assets and liabilities:
Operating subsidies receivable-injuries and damages withholding 3,184 4,792 463
Accounts receivable (1,909) - -
Other receivables - (31) (120)
Due to (from) affiliates, net (1,535) 610 (46)
Prepaid expenses and other assets 852 (216) 724
Deferred charges - (1,220) -
Accounts payable and accrued expenses 298 (3,036) 311
Income taxes payable (5,890) 3,912 316
Other liabilities (324) (1,138) 3,217
Net cash used in discontinued operation (324) (5,610) (4,757)
-------------- ---------------- -----------------
Net cash used in operating activities (279) (2,619) (1,846)
-------------- ---------------- -----------------
Investing activities:
Cash acquired in merger 8,670 - -
Purchases of property and equipment (637) - (3)
Due from affiliates - - 12
Purchase of investments (374) (50) (41)
Proceeds from sale of investments 970 335 -
Reclassification from cash to investments (1,458) - -
Restricted cash 786 - -
Proceeds from sale of discontinued operation - 11,143 -
-------------- ---------------- -----------------
Net cash provided by (used in) investing activities 7,957 11,427 (32)
Financing activities:
Proceeds from revolving credit facility 20,000 - -
Principal repayments on notes payable, bank (2,086) - 2,400
Payment of deferred financing costs (608) - -
Buy back of common stock (1,787) - (2,400)
Dividends paid (1,702) (300) (301)
E&P Distribution (19,094) - -
-------------- ---------------- -----------------
Net cash used in financing activities (5,277) (300) (301)
-------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 2,401 8,508 (2,179)
-------------- ---------------- -----------------
Cash and cash equivalents at the beginning of year 9,519 1,011 3,190
-------------- ---------------- -----------------
Cash and cash equivalents at the end of year $ 11,920 $ 9,519 $ 1,011
============== ================ ==================
Supplemental cash flow information:
Interest paid $ 685 $ 12 $ 3
============== ================ ==================
Cash paid for taxes $ 6,056 $ 238 $ 224
============== ================ ==================
|
The accompanying notes and report of independent registered public accounting firm should be read in conjunction with the consolidated financial statements.
GTJ REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Supplemental non-cash investing activities-Merger with Triboro
Years Ended December 31,
---------------------------------------------------
2007 2006 2005
--------------- --------------- -- -------------
Cash and cash equivalents $ 4,559 $ - $ -
Operating subsidies receivables 1,752 - -
Deferred leasing commissions 782 - -
Other assets, net 1,512 - -
Securities available for sale 1,362 - -
Property and equipment 39,400 - -
Income tax payable (294) - -
Other liabilities, net (629) - -
Fair value of real property through its ownership interest in GTJ 15,638 - -
Fair value of operating assets and liabilities through its - -
ownership interest in GTJ 2,320
--------------- --------------- -------------
Total purchase price in common stock $ 66,402 $ - $ -
=============== =============== =============
Supplemental non-cash investing activities-Merger with Jamaica
Years Ended December 31,
---------------------------------------------------
2007 2006 2005
--------------- --------------- -- -------------
Cash and cash equivalents $ 190 $ - $ -
Operating subsidies receivables 941 - -
Other assets, net 964 - -
Securities available for sale 440 - -
Property and equipment 23,100 - -
Income tax payable (157) - -
Other liabilities, net (422) - -
Fair value of real property through its ownership interest in GTJ 7,819 - -
Fair value of operating assets and liabilities through its
ownership interest in GTJ 1,160 - -
---------------- --------------- -------------
Total purchase price in common stock $34,035 $ - $ -
================ =============== =============
|
The accompanying notes and report of independent registered public accounting firm should be read in conjunction with the consolidated financial statements.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
GTJ REIT, Inc. (the "Company" or "GTJ REIT") was incorporated in Maryland on June 23, 2006 as a blank check company and was formed to engage in any lawful act or activity including, without limitation or obligation, qualifying as a real estate investment trust under Sections 856 through 860, or any successor sections of the Internal Revenue Code of 1986, as amended (the "Code"), for which corporations may be organized under Maryland General Corporation Law. The Company has focused primarily on the ownership and management of commercial real estate primarily located in New York City. The Company, through its non-REIT subsidiaries provides outdoor maintenance and shelter cleaning operations to outdoor advertising companies in New York, New Jersey, Arizona and California.
At March 29, 2007, the Company commenced operations upon the completion of the Reorganization described below. Effective July 1, 2007, the Company elected REIT status. The Company has selected December 31 as its fiscal year end. Additionally, in connection with the Tax Relief Extension Act of 1999 ("RMA"), the Company is permitted to participate in activities outside the normal operations of the REIT so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code, as amended (the "Code"), subject to certain limitations.
At December 31, 2007, the Company owned six properties containing a total of approximately 453,000 square feet of leasable area. See Note 19.
Reorganization
On July 24, 2006, the Company entered into merger agreements and subsequently closed on March 29, 2007 into merger agreements (the "Agreements") with by and among TRIBORO COACH CORP., a New York corporation ("Triboro"); JAMAICA CENTRAL RAILWAYS, INC., a New York corporation ("Jamaica"); GREEN BUS LINES, INC., a New York corporation ("Green" and together with Triboro and Jamaica, collectively referred to as the "Bus Companies" and each referred to as a "Bus Company"); GTJ REIT, TRIBORO ACQUISITION, INC., a New York corporation ("Triboro Acquisition"); JAMAICA ACQUISITION, INC., a New York corporation ("Jamaica Acquisition"); and GREEN ACQUISITION, INC., a New York corporation ("Green Acquisition," and together with Jamaica Acquisition and Triboro Acquisition collectively referred to as the "Acquisition Subsidiaries" and each referred to as an "Acquisition Subsidiary"). The effect of the mergers is to complete a Reorganization ("Reorganization") into the Company.
Under the terms of the Agreements, each share of common stock of each Bus Company issued and outstanding shares immediately prior to the effective time of the mergers, was converted into the right to receive the following shares of the Company's common stock:
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
o Each share of Green common stock was converted into 1,117.429975 shares of the Company's common stock.
o Each share of Triboro common stock was converted into 2,997.964137 shares of the Company's common stock.
o Each share of Jamaica common stock was converted into 195.001987 shares of the Company's common stock.
The Bus Companies, including their subsidiaries, own a total of six rentable parcels of real property at December 31, 2007, four of which are leased to the City of New York ("City"), one of which is leased to a commercial tenant (all five on a triple net basis), and one of which is used in part by the Bus Companies' existing operations and the remainder of which is leased to a commercial tenant, not on a triple net basis. There is an additional property of negligible size which is not rentable. Prior to the Reorganization, the Bus Companies and their subsidiaries, collectively, operated a group of outdoor maintenance businesses and a paratransit business, which have been acquired as part of the merger.
On July 1, 2007, the Company adopted a Real Estate Investment Trust ("REIT") structure. In order to adopt a REIT structure, it was necessary to combine the Bus Companies and their subsidiaries under a single holding company, the "Reorganization." The Company is the holding company. The Company has formed three wholly-owned New York corporations and each of the Bus Companies merged with one of these subsidiaries to become wholly-owned subsidiaries of the Company. The mergers required the approval of the holders of at least 66 2/3 % of the outstanding shares of common stock of each of Green, Triboro and Jamaica, voting separately and not as one class, which was obtained on March 26, 2007.
Based on third-party valuations of the real property, outdoor maintenance businesses, and the paratransit business, and considering the ownership of the same in whole or part by each of the Bus Companies, the Company has been advised by an outside appraisal firm that the relative valuation of each of the Bus Companies (as part of GTJ REIT, Inc.) is Green--42.088%, Triboro--38.287% and Jamaica--19.625%. Accordingly, under the Reorganization, 10,000,361(including 361 fractional shares) shares of the Company common stock were distributed. 4,208,800 shares to the shareholders of Green, 3,828,700 shares to the shareholders of Triboro and 1,962,500 shares to the shareholders of Jamaica, in such case in proportion to the outstanding shares held by such shareholders of each Bus Company, respectively.
As part of becoming a REIT, the Company was required, after the Reorganization, to make a distribution of the Bus Companies' historical undistributed earnings and profits, calculated to be an estimated $62,060,000 (see Note 9). The Company distributed $20,000,000 in cash, and 3,775,400 shares of the Company's common stock, valued at $11.14 per share calculated as follows:
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Total Value of the Bus Companies $ 173,431,797
Assumed E&P--Cash distribution 20,000,000
-----------------
Total value after cash distribution 153,431,797
Assumed E&P--Stock distribution 42,000,000
-----------------
Total value after stock distribution $ 111,431,797
=================
Reorganization shares 10,000,000
Share Value Post Earnings and Profits $ 11.14
==================
|
The Reorganization was accounted for under the purchase method of accounting as required by Statement of Financial Accounting Standards No. 141 "Business Combinations", ("SFAS No. 141") issued by the Financial Accounting Standards Board. Since GTJ REIT has been formed to issue equity interests to effect a business combination, as required by SFAS No. 141, one of the existing combining entities was required to be determined the acquiring entity. Under SFAS No. 141, the acquiring entity is the combining entity whose owners as a group retained or received the larger portion of the voting rights in the combined entity. As a result of the Reorganization, Green stockholders have a 42.088% voting interest, Triboro shareholders have a 38.287% voting interest, and Jamaica shareholders have a 19.625% voting interest. Additionally, under SFAS No. 141, in determining the acquiring entity, consideration was given to which combining entity initiated the combination and whether the assets, revenues, and earnings of one of the combining entities significantly exceed those of the others.
Each stockholder elected a combination of cash and stock, or exclusively cash or stock. If more than $20,000,000 of cash was elected in the aggregate cash distributed to each stockholder electing to receive some or all of his or her distribution in cash was to be reduced such that the aggregate cash distribution will total $20,000,000, and the balance of the distribution to each such stockholder will be made in the Company's common stock. The Company distributed $19,093,564 in cash and 3,775,399 shares of common stock (with an approximate value of $42,060,000). The remaining balance of $906,436 is included in other liabilities in the consolidated balance sheet at December 31, 2007. Green's assets at December 31, 2006 total $23.9 million as compared to Triboro's assets of $19.4 million, and Jamaica's assets of $10.2 million, and Green's revenues on a going forward basis are expected to exceed that of Triboro and Jamaica. As a result of these facts, Green was deemed to be the accounting acquirer for this transaction and the historical financial statements of the newly formed Company are those of Green.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Under the purchase method of accounting, Triboro's and Jamaica's assets and liabilities were acquired by Green and have been recorded at their fair value. Accordingly, under the Reorganization, 10,000,000 shares of the Company's common stock were distributed, 4,208,800 shares to the shareholders of Green, 3,828,700 shares to the shareholders of Triboro and 1,962,500 shares to the shareholders of Jamaica, in such case in proportion to the outstanding shares held by such shareholders of each Bus Company, respectively.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values are based on third-party valuations. The fair value of net assets acquired for the remaining interest in GTJ, not previously owned by Green, exceeded the total consideration for the acquisition by approximately $5,957,000 (of which an additional adjustment of $1,077,000 was recorded at December 31, 2007 to adjust certain acquired deferred tax liabilities), also resulting in negative goodwill. The excess (negative goodwill) was allocated on a pro rata basis to long-lived assets.
The following table summarizes the allocation of the purchase price in the form of a condensed balance sheet reflecting the estimated fair values (after the allocation of negative goodwill) of the amounts assigned to each major asset and liability caption of the acquired entities at the date of acquisition (in thousands):
Triboro Jamaica Total
----------------- -----------------------------------
Issuance of stock $ 66,402 $ 34,035 $ 100,437
----------------- -----------------------------------
Cash and cash equivalents 6,126 974 7,100
Restricted cash 1,275 637 1,912
Accounts receivable 2,627 1,314 3,941
Operating subsidies receivables 1,752 941 2,693
Deferred leasing commissions 782 - 782
Other assets 2,682 1,549 4,231
Securities available for sale 1,668 593 2,261
Real property and equipment 55,038 30,919 85,957
Machinery and equipment 149 75 224
----------------- -----------------------------------
Total assets $ 72,099 $ 37,002 $ 109,101
----------------- -----------------------------------
Accounts payable and accrued expenses 741 371 1,112
Revolving Credit 168 84 252
Note payable 666 333 999
Income tax payable 294 157 451
Deferred tax liability 248 124 372
Unpaid losses and loss adjustment expenses 1,736 868 2,604
Other liabilities 1,844 1,030 2,874
----------------- -----------------------------------
Total liabilities $ 5,697 $ 2,967 $ 8,664
----------------- -----------------------------------
Fair value of net assets acquired $ 66,402 $ 34,035 $ 100,437
================= ===================================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
The results of operations for Triboro, Jamaica and GTJ for the period from March 29, 2007 to March 31, 2007, are not reflected in the Company's results for the year ended December 31, 2007 in the accompanying consolidated statements of income as the results were deemed to be immaterial.
Unaudited Pro-Forma Financial Information
The following presents the unaudited pro-forma combined results of operations of the Company with Green, Jamaica, Triboro and GTJ included for the periods preceding the merger on March 29, 2007 (in thousands, except per share data).
For the Years Ended December 31,
------------------------------------------------------------------------------------------------
2007 2006
------------------------------------------------------------------------------------------------
Revenues $ 54,081 $ 43,172
================ ==============
Net income (loss) from continuing
operations $ 6,705 $ 1,169
================ ==============
Net income (1) $ 6,291 $ 9,400
================ ==============
Pro-forma basic and diluted
net income per common share $ 0.59 $ 0.94
================ ==============
Pro-forma weighted average
common shares outstanding
- basic and diluted 10,593,109 10,000,361
=============== =============
|
(1) Net income for the years ended December 31, 2007 and 2006 includes (loss) income from discontinued operation, net of taxes of $(452,000) and $8,231,000, respectively.
The pro forma combined results are not necessarily indicative of the results that actually would have occurred if the mergers of Triboro, Jamaica and GTJ had been completed as of the beginning of 2007 or 2006, nor are they necessarily indicative of future consolidated results.
Prior to the Reorganization, Green operated franchised transit bus routes in the City of New York pursuant to an operating authority which expired on April 30, 2005, and an Operating Assistance Agreement ("OAA") with the City which expired on September 30, 1997, Green and the City, by mutual understanding, continued to abide by the terms of the OAA. Funding for continuation of operations of the Company's franchised transit bus routes were dependent upon the continuation of its operating authority and operating assistance relationship with the City (see Note 3).
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Principles of Consolidation
The consolidated financial statements include the accounts of GTJ REIT, Inc., and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company has included the results of operations of acquired companies from the closing date of the acquisition. Since the operating cycle of real estate companies tends to exceed one year, the Company has presented an unclassified balance sheet.
Reclassifications:
Certain prior period amounts have been reclassified to conform to the current year presentation.
Use of Estimates:
The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates include those related to uncollectible receivables, the usefulness of long lived assets including property and equipment, income taxes, contingencies, environmental matters and insurance liabilities.
Real Estate Investments:
Real estate assets are stated at cost, less accumulated depreciation and amortization. All capitalizable costs related to the improvement or replacements of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and buildings improvements) and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases) in accordance with SFAS No. 141, "Business Combinations." The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property "as-if-vacant." The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company's history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property "as-if-vacant," determined as set forth above.
Above and below market leases acquired are recorded at their fair value. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company's evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The value of in-place leases are amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible asset is expensed.
Depreciation and Amortization:
The Company uses the straight-line method for depreciation and amortization. Properties are depreciated over the estimated useful lives of the properties, which range from 10 to 25 years. Property improvements are depreciated over the estimated useful lives that range from 10 to 25 years. Furniture and fixtures, equipment, and transportion equipment is depreciated over the estimated useful lives that range from 8 to 25 years. Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Deferred Charges:
Deferred charges consist principally of leasing commissions (which are amortized ratably over the life of the tenant leases) and financing fees (which are amortized over the terms of the respective agreements). Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of $2,462,000 and $1,221,000 as of December 31, 2007 and 2006, respectively.
Asset Impairment:
The Company applies SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), to recognize and measure impairment of long-lived assets. Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment's use and eventual disposition. Such cash flow analysis include factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties. These assessments have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.
When impairment indicators were present, investments in affiliated companies were reviewed for impairment by comparing their fair value to their respective carrying amounts. The Company made its estimate of fair value by considering certain factors including discontinued cash flow analyses. If the fair value of the investment had dropped below the carrying amount, management considered several factors when determining whether other-than-temporary decline in market value had occurred, including the length of the time and the extent to which the fair value had been below cost, the financial condition and near-term prospects of the affiliated company, and other factors influencing the fair market value, such as general market conditions.
Reportable Segments:
The Company operates in four reportable segments: Real Estate Operations, Outside Maintenance and Shelter Cleaning Operations, Insurance Operations, and Paratransit Operations, all of which are conducted throughout the U.S., with the exception of the Insurance Operations which are conducted in the Cayman Islands.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
o Real Estate Operations rents Company owned real estate located in New York.
o Outside Maintenance and Shelter Cleaning Operations provide outside maintenance and shelter cleaning services to outdoor advertising companies in New York, New Jersey, Arizona and California.
o Insurance Operations assumes reinsurance of worker's compensation, vehicle liability and covenant liability of the Company and its affiliated Companies from an unrelated insurance company based in the United States of America.
o Paratransit Operations provide paratransit service in New York for physically and mentally challenged persons who are unable to use standard public transportation (see Note 19).
Revenue Recognition--Real Estate Operations:
The Company recognizes revenue in accordance with Statement of Financial Accounting Standards No. 13,"Accounting for Leases" ("SFAS No. 13), as amended. SFAS No. 13 requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The properties are being leased to tenants under operating leases. Minimum rental income is recognized on a straight-line basis over the term of the lease. The excess of amounts so recognized over amounts due pursuant to the underlying leases amounted to approximately $2,524,000 at December 31, 2007.
Property operating expense recoveries from tenants of common area maintenance, real estate and other recoverable costs are recognized in the period the related expenses are incurred.
Revenue Recognition--Outside Maintenance and Shelter Cleaning Operations:
Cleaning and maintenance revenue is recognized upon completion of the related service.
Revenue Recognition--Insurance Operations:
Premiums are recognized as revenue on a pro rata basis over the policy term. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Revenue Recognition--Paratransit Operations:
Paratransit and operations are recognized upon completion of the related transportation service.
Earnings Per Share Information:
In accordance with SFAS No. 128, "Earnings Per Share", basic earnings per common share ("Basic EPS") is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding. Diluted earnings per common share ("Diluted EPS") are computed by dividing net income by the weighted-average number of common shares and dilutive common share equivalents and convertible securities then outstanding. There were no common stock equivalents for any of the periods presented in the Company's consolidated statements of operations
The following table sets forth the computation of basic and diluted per share information (in thousands, except share and per share data):
Year Ended December 31,
Numerator: 2007 2006 2005
(Restated)
------------ ------------- -----------
Net income $ 5,400 $ 1,825 $ 1,727
Denominator: ============ ============= ==========
Weighted average common shares outstanding-basic and
diluted 8,126,995 3,766.50 3,766.50
Basic and Diluted Per Share Information: ============ ============= ==========
Net income per share--basic and diluted $ 0.66 $ 484.53 $ 458.51
============ ============= ==========
|
Discontinued Operations:
The consolidated financial statements of the Company present the operations of Green's Bus operations as discontinued operations in accordance with SFAS No. 144.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Restricted Cash:
Restricted cash includes certain certificates of deposit amounting to $451,000 at December 31, 2007 and 2006 that are on deposit with various government agencies as collateral to meet statutory self-insurance funding requirements. In addition, at December 31, 2007, AIG held $2,400,759 on behalf of the Company that was restricted by AIG for the purpose of the payment of insurance losses.
Accounts Receivable:
Accounts receivable consist of trade receivables recorded at the original invoice amount, less an estimated allowance for uncollectible accounts. The Company has a contract with the City of New York which requires retainage in the amount of $586,792 as of December 31, 2007 which is included in accounts receivable in the accompanying consolidated balance sheet. Trade credit is generally extended on a short-term basis; thus trade receivables generally do not bear interest. Trade receivables are periodically evaluated for collectibility based on past credit histories with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables.
Available for Sale Securities:
The Company accounts for its available for sale securities in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in accumulated other comprehensive income
(loss), a component of stockholders' equity. Interest on securities is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in the
accompanying consolidated statement of income. The cost of securities sold is
based on the specific identification method. Estimated fair value is determined
based on market quotes.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
The following is a summary of available for sale securities at December 31, 2007 and 2006 (in thousands):
Available-for-Sale Securities
------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
December 31, 2007
Equity securities $ - $ 468 $ - $ 468
Money market fund 1,439 19 - 1,458
U.S. Treasury/U.S. Government debt 2,888 21 (20) 2,889
securities
----------- ----------- ----------- -----------
Total available-for-sale securities $ 4,327 $ 508 $ (20) $ 4,815
=========== =========== =========== ===========
Available-for-Sale Securities
------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
December 31, 2006
Equity securities $ - $ 448 $ - $ 448
U.S. Treasury/U.S. Government debt 791 - (20) 771
securities
----------- ----------- ----------- -----------
Total available-for-sale securities $ 791 $ 448 $ (20) $ 1,219
=========== =========== =========== ===========
|
Other comprehensive income for the years ended December 31, 2007 and 2006 includes unrealized holding gains of approximately $82,000 and $428,000, respectively.
Income Taxes:
Effective July 1, 2007, the Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Company will generally not be subject to federal income taxation on that portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of its taxable income to its shareholders and complies with certain other requirements as defined under Section 856 through 860 of the Code. The Company has eliminated deferred tax assets and liabilities aggregating approximately $575,377 and $306,905, which are included in the provision for income taxes in the accompanying consolidated statement of income for the year ended December 31, 2007 (see Note 12).
In connection with the RMA, the Company is permitted to participate in certain activities so long as these activities are conducted in entities which elected to be treated as taxable subsidiaries under the Code. As such the Company is subject to federal, state and local taxes on the income from these activities. The Company accounts for income taxes under the asset and liability
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
method, as required by the provisions of SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Comprehensive Income:
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 sets forth rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires unrealized gains or losses on the Company's available-for-sale securities to be included in comprehensive income, net of taxes and as a component of stockholders' equity.
Environmental Matters:
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information become available.
Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to remedial investigation and feasibility studies, environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and estimable (see Notes 7 and 13).
Insurance Liabilities:
The liability for losses and loss-adjustment expenses includes an amount for claims reported and a provision for adverse claims development. The liability for claims reported is based on the advice of an independent attorney, while the liability for adverse claims development is based on the director's best estimates. Such liabilities are necessarily based on estimates and, while the directors believe that the amounts are adequate, the ultimate liabilities may be in excess of or less than the amounts recorded and it is reasonably possible that the expectations associated with these amounts could change in the near-term (that is within one year) and that the effect of such changes could be material to the consolidated financial statements. The methods for making such estimates and for establishing the resulting liabilities are continually renewed, and any adjustments are reported in current earnings.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Fair Value of Financial Instruments:
The carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities are reasonable estimates of their fair value because of the short-term nature of the instruments. The carrying value of long-term debt consisting of its credit facility approximates its fair value based upon current rates at which the Company could borrow funds with similar remaining maturities.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents investments, which from time-to-time exceed the Federal depository insurance coverage. Cash balances are insured by the Federal Deposit Insurance Corporation up to $100,000.
Derivative Financial Instruments:
The Company utilizes derivative financial statements, principally interest rate caps, to manage its exposure in fluctuations to interest rates. The Company has established policies and procedures for risk assessment, and the approval, reporting and monitoring of derivative financial instrument activities. The Company has not entered into, and does not plan to enter into, derivative financial instruments for trading or speculative purposes. Additionally, the Company has a policy of only entering derivative contracts with major financial institutions.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", requires the Company to measure derivative instruments at fair value and to record them in the consolidated balance sheet as an asset or liability, depending on the Company's rights or obligations under the applicable derivative contract. The Company's derivative instruments are primarily cash flow hedges that limit the base rate of variable rate debt. For cash flow hedges, the ineffective portion of a derivative's change in fair value is immediately recognized in operations, if applicable, and the effective portion of the fair value difference of the derivative is reflected separately in stockholders' equity as accumulated other comprehensive income.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Recently Issued Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements". This statement defines fair value, establishes a fair value hierarchy to be used in GAAP and expands disclosures about fair value measurements. Although this statement does not require any new fair value measurements, the application could change current practice. The statement is effective for fiscal years beginning after November 15, 2007. Management does not believe that adoption of this statement will have a material impact on the financial position or results of operations of the Company.
In September 2006, the FASB issued SFAS No. 158 Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an Amendment of FASB Statements No. 87, 88, 106, and 132(R). This statement requires a company to recognize the funded status of a benefit plan as an asset or a liability in its statement of financial position. In addition, a company is required to measure plan assets and benefit obligations as of the date of its fiscal year-end statement of financial position. The recognition provision of this statement, along with additional disclosure requirements, is effective for fiscal years ending after December 15, 2006, while the measurement date provision is effective for fiscal years ending after December 15, 2008. Management does not believe that adoption of this statement will have a material impact on the financial position or results of operations of the Company.
Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") -- an interpretation of FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2007, the Company does not have a liability for unrecognized tax benefits.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
In February, 2007, FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of SFAS 115." This statement provides companies with an option to report selected financial assets and liabilities at fair value. This statement is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. Management does not believe that adoption of this statement will have a material impact on the financial position or results of operations of the Company.
In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" which replaces SFAS 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting, the recognition of assets acquired and liabilities assumed arising from contingencies, the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. The statement will apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the effect of this statement.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160"). This statement will change the accounting and reporting for minority interests which will be re-characterized as noncontrolling interests and classified as a component of equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests for all periods presented. The Company is currently evaluating the effect of this statement.
In March 2008, the FASB issued No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 ("SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management does not believe that adoption of this statement will have a material impact on the financial position or results of operations of the Company.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
2. REAL ESTATE:
The Company's components of Rental property consist of the following (in thousands):
December 31,
2007 2006
-------------- --------------
Land $ 85,051 $ 434
Buildings and improvements 7,974 6,591
Accumulated depreciation and amortization (6,036) (5,476)
-------------- --------------
Total $ 86,989 $ 1,549
============== ==============
|
Substantially all these assets have been pledged as collateral for debt obligations (see Note 8).
3. DISCONTINUED OPERATIONS:
On November 29, 2005, the Company entered into an agreement (the "Agreement") and subsequently closed on January 9, 2006 (the "Transition Date") with the City to buy all of the Company's assets used in connection with the Company's bus operations (the "Acquired Assets"). The Acquired Assets included fixtures, furniture and equipment; maintenance records; personnel records; operating schedules; and the intangible value of the development, administration and maintenance of such assets, including the value related to the development and training of employees, the value related to the development of routes and operating schedules, and going concern value or good will for a purchase price of $9,460,000. Under the terms of the Agreement, the City paid additional consideration as follows: (1) an amount equal to the actual invoice cost for the Company's inventory of spare parts and fluids, provided that the Company represent and warrant to the City that it has paid or will pay such invoiced amounts; (2) an amount equal to the book value (net of accumulated depreciation) of the Company's other tangible assets that are Acquired Assets as of the date of closing; (3) if all of the Claimants in the Non-Union Employees v. New York City Department of Transportation and Green Bus Lines, Inc. execute Settlement Authorization Forms, the City will pay the Company an additional $189,200. If less than 100% of the Claimants execute Settlement Authorization Forms, the City will pay the Company an additional amount to be determined by multiplying the percentage of the Claimants who executed the Forms by $300,000, and the Company will receive 37.84% of the amount.
Under the Agreement, the City assured, defended and indemnified the Company against the following: (1) all claims as a result from operations and maintenance of buses up through and including the Transition Date; (2) all claims, losses or damages for bodily injury and/or property damage resulting from or alleged to result from the operation and/or maintenance of buses up to the Transition Date; (3) any and all funding obligations, claims, losses, damages, fines, costs and expenses associated with any withdrawal, termination, freezing or other liability related to the various pension plans; (4) all claims with respect to accrued leave; (5) any claims made by any union or any member of any union arising under any collective bargaining agreement; (6) obligation to pay additional or retrospective premiums in connection with any Workers' Compensation Retrospective Policy; (7) obligation to pay accumulated holiday pay; and (8) any claim or demand is made, any and all claims asserted by vendors in regard to Bus Service, up through and including the Transition Date.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
3. DISCONTINUED OPERATIONS (Continued):
In connection with the Agreement, the City leased the depot and facilities from the Company located at 165-25 147th Avenue, Jamaica, New York, for an initial term of 21 years with a first-year rent of $2,795,000 and a 21st-year rent of $4,092,000 and the depot located at 49-19 Rockaway Beach Blvd., Arverne, New York, for an initial term of 21 years with a first-year rent of $605,000 and a 21st-year rent of $866,000.
The leases are "triple net" leases in that the City agrees to pay all expenses on the property. Each lease has two renewal terms at the City's option of 14 years each so that the total term is a maximum of 49 years. The term of each lease commenced on the date the Company in question closed the sale of the bus company to the City. The terms of the leases are consistent with current market rates.
In connection with Green's agreement to sell all of its assets used in connection with it's bus operations, the results of Green's bus operations have been presented as discontinued operations in the Company's consolidated financial statements for all periods presented.
The following table sets forth the detail of Green's income (loss) from discontinued operations for the years ended December 31, 2007, 2006 and 2005 (in thousands):
Bus Operations
------------------
For the year ended December 31, 2007:
Revenues from discontinued operation $ -
================
Loss from operations of discontinued operation $ (209)
Provision for income taxes (115)
----------------
Loss from discontinued operation, net of taxes $ (324)
================
For the year ended December 31, 2006:
Revenues from discontinued operation $ 3,864
================
Loss from operations of discontinued operation $ (11,215) (1)
Benefit from income taxes 3,320
----------------
Loss from discontinued operation, net of taxes $ (7,995)
================
Gain on sale of discontinued operation $ 11,723
Provision for income taxes (3,454)
----------------
Gain on sale of discontinued operation, net of $ 8,269
taxes ================
For the year ended December 31, 2005:
Revenues from discontinued operation $ 75,942
================
Income from operations of discontinued operation $ 1,156 (1)
Benefit for income taxes (182)
----------------
Income from discontinued operation, net of taxes $ 1,338
================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
3. DISCONTINUED OPERATIONS (Continued):
(1) Operating assistance provided by state and local governments totaled $3,307,576 and $47,491,337 for the years ended December 31, 2006 and 2005, respectively and are included in (loss) income from discontinued operation.
The gain on sale of discontinued operation is calculated as follows:
Gross proceeds from sale of discontinued operation $11,142,885
Write-off of liabilities assumed by New York City 2,262,994
Net book value of assets sold (1,682,885)
-----------
Gain on sale of discontinued operation 11,722,994
===========
|
Net cash used in discontinued operations was $324,000, $5,610,000, and $4,757,000, for the years ended December 31, 2007, 2006, and 2005, respectively.
4. OTHER ASSETS, NET:
Other assets, net, consist of the following (in thousands):
Years Ended December 31,
---------------------------------
2007 2006
---------------- ----------------
Deferred acquisition costs $ - $ 958
Discontinued operations 647 -
Prepaid expenses 1,010 18
Prepaid and refundable income taxes 1,510 -
Deferred taxes, net 263 520
Rental income in excess of amount billed 2,524 581
Other assets 305 31
---------------- ----------------
$ 6,259 $ 2,108
================ ================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
5. INVESTMENT IN AFFILIATES:
The Company had 40% interest in Command Bus Company, Inc., and G.T.J. Company, Inc. ("GTJ Co.") These companies did not declare dividends during 2007, 2006, and 2005. Summary combined financial information for these affiliates through the date of the reorganization whereby the Company acquired the remaining 60% interest and has consolidated these entities from the date of acquisition is as follows (in thousands).
Year Ended December 31, 2007:
Command Bus
GTJ Company, Inc. Company, Inc.
-------------------- --------------------
Total operating revenues and subsidies $ 9,805 $ -
==================== ====================
Income from continuing operations $ 152 $ -
(Loss) income from operations of discontinued
operation (2) 2
-------------------- --------------------
Net income $ 150 $ 2
==================== ====================
Year Ended December 31, 2006:
Command Bus
GTJ Company, Inc. Company, Inc.
-------------------- --------------------
Total operating revenues and subsidies $ 35,011 $ 129 (1)
==================== ====================
Loss from continuing operations $ (1,850) $ -
(Loss) income from operations of discontinued
operation (60) 657
-------------------- --------------------
Net (loss) income $ (1,910) $ 657
==================== ====================
Total Assets $ 28,957 $ 1,375
==================== ====================
Total Liabilities $ 24,433 $ 749
==================== ====================
Year Ended December 31, 2005:
Command Bus
GTJ Company, Inc. Company, Inc.
-------------------- --------------------
Total operating revenues and subsidies (1) $ 29,496 $ 25,174
==================== ====================
Income from continuing operations $ 2,428 $ -
Income (loss) from operations of discontinued
operation 160 (1,647)
Gain on sale of discontinued operations, net
of taxes - 2,533
-------------------- --------------------
Net income $ 2,588 $ 886
==================== ====================
Total Assets $ 30,477 $ 5,023
==================== ====================
Total Liabilities $ 24,048 $ 9,246
==================== ====================
|
(1) Revenues from discontinued operations.
6. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:
The liability for losses and loss adjustment expenses at December 31, 2007 has been reflected in connection with the merger transaction (see Note 1) and is summarized as follows (in thousands):
Years Ended December 31,
----------------------------------
2007 2006
--------------- ---------------
Reported claims $ 2,370 $ -
Provision for incurred but
not reported claims 589 -
--------------- ---------------
$ 2,959 $ -
=============== ===============
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
6. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (Continued):
Management is responsible for estimating the provisions for outstanding losses. The directors have recognized in the financial statements a provision for outstanding losses of $2,959,000 at December 31, 2007. An actuarial study was independently completed which estimated that at December 31, 2007, the total outstanding losses at an expected level, are between $2,650,623 and $3,267,961. In their analysis, the actuaries have used industry based data which may or may not be representative of the Company's ultimate liabilities.
In the opinion of the directors, the provision for losses and loss-adjustment expenses is adequate to cover the expected ultimate liability under the insurance policies written. However, consistent with most companies with similar operations, the Company's estimated liability for claims is ultimately based on management's expectations of future events. It is reasonably possible that the expectations associated with these amounts could change in the near term (that is, within one year) and that the effect of such changes could be material to the consolidated financial statements.
7. OTHER LIABILITIES, NET:
Other liabilities consist of the following (in thousands):
Years Ended December 31,
--------------------------------
2007 2006
---------------- ---------------
Accrued dividends $ 1,415 $ -
Accrued earnings and profits distribution 906 -
Accrued professional fees 221 163
Discontinued operations 948 -
Accrued wages 464 -
Deposit liability 272 -
Accrued environmental costs 1,033 436
Accrued vacation 96 -
Amount due to City of New York - 308
---------------- ---------------
$ 5,355 $ 907
================ ===============
|
8. NOTE PAYABLE TO BANK AND CREDIT FACILITY:
On December 30, 2003, the Green Bus Lines, Inc. and Subsidiary, along with the Triboro Coach Corporation and Subsidiaries, Jamaica Central Railways, Inc. and Subsidiaries, Command Bus Company, Inc., and G.T.J. Company, Inc. and Subsidiaries (the "Affiliated Group"), replaced its then-existing credit facility with a new facility consisting of mortgages and lines of credit which had an expiration date of June 30, 2004. The facility had been renegotiated over several renewals and was extended to June 30, 2007. In July of 2007, the Affiliated Group terminated its relationship with the lender and paid all amounts outstanding under the revolving credit. Under the terms of the agreement, the entire group had a $6.5 million facility consisting of a $4 million revolving credit, which was secured by approximately $4.5 million of cash and bonds held by the Affiliated Group and a $2.5 million second mortgage secured by a mortgage on property owned by G.T.J. Company, Inc., in New York City. The facility of $6.5 million was being used to finance the working capital needs of the Affiliated Group. The facility bore interest at the prime rate and was adjusted from time to time. The loans were collateralized by all tangible assets of the Affiliated Group.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
8. NOTE PAYABLE TO BANK AND CREDIT FACILITY (Continued):
The outstanding debt under this revolving credit was paid in June 2007.
ING Financing Agreement:
On July 2, 2007, the Company entered into a Loan Agreement, dated as of June 30, 2007 (the "Loan Agreement"), among certain direct and indirect subsidiaries of the Company, namely, Green Acquisition, Inc., Triboro Acquisition, Inc., Jamaica Acquisition, Inc., 165-25 147th Avenue, LLC, 49-19 Rockaway Beach Boulevard, LLC, 85-01 24th Avenue, LLC, 114-15 Guy Brewer Boulevard, LLC, (collectively, the "Borrowers"); and ING USA Annuity and Life Insurance Company; ING Life Insurance and Annuity Company; Reliastar Life Insurance Company; and Security Life Of Denver Insurance Company (collectively, the "Initial Lenders" and, together with any other Lenders from time to time party hereto, the "Lenders"). Pursuant to the terms of the Loan Agreement, the Lenders will provide multiple loan facilities in the amounts and on the terms and conditions set forth in such Loan Agreement. The aggregate of all loan facilities under the Loan Agreement shall not exceed $72,500,000. On July 2, 2007, the Initial Lenders made an initial draw down of $17,000,000 on the term loan and in October 2007 made another draw down of $2,000,000 for a total term loan of $19,000,000. In addition to the term loan, the Lenders collectively made a mortgage loan of $1,000,000 to the Borrowers. Interest on the loans shall be paid monthly. The interest on each loan is 6.59% per annum. In addition, there is a one-tenth of one percent non-use fee on the unused portion of the loan facility. The principal shall be paid on the maturity date pursuant to the terms set forth in the Loan Agreement, namely July 1, 2010, unless otherwise extended or renewed.
The loan facilities are collateralized by: (1) an Assignment of Leases and Rents on four bus depot properties (the "Depots") owned by certain of the Borrowers and leased to the City of New York, namely (a) 49-19 Rockaway Beach Boulevard; (b) 165-25 147th Avenue; (c) 85-01 24th Avenue and (d) 114-15 Guy Brewer Boulevard; (2) Pledge Agreements under which (i) GTJ REIT pledged its 100% stock ownership in each of: (a) Green Acquisition; (b) Triboro Acquisition, and (c) Jamaica Acquisition, (ii) Green Acquisition pledged its 100% membership interest in each of (a) 49-19 Rockaway Beach Boulevard, LLC and (b) 165-25 147th Avenue, LLC, (iii) Triboro Acquisition pledged its 100% membership interest in 85-01 24th Avenue, LLC, and (d) Jamaica Acquisition pledged its 100% membership interest in 114-15 Guy Brewer Boulevard, LLC, and (3) a LIBOR Cap Security Agreement under which GTJ Rate Cap LLC, a wholly owned subsidiary of the Company, pledged its interest in an interest rate cap transaction evidenced by the Confirmation and ISDA Master Agreement, dated as of December 13, 2006, with SMBC Derivative Products Limited. The Company had assigned its interest in the interest rate cap transaction to GTJ Rate Cap LLC prior to entering into the Loan Agreement. $1,000,000 of the loan is secured by a mortgage in the amount of $1,000,000 on the Depots collectively ($250,000 for each Depot).
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
8. NOTE PAYABLE TO BANK AND CREDIT FACILITY (Continued):
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" requires the Company to measure derivative instruments at fair value and to record them in the consolidated balance sheet as an asset or liability, depending on the Company's rights or obligations under the applicable derivative contract. The Company's derivative instruments are primarily cash flow hedges that limit the base rate of variable rate debt. For cash flow hedges, the ineffective portion of a derivative's change in fair value is immediately recognized in operations, if applicable, and the effective portion of the fair value difference of the derivative is reflected separately in stockholders' equity as accumulated other comprehensive income. For the year ended December 31, 2007, the amount was deemed to be immaterial.
The credit facility is used to fund acquisitions, dividend distributions, working capital and other general corporate purposes.
In addition to customary non-financial covenants, the Borrowers are obligated to comply with the following financial covenants (1) the Borrowers will not permit the ratio of (a) Consolidated Net Operating Income for any period of four consecutive Fiscal Quarters to (b) Consolidated Debt Service for such period, to be less than 1.3 to 1.0; (2) the Borrowers will not permit the ratio of (a) Consolidated Net Operating Income from Unencumbered Assets for any period of four consecutive Fiscal Quarters to (b) Consolidated Unsecured Debt Service for such period, to be less than 1.3 to 1.0; (3) the Borrowers will not permit the ratio of (a) Consolidated Debt at any time to (b) Total Assets Value at such time, to be greater than 0.6 to 1.0; and (4) the Borrowers will not permit the ratio of a) Total Unencumbered Assets Value at any time to (b) Consolidated Unsecured Debt at such time, to be less than 1.5 to 1.0.
Interest expense for the years ended December 31, 2007, 2006, and 2005 was approximately $718,895, $0 and $0, respectively.
As of March 31, 2008, $43,214,528 was outstanding under this revolving credit (see Note 19).
9. STOCKHOLDERS' EQUITY:
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, $.0001 par value per share, available for issuance. The Company has authorized the issuance of up to 15,564,454 shares of the Company's common stock in connection with the Reorganization and the earnings and profits distribution. The common stock is not convertible or subject to redemption.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
9. STOCKHOLDERS' EQUITY (Continued):
Dividend Distributions
During the quarter ended March 31, 2007, Green paid dividends to its stockholders totaling $150,000. During the quarter ended September 30, 2007, the Company paid dividends to its stockholders totaling $485,000 and $1,066,651, respectively. On December 20, 2007, the Board of Directors of the Company declared a dividend of $1,414,591 that was paid in January 2008.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
Stock Option Plan
On June 11, 2007, the Board of Directors approved the Company's 2007 Incentive Award Plan (the "Plan"). The effective date of the Plan was June 11, 2007, subject to stockholder approval. The stockholders of the Company approved the Plan on February 7, 2008.
The Plan will cover directors, officers, key employees and consultants of the Company. The purposes of the Plan are to further the growth, development and financial success of the Company and to obtain and retain the services of the above individuals considered essential to the long term success of the Company.
The Plan may provide for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may be awarded under the Plan is 1,000,000 shares. The total number of options granted on February 7, 2008 was 255,000.
Special Distribution of Earnings and Profits
On August 20, 2007, the Board of Directors of the Company declared a special distribution of accumulated earnings and profits on the Company's common stock of $6.40 per Company share, payable in $20,000,000 of cash and 3,775,400 of the Company's common stock. For the purposes of the special distribution, the Company's common stock was valued at $11.14, as indicated in the proxy statement/prospectus dated February 9, 2007 filed with the Securities and Exchange Commission and disseminated to the stockholders of the Bus Companies in connection with the March 26, 2007 special joint meeting of the stockholders of the Bus Companies at which meeting such stockholders voted on a reorganization of those companies with and into the Company. The special distribution aggregated approximately, $62,060,000. The holders of the Company's shares, and the holders of shares of the Bus Companies, as of the close of business on August 20, 2007, the record date for the special distribution (the "Holders"),
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
9. STOCKHOLDERS' EQUITY (Continued):
were eligible for the special distribution. The Holders were required to make an election as to the amount of the Company's shares and/or cash the Holders wished to receive as their respective portions of the special distribution. Holders were advised, due to the limitation of the aggregate amount of cash available for the special distribution, that their actual distribution might not be in the proportion of cash and the Company's shares they elected, but could be based on a proration of the available cash after all elections (i.e.: not on a first come-first served basis). The Company calculated the proportion of cash and the Company's shares that were distributed to the Holders based upon the Holder's election and the amount of cash available for the special distribution.
In October 2007, cash of $19,093,564 and 3,775,400 shares of the Company's common stock were distributed to the Holders. The remaining payable balance of $906,436 is included in other liabilities in the accompanying consolidated balance sheet at December 31, 2007. Such cash was borrowed against the revolving credit from the Lenders.
Prior to the Reorganization, approximately 88% of the Green's common stock was held under a Voting Trust Agreement which was to expire in November 2007. The stock held under the agreement was voted at any meeting of the shareholders of Green by the trustee as may be in the judgment of the trustee, for the best interest of the shareholder/officer of Green. Green had the right of first refusal to purchase shares from any shareholder desiring to sell shares at a price established by the Board of Directors. In the normal course of business, Green under a stock repurchase program bought back common shares.
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS:
Non-Union:
Prior to the reorganization, Green maintained a defined benefit pension plan which covered substantially all of its non-union employees. Participant benefits were based on years of service and the participant's compensation during the last three years of service. Green's funding policy was to contribute annually an amount that did not exceed the maximum amount that could be deducted for federal income tax purposes. Contributions were intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. As part of the agreement with the City of New York (the "City"), the pension plan was merged into the Metropolitan Transit Authority's DB Pension Plan ("MTA DB Plan"). Plan assets primarily consisted of convertible equity securities, guaranteed deposit accounts, corporate debt securities and fixed income contracts.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS (Continued):
The following tables present certain financial information for Green's non-union defined benefit pension plan as of December 31, 2006 and for the years ended December 31, 2006 and 2005 (in thousands):
Year Ended
December 31, 2006
---------------------
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $ 8,603
Service cost 5
Interest cost 83
Actuarial loss 111
Benefits paid (144)
Curtailment gain (831)
Settlement gain (7,827)
---------------------
Project benefit obligation at end of year $ -
=====================
|
Year Ended
December 31, 2006
---------------------
Change in plan assets:
Fair asset plan value at beginning of the year $ 8,659
Actual return on plan assets 157
Benefits paid (144)
Expenses paid (60)
Transfer MTA DB Plan (8,612)
---------------------
Fair value of plan assets at end of year $ -
=====================
|
No net amount was recognized for the year ended December 31, 2006 related to the Plan's funded status, unrecognized prior service costs or unrecognized net actuarial gain or loss. In addition, no amount was recognized in the consolidated balance sheet at December 31, 2006 related to prepaid benefit costs.
Years Ended December 31,
---------------------------------------
Components of net periodic benefit cost: 2006 2005
------------------- ------------------
Service cost $ 5 $ 276
Expense cost 15 79
Interest cost 83 474
Expected return on plan assets (116) (672)
Amortization of prior service cost 2 11
------------------- ------------------
Net periodic benefit cost (11) 168
Curtailment loss 83 -
Settlement loss 715 -
------------------- ------------------
Net periodic benefit cost $ 787 $ 168
=================== ==================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS (Continued):
The following weighted-average assumptions were used to determine Green's postretirement benefit obligations shown above at December 31, 2006:
2006
-------------------
Discount rate 5.75%
Compensation increase 4.00%
|
The following weighted-average assumptions were used to determine the Green's postretirement benefit expense shown above for the years ended December 31, 2006 and 2005:
Years Ended December 31,
---------------------------------------
2006 2005
----------------- ------------------
Weighted average discount rate 5.75% 6.00%
Weighted average rate of compensation increase 4.00% 4.00%
Expected long-term rate of return on plan assets 8.00% 8.00%
|
The Agreement with the City provided that all eligible members of the plan would join the City plan and would be credited for all service with Green for the purposes of vesting and benefit accruals and that benefits for all eligible members of the plan would be on substantially the same terms and conditions as the current non-union plan.
Included in the agreement with the City, the pension plan was merged into the MTA DB Plan. This resulted in a plan curtailment under SFAS No. 88 "Employers' Accounting for Settlement and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"). The curtailment was caused by the fact that the non-union employees ceased future benefit accruals under the pension plan.
SFAS 88 requires accelerated amortization or immediate recognition of unrecognized prior service costs which resulted in a loss of approximately $83,000 which was recorded in the second quarter of 2006.
The transfer of plan assets to the MTA DB Pension Plan on March 3, 2006, resulted in the settlement of the Company's obligation with regard to the plan assets and liabilities.
SFAS 88 requires accelerated amortization or immediate recognition of the plan's experience gain/(loss) as of the date of settlement or asset transfer date. As a result, Green's recognition of a loss of approximately $777,000 due to the transfer of assets in excess of the benefit liability plus the immediate recognition of the existing gain of approximately $62,000 as of the asset transfer done on March 3, 2006, which resulted in an overall settlement loss of approximately $715,000. This charge was recorded in the second quarter of 2006.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS (Continued):
Union:
In addition, Green maintained a defined benefit pension plan which covered substantially all of its union employees. Participant benefits were based on the employee's monthly pay as of December 31, 1997 plus a flat dollar monthly benefit for service after 1997. Green's funding policy was to contribute annually an amount that did not exceed the maximum amount that can be deducted for federal income tax purposes, in accordance with guidelines contained in the union contract. Contributions were intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. Plan assets consisted primarily of money market funds, corporate bonds, common and preferred equity securities, government securities and fixed income contracts.
The Agreement with the City provided that all eligible members of the plan join the City plan and would be credited for all service with the Company for the purposes of vesting and benefit accruals and that benefits for all eligible members of the plan would be on substantially the same terms and conditions as the current non-union plan.
The following tables present certain financial information for Green's union defined benefit pension plan as of and for the year ended December 31, 2006 (in thousands):
Year Ended
December 31, 2006
------------------
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $88,393
Service cost 61
Interest cost 3,945
Actuarial loss 128
Benefits paid (3,761)
Settlement gain (88,766)
------------
Projected benefit obligation at end of year $ -
============
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS (Continued):
Year Ended
December 31, 2006
------------------
Change in plan assets:
Fair value of asset plan value at beginning of $ 79,235
year
Actual return on plan assets 3,706
Employer contributions 220
Benefits paid (3,761)
Expenses paid (878)
Transfer to MTA (78,522)
------------------
Fair value of plan assets at end of year $ -
===================
|
No net amount was recognized during the year ended December 31, 2006 related to the Plan's funded status, unrecognized prior service costs, unrecognized transaction amount of unrecognized net actuarial gain or loss. In addition, no amount was recognized in the consolidated balance sheet at December 31, 2006 related to accrued benefits, intangible assets or accumulated other comprehensive loss.
The following weighted-average assumptions were used to determine Green's postretirement benefit obligations shown above at December 31, 2006:
Years Ended December 31,
--------------------------------
2006 2005
------------ --------------
Components of net periodic benefit cost:
Service cost $ 61 $ 2,217
Interest cost 3,944 4,863
Expected return on plan assets (4,830) (6,100)
Amortization of transition amount 771 964
Recognized actuarial loss - 349
Amortization of prior service costs - (16)
------------------------- --------------
Net periodic benefit cost (54) 2,277
Curtailment loss 578 -
Settlement loss 8,494 -
------------------------- --------------
Total pension expense $ 9,018 $2,277
========================= ==============
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
10. PENSION PLAN AND OTHER RETIREMENT BENEFITS (Continued):
A weighted average discount rate of 5.75% was used to determine Green's post-retirement benefit obligations at December 31, 2006. The following weighted-average assumptions were used to determine Green's postretirement benefit obligations shown above at December 31, 2006 and 2005:
Years Ended:
----------------------------------
2006 2005
------------------ ---------------
Discount rate 5.75% 6.00%
Expected long-term rate of return
on plan assets 8.00% 8.00%
Compensation increase - 4.00%
|
Other Retirement Benefits:
Green entered into an agreement with the Union which stipulated that the Union would provide health benefits directly to its members based on a plan developed by it for its members. Green had agreed to fund the health benefits of such plan, subject to certain limitations and the condition that the City provided the funds necessary therefore under the provisions of the OAA.
Green sponsored a defined contribution 401(k) plan for its non-union employees which covered all employees who, at the plan's anniversary date, had completed one year of service and are at least 21 years of age. The plan was funded by employee salary deferral contributions and employee discretionary contributions. There were no discretionary contributions made by the Company during 2006 and 2005. This plan was terminated in 2006.
Green sponsors retirement benefits to its non-union employees under a defined contribution 401(k) plan (the "Plan") which covered all employees who, at the Plan's anniversary date, had completed one year of service and are at least 21 years of age.
Green participated in a multiemployer plan that provided health care benefits, including defined postretirement health care benefits to substantially all non-union employees. The amount contributed to the plan and charged to benefit cost was $0, $51,322, and $527,725 for 2007, 2006, and 2005, respectively.
The Agreement with the City provided that all eligible members of the Plans join the City Plan and will be credited for all service with Green for the purposes of vesting and benefit accruals and those benefits for all eligible members of the plan will be on substantially the same terms and conditions as the current non-union plan.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
11. RELATED PARTY TRANSACTIONS:
Douglas A. Cooper, an officer and director of the Company and the nephew of Jerome Cooper (Chairman of the Board) is Co-Managing partner of Ruskin, Moscou, Faltischek, P.C. ("RMF"), which has acted as counsel to the Company for approximately nine years. Fees paid by Green to RMF for the years ended December 31, 2007, 2006, and 2005 were $584,605, $43,743, and $96,671, respectively.
Paul A. Cooper is a director and officer of the Company. In April, 2005, Lighthouse 444 Limited Partnership ("Lighthouse"), the owner of the building at 444 Merrick Road, Lynbrook, NY, and of which Paul A. Cooper is a general partner, leased 5,667 square feet of office and storage space to the Bus Companies for a term of five years at an annual rent of approximately $160,000 for the first year, increasing to approximately $177,000 for the fifth year. This space is currently occupied by the Company. In connection with this lease, there was a $231,000 expenditure (allowance) by the landlord for leasehold improvements. This lease will expire in April 2010. In February 2008, Lighthouse leased an adjoining 3,545 square feet of space to the Company at an annual rent of approximately $106,000, which replaced 2,500 square feet of space covered by the prior lease having annual rent of $37,000.
Lighthouse Real Estate Advisors, LLC ("LREA") an affiliate of Lighthouse, of which Paul A. Cooper is a member, received a leasing commission between 2003 and 2006 for the leasing of 23-85 87th Street, East Elmhurst, New York on behalf of a subsidiary of the Company to Avis Rent-A-Car System, Inc. in the aggregate sum of $1,100,000 (3.056% of gross rent). LREA also received a leasing commission in 2006 for the leasing of 85-01 24th Avenue, East Elmhurst, New York on behalf of Triboro Coach Holding Corp. (a subsidiary) to New York City in the aggregate sum of $840,540 (1.318% of gross rent).
In addition, Lighthouse Real Estate Management, LLC ("LREM"), an affiliate of LREA and Lighthouse, received a leasing commission in 2006 for the leasing of 114-15 Guy Brewer Boulevard, Jamaica, New York on behalf of Jamaica Bus Holding Corp. (a subsidiary) to New York City in the aggregate sum of $615,000 (1.645% of gross rent). LREM also received a leasing commission in 2006 for the leasing of (i) 165-25 147th Avenue, Jamaica, New York and (ii) 49-19 Rockaway Beach Boulevard, Edgemere, New York on behalf of Green Bus Holding Corp. to New York City in the aggregate sum of $1,281,579 (1.528% of gross rent).
The Avis fee was for finding the tenant and negotiating the lease. The New York City fees were for negotiating the leases. Paul A. Cooper is one of several partners or members of Lighthouse, LREA and LREM.
Green had an agreement with Varsity Transit, Inc. ("Transit"), an affiliate, under which Transit provided the Company with certain administrative and data processing services. Total service fees incurred under this agreement and included in other nonoperating expenses were $0, $930,019 and $420,684 in 2007, 2006 and 2005, respectively.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
11. RELATED PARTY TRANSACTIONS (Continued):
Net advances due from Transit aggregated $- and $1,144,703 at December 31, 2007 and 2006, respectively. Additionally, advances due from GTJ (an investee company) aggregated $0 and $3,039,000 at December 31, 2007 and 2006, respectively.
12. INCOME TAXES:
Effective July 1, 2007, the Company has elected to be taxed as a REIT under
Section 856(c) of the Internal Revenue Code of 1986, as amended. A REIT will
generally not be subject to federal income taxation on that portion of its
income that qualifies as REIT taxable income, to the extent that it distributes
at least 90% of its taxable income to its shareholders and complies with certain
other requirements. It is management's intention to adhere to these requirements
and maintain the Company's REIT status. As a REIT, the Company generally will
not be subject to corporate federal income tax, provided that distributions to
it stockholders equal at least the amount at its REIT taxable income as defined
under the Code. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to federal income taxes at regular corporate rates (including
any applicable minimum tax and may not be able to qualify as a REIT for
subsequent taxable years. Even if the Company qualifies for taxation as a REIT,
the Company is subject to certain state and local taxes on its income and
federal income and excise taxes on its undistributed taxable income. In
addition, taxable income from non-REIT activities managed through taxable REIT
subsidiaries are subject to federal, state, and local income taxes.
Reconciliation between GAAP Net Income and Federal Taxable Income:
The following table reconciles GAAP net income to taxable income for the period from January 1, 2007 through December 31, 2007 (in thousands):
2007
(unaudited)
----------------
Income (Loss) from continuing operations before
income taxes and equity in earnings of affiliated
companies $ 6,854
Less: GAAP net income of taxable subsidiaries (3,300)
----------------
GAAP net income from REIT operations 3,554
Remediation costs deductible for tax purposes (220)
Deferred rent (655)
----------------
Adjustable taxable income subject to 90% dividend
requirements $ 2,679
================
|
Dividend distributions for the year ended December 31, 2007 were characterized for federal income tax purposes as 100% ordinary income.
Taxable REIT Subsidiaries
The Company is subject to federal, state, and local income taxes on the income from its Taxable REIT subsidiaries ("TRS") activities, which include Shelter Express, Inc. and subsidiaries.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
12. INCOME TAXES (Continued):
Income taxes have been provided for through the asset and liability method as required by SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the TRS assets and liabilities.
As a result of the election of the REIT status, the Company wrote-off approximately $268,000 of deferred tax assets net of deferred tax liabilities which resulted in a charge of $268,000 to the accompanying consolidated statement of income.
The provisions for income taxes from continuing operations for the years ended December 31, 2007, 2006 and 2005 are as follows:
Years Ended December 31,
----------------------------------------------------
2007 2006 2005
Current: (Restated)
Federal $ 539 $ 451 $ 320
State and local 409 582 161
Deferred 242 (117) 203
---------------- -------------- -------------
Provision for income taxes $ 1,190 $ 916 $ 684
================ ============== =============
The provisions for (benefit from) income taxes from discontinued operations
for the years ended December 31, 2007, 2006 and 2005 are as follows:
Years Ended December 31,
-------------------------------------------------
2007 2006 2005
------------ -------------- ---------------
Current:
Federal $ 232 $2,840 $ -
State and local (133) 823 (34)
Deferred 16 (3,529) (148)
------------ -------------- ---------------
Total tax provision $ 115 $ 134 $ (182)
============ ============== ===============
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
12. INCOME TAXES (Continued):
Prior to the year ended December 31, 2007, taxable income (loss) from continuing operations has been determined prior to the elimination of intercompany transactions.
The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before income taxes as follows:
Years Ended December 31,
--------------------------------------------------------
2007 2006 2005
---------------- ----------------- ----------------
(Restated)
Income tax (benefit) at the United States Federal
statutory rate of 34% $ 2,330 $1,009 $ (108)
State and local taxes, net of federal benefit 822 - (38)
Write-off of deferred tax assets and liabilities in
connection with the election of REIT status (268) - -
Tax effect of REIT related income included in net
income. (1,208) - -
Tax effect of REIT related income for state and local
taxes, net of federal tax benefit (426) - -
Intercompany rent - - 627
Depreciation, rent and other adjustments (60) (93) 203
---------------- ----------------- ----------------
Provision for income taxes $ 1,190 $ 916 $684
================ ================= ================
|
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets (liabilities) from continuing operations at December 31, 2007 and 2006 are as follows:
Deferred tax assets (liabilities):
December 31,
-----------------------------------
2007 2006
---------------- ----------------
Deferred tax assets:
State and local taxes, net $ - $ 133
Book over tax depreciation - 431
Discounted unpaid losses 338 -
Environmental investigation and feasibility study - 157
Other 3 -
---------------- ----------------
Total deferred tax assets $ 341 $ 721
---------------- ----------------
Deferred tax liabilities:
Deferred rental income $ - $ 198
Vacation accrual 19 -
Installment sale 23 -
Other 36 3
---------------- ----------------
Total deferred tax liabilities $ 78 $ 201
---------------- ----------------
Net deferred tax assets $ 263 $ 520
================ ================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
12. INCOME TAXES (Continued):
Prior to the Reorganization, Green and two affiliates (who were merged into the Company) owned all of the common stock of Command Bus Company and GTJ Co., Inc. which were accounted for under the equity method. Green and its affiliates exercised significant influence over the affiliates and intended to maintain permanent investments in these affiliates. Accordingly, taxes were not provided on the undistributed earnings of these affiliates prior to January 31, 1993 (SFAS No. 109 adoption). Accumulated undistributed earning (losses) of affiliates for which no provision (benefit) for income taxes has been made was approximately $(561,000) and $(682,000) at December 31, 2007 and 2006, respectively.
The Company elected a fiscal year ended June 30th for tax reporting purposes. For the period July 1, 2006 to June 30, 2007, the Company filed a tax return in the U.S. federal tax jurisdiction and the states of New York, New Jersey, California, Arizona and New York City. The tax returns included the results of GTJ REIT, Inc. for the period July 1, 2006 through June 30, 2007 and the results of the Companies acquired in the Reorganization from the period April 1, 2007 through June 30, 2007. During January 2008, the Company elected to change its year end from June 30th to December 31st for tax reporting purposes. As a result, the Company will file a tax return for the period July 1, 2007 through December 31, 2007 which includes the results of operations for subsidiaries that qualify for REIT status. The tax period did not change for the TRS's.
Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") -- an interpretation of FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2007, the Company does not have a liability for unrecognized tax benefits.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
12. INCOME TAXES (Continued):
Green filed its final tax return for the period January 1, 2007 through March 29, 2007. Green is subject to U.S. federal or state and local income tax examinations by tax authorities for years after 2004. Since these net operating losses and tax credit carry forwards may be utilized in future periods, they remain subject to examination. The Company's policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2007, the Company has no accrued interest or penalties related to uncertain tax positions. The Company believes that it has not taken any uncertain tax positions that would impact its consolidated financial statements as of December 31, 2007.
Green Bus Lines, Inc. and Subsidiary is currently under examination by the Internal Revenue Service for its U.S. Corporate Income Tax Return for the tax year ended December 31, 2005. There have been no adjustments proposed in connection with the examination.
The Company restated the accompanying consolidated financial statements for the year ended December 31, 2006 to reflect the correction of an error made in 2006 related to recording a federal and state income tax expense entry. The error had no effect on net income for the year ended December 31, 2007. Had the error not been made, net income for Green would have increased by $600,000 ($159.29 per share) for the year ended December 31, 2006 (see Note 16).
13. COMMITMENTS AND CONTINGENCIES:
Legal Matters:
Appraisal Proceedings
On March 26, 2007, there was a joint special meeting of the stockholders of
the Bus Companies. The business considered at the meeting was the merger of:
Green with and into Green Acquisition; Triboro with and into Triboro
Acquisition; and Jamaica with and into Jamaica Acquisition. Appraisal rights
were perfected by stockholders of the Bus Companies who would have received
approximately 366,133 shares of the Company's common stock to be issued
following the mergers. The mergers were carried out on March 29, 2007.
Consequently, the Bus Companies made good faith offers to such stockholders
based on the value of the Company's common stock of $7.00 per share, eighty
percent (80%) of which was advanced to them. On May 25, 2007, Green Acquisition,
Triboro Acquisition and Jamaica Acquisition, commenced appraisal proceedings in
Nassau County Supreme Court, as required by the New York Business Corporation
Law. Eight of the shareholders (the "Claimants") who sought appraisal rights
(the others had either settled or withdrawn their demands) have answered the
petition filed in connection with the appraisal proceeding and moved for
pre-trial discovery. In March 2008, certain pre-trial discovery was ordered by
the court and provided by the Company. In addition, at that time a hearing was
set for early September 2008. Collectively, the Claimants have been paid
$1,351,120 pursuant to the Company's good faith offer. The Claimants would have
received approximately 241,272 shares of the Company's common stock following
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
13. COMMITMENTS AND CONTINGENCIES (Continued):
the mergers of the Bus Companies. The Company's ultimate liability cannot presently be determined. In addition, two stockholders have been paid an aggregate of $435,457 pursuant to the Company's good faith offer. These stockholders would have received approximately 62,208 shares.
The Company is involved in several lawsuits and other disputes which arose in the ordinary course of business; however, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company's financial position or results of operations.
Environmental Matters
The Company's real property has had activity regarding removal and replacement of underground storage tanks. Upon removal of the old tanks, any soil found to be unacceptable was thermally treated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place at certain locations. In July 2006, the Company entered into an informal agreement with the New York State Department of Environmental Conservation ("NYSDEC") whereby the Company has committed to a three-year remedial investigation and feasibility study (the "Study") for all site locations. In conjunction with this informal agreement, the Company has retained the services of an environmental engineering firm to assess the cost of the Study. The Company's engineering report has an estimated cost range in which the low-end of the range, of approximately $5.2 million (of which the Company's portion is $1.4 million) was only for the Study. In addition, a high-end range estimate, of approximately $10.4 million (of which the Company's portion was $2.8 million) was included which provided a "worst case" scenario whereby the Company would be required to perform full remediation on all site locations. While management believes that the amount of the Study and related remediation is likely to fall within the estimated cost range, no amount within that range can be determined to be the better estimate. Therefore, management believes that recognition of the low-range estimate is appropriate. While additional costs associated with environmental remediation and monitoring are probable, it is not possible at this time to reasonably estimate the amount of any future obligation until the Study has been completed. As of December 31, 2007, the Company has recorded a liability of $1,033,000 related to its portion of the Study as disclosed in the engineering report. Presently, the Company is not aware of any claims or remediation requirements from any local, state or federal government agencies. Each of the properties is a commercial zone and is still used as transit depots, including maintenance of vehicles.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
13. COMMITMENTS AND CONTINGENCIES (Continued):
Leases:
The Company's principal office is located in 6,912 square feet at 444 Merrick Road, Lynbrook, NY (including 3,545 square feet effective March, 2008), which it leases from a partnership owned in part by Paul A. Cooper, a Director and Officer of the Company. Future minimum rents payable under the terms of the leases, as amended, amount to $169,540, $174,626, and $118,723 during the years 2008 through 2010.
The Company recorded lease payments through the straight line method and, for leases with step rent provisions whereby the rental payments increase over the life of the lease, the Company recognizes the total minimum lease payments on a straight-line basis over the lease term. The Company is obligated under operating leases for warehouse, office facilities and certain office and transportation equipment, which amounted to $547,362, $0, and $0 for the years ended December 31, 2007, 2006 and 2005, respectively.
At December 31, future minimum lease payments in the aggregate and for each of the five succeeding years are as follows (in thousands):
2008 $ 689
2009 665
2010 515
2011 344
2012 266
Thereafter 330
--------------
Total $2,809
==============
|
14. SIGNIFICANT TENANT:
Two tenants, included in the consolidated statement of income, constituted 100% of rental revenue for the year ended December 31, 2007 and one tenant constituted 100% of the rental income for the year ended December 31, 2006.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
15. FUTURE MINIMUM RENT SCHEDULE:
Future minimum lease payments to be received by the Company as of December 31, 2007 under noncancelable operating leases for the next five years and thereafter are as follows (in thousands):
2008 $ 9,433
2009 9,499
2010 9,387
2011 9,914
2012 9,914
Thereafter 150,313
-------------------
$ 198,460
===================
|
The lease agreements generally contain provisions for reimbursement of real estate taxes and operating expenses over base year amounts, as well as fixed increases in rent.
16. PRIOR YEAR RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:
The accompanying consolidated financial statements for the year ended December 31, 2006 have been restated to reflect the correction of an error related to recording a federal and state income tax expense entry. The effect of the restatement was to increase Green's net income for the year ended December 31, 2006 by approximately $600,000 and $159.29 per share. The restatement resulted in the following changes to the Company's consolidated balance sheet, statement of operations and cash flows for the year ended December 31, 2006:
As Reported As Restated
--------------------------------
(in thousands)
Consolidated balance sheet:
Income taxes payable $ 4,840 $ 4,240
================= =================
Consolidated statement of operations:
Provision for income taxes $ 1,516 $ 916
================= =================
Consolidated statement of cash: flows:
Income taxes payable $ 4,512 $ 3,912
================= =================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
17. SEGMENTS:
Segment Information:
The operating segments reported below are segments of the Company for which separate financial information is available and for which operating results as measured by income from operations are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. The accounting policies of the business segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1).
The Company operates in four reportable segments: Real Estate Operations, Outside Maintenance and Shelter Cleaning Operations, Insurance Operations, and Paratransit Operations, all of which are conducted throughout the U.S., with the exception of the Insurance Operations which are conducted in the Cayman Islands.
Real Estate Operations rents Company owned real estate located primarily in New York.
Outside Maintenance and Shelter Cleaning Operations provides outside maintenance and cleaning services to outdoor advertising companies in New York, New Jersey, Arizona and California.
Insurance Operations assumes reinsurance of worker's compensation, vehicle liability and covenant liability of the Company and its affiliated Companies from an unrelated insurance company based in the United States of America.
Paratransit Operations provide paratransit service in New York for physically and mentally challenged persons who are unable to use standard public transportation (see Note 19).
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
17. SEGMENTS (Continued):
The summarized segment information (excluding discontinued operations), as of and for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands):
Year Ended December 31, 2007
-------------------------------------------------------------------------------------------------
Real Estate Outside Insurance Paratransit
Operations Maintenance Operations Operations Eliminations Total
-------------------------------------------------------------------------------------------------
Operating revenue and subsidies $ 9,451 $ 26,059 $ - $ 9,537 $ (1,975) $ 43,072
Operating expenses 4,245 23,120 100 10,505 (1,550) 36,420
-------------- ----------------- ------------- ---------------- ---------------- ----------------
Operating income 5,206 2,939 (100) (968) (425) 6,652
Other income (expense):
Interest income 771 74 37 5 - 887
Interest and debt expense (780) (21) - (11) - (812)
Change in insurance reserves - - 254 - - 254
Other (70) (475) - (7) 425 (127)
-------------- ----------------- ------------- ---------------- ---------------- ----------------
Total other income (79) (422) 291 (13) 425 202
(expense)
Income (loss) from continuing
operations before income
taxes and equity in earnings
of affiliated companies 5,127 2,517 191 (981) - 6,854
Equity in earnings of
affiliated companies, net
of tax 60 - - - - 60
Provision for income taxes (1,162) (28) - - - (1,190)
-------------- ----------------- ------------- ---------------- ---------------- ----------------
Income (loss) from continuing
operations $ 4,025 $ 2,489 $ 191 $ (981) $ - $ 5,724
============== ================ ============== ================ ================ =================
Capital expenditures $ - $ 637 $ - $ - $ - $ 637
============== ================ ============== ================ ================ =================
Depreciation and amortization $ 344 $ 219 $ - $ 3 $ - $ 566
============== ================ ============== ================ ================ =================
Total assets $ 136,249 $ 14,817 $ 4,119 $ 3,398 $ (33,886) $ 124,697
============== =============================== ================ ================ =================
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GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
17. SEGMENTS (Continued):
Year Ended December 31,
2006
---------------------------------------------------------------------------------------
Real Estate Outside Insurance Paratransit
(Restated) Operations Maintenance Operations Operations Eliminations Total
---------------------------------------------------------------------------------------
Operating revenue
$ 3,908 $ - $ - $ - $ - $ 3,908
------------- ------------- -------------- ------------- -------------- ---------------
Operating expenses 940 - - - - 940
Operating income 2,968 - - - - 2,968
Income from continuing
operations before income
taxes and equity in
earnings (loss) of
affiliated companies 2,968 - - - - 2,968
Provision for income taxes (916) - - - - (916)
Equity in earnings (loss)
of affiliated companies,
net of tax (501) - - - - (501)
------------- ------------- -------------- ------------- -------------- ---------------
Income from continuing
operations $ 1,551 $ - $ - $ - $ - $ 1,551
============= ============= ============== ============= ============== ===============
Total assets $ 23,942 $ - $ - $ - $ - $ 23,942
============= ============= ============== ============= ============== ===============
Capital expenditures $ - $ - $ - $ - $ - $ -
============= ============= ============== ============= ============== ===============
Depreciation and
amortization $ 281 $ - $ - $ - $ - $ 281
============= ============= ============== ============= ============== ===============
Investment in equity
method investees $ 1,971 $ - $ - $ - $ - $ 1,971
============= ============= ============== ============= ============== ===============
Year Ended December 31, 2005
---------------------------------------------------------------------------------------
Real Estate Outside Insurance Paratransit
Operations Maintenance Operations Operations Eliminations Total
---------------------------------------------------------------------------------------
Operating revenue $ - $ - $ - $ - $ - $ -
Operating expenses 317 - - - - 317
------------- ------------- -------------- ------------- -------------- ---------------
Income from continuing
operations before income
taxes and equity in
earnings (loss) of
affiliated companies (317) - - - - (317)
Provision for income taxes (684) - - - - (684)
Equity in earnings of
affiliated companies, net
of tax 1,390 - - - - 1,390
------------- ------------- -------------- ------------- -------------- ---------------
Income from continuing
operations $ 389 $ - $ - $ - $ - $ 389
============= ============= ============== ============= ============== ===============
Total assets $ 27,082 $ - $ - $ - $ - $ 27,082
============= ============= ============== ============= ============== ===============
Capital expenditures $ 3 $ - $ - $ - $ - $ 3
============= ============= ============== ============= ============== ===============
Depreciation and
amortization $ 317 $ - $ - $ 1 $ - $ 317
============= ============= ============== ============= ============== ===============
Investment in equity
method investees $ 795 $ - $ - $ - $ - $ 795
=======================================================================================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
18. SELECTED QUARTERLY DATA (Unaudited):
The summarized selected quarterly data for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands except per share data).
Year March 31 June 30 September 30 December 31
-------------------------------------------------------------------------------------------------------------------
2007
Revenues $ 999 $ 14,630 $ 14,055 $ 13,388
Net income $ 573 $ 1,777 $ 1,407 $ 1,643
Per common share (basic and
diluted) (a) $ 2.58 $ 0.18 $ 0.15 $ $0.13
2006 (Restated)
Revenues $ 913 $ 999 $ 999 $ 997
Net income (loss) $ 7,042 $ (847) $ (5,584)$ 614
Per common share (basic and
diluted) (a) $ 1,869.58 $ (224.88) $ (1,452.54)$ 163.02
2005
Revenues $ - $ - $ - $ -
Net income $ 374 $ 416 $ 93 $ 844
Per common share (basic and
diluted) (a) $ 99.31 $ 110.49 $ 24.56 $ 224.17
|
(a) Differences between the sum of the four quarterly per share amounts and the annual per share amount are attributable to the effect of the weighted average outstanding share calculations for the respective periods.
19. SUBSEQUENT EVENTS:
Real Estate Acquisition
On February 1, 2008, the Company entered into an agreement to purchase a property located in the Hartford, Connecticut area. In connection with this agreement, the Company made an initial deposit in the amount of $2,300,000. The purchase price of the property is approximately $23,300,000.The closing of this transaction occurred on March 3, 2008. The acquisition cost was funded from the Company's secured revolving credit facility.
Paratransit Operations (unaudited)
In February 2008, the Company was notified by the New York City Transit Agency of the Metropolitan Transit Authority (the "Agency") that a Request for Proposal to renew the Company's existing paratransit service contract after September 30, 2008 would not be considered by the Agency. The Company is determining what action it should take in response to such notification. The Paratransit Operations were acquired as part of the Reorganization that occurred on March 29, 2007.
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
19. SUBSEQUENT EVENTS (Continued):
The Paratransit Operations' revenues and net losses for the year ended December 31, 2007 and 2006 were as follows (in thousands):
Years Ended December 31,
--------------------------------------------
2007 2006
------------------ ---------------------
Revenues $ 12,454 $ 10,176
================== =====================
Net loss $ (1,078) $ (696)
================== =====================
|
GTJ REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
20. REAL ESTATE AND ACCUMULATED DEPRECIATION:
Information relating to real estate and accumulated depreciation as of December 31, 2007 are as follows (in thousands):
Cost
Capitalized Total Total Cost
Initial Initial Subsequent Costs at Net of
Encum- Costs Costs to December Accumulated Accumulated Year Depreciable
Description (B) branc Land Buildings Acquisition 31, 2007 Depreciation Depreciation Acquired Lives
--------------------------------------------------------------------------------------------------------------------------------
165-25 147th
Avenue $ 250 $ 360 $ 3,821 $ 1,314 $ 5,495 $ 4,745 $ 750 (A) 10-25 years
49-19 Rockaway
Blvd. $ 250 $ 74 $ 783 $ 673 $ 1,530 $ 972 $ 558 (A) 10-25 years
85-01 24th Avenue $ 250 $ 38,210 $ 937 $ - $ 39,147 $ 64 $ 39,083 (A) 10-25 years
114-15 Guy Brewer
Blvd. $ 250 $ 23,100 $ 6 $ - $ 23,106 $ - $ 23,106 (A) 10-25 years
612 Wortman Avenue $ - $ 14,400 $ 323 $ - $ 14,723 $ 255 $ 14,468 (A) 10-25 years
23-85 87th Street $ - $ 8,907 $ 117 $ - $ 9,024 $ - $ 9,024 (A) 10-25 years
------------------------------------------------------------------------------------------------------------
$1,000 $ 85,051 $ 5,987 $ 1,987 $ 93,025 $ 6,036 $ 86,989
===================================================================================
|
(A) Acquired by the Company in March 2007 upon the reorganization. See Note 1 to financial statements. The Bus Companies acquired these properties from 10 to 70 years ago.
(B) All properties located in New York, New York
The changes in real estate for the three years ended December 31, 2007 are as follows:
2007 2006 2005
--------------------- ------------------------ ---------------------
Balance at beginning of year $ 7,025 $ 7,025 $ 7,025
Property acquisitions 86,000 - -
Improvements - - -
Retirements / disposals - - -
--------------------- ------------------------ ---------------------
Balance at end of year $ 93,025 $ 7,025 $ 7,025
===================== ======================== =====================
|
The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes at December 31, 2007 was approximately $21,653.
The changes in accumulated depreciation, exclusive of amounts relating to equipment, transportation equipment, and furniture and fixtures, for three years ending December 31, 2007 are as follows:
2007 2006 2005
--------------------- ------------------------ ---------------------
Balance at beginning of year $ 5,476 $ 5,195 $ 4,878
Depreciation for year 560 281 317
Retirements / disposals - - -
--------------------- ------------------------ ---------------------
Balance at end of year $ 6,036 $ 5,476 $ 5,195
===================== ======================== =====================
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
This annual report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the our registered public accounting firm thereon, due to the transition period established by the rules of the Securities and Exchange Commission for newly public companies.
The Registrant's management, with the participation of the Registrant's Chief Executive Officer and Chief Accounting Officer, has evaluated the effectiveness of the Registrant's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Registrant's Chief Executive Officer and Chief Accounting Officer have concluded that, as of the end of such period, the Registrant's disclosure controls and procedures were not fully effective. The Registrant has recently begun reporting as a public company and has, since December 31, 2007, obtained the assistance needed to generate financial statements and reports to be filed with the Securities and Exchange Commission which fully comply as to required contents and which can be provided on a timely basis.
There have not been any changes in the Registrant's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting, other than the addition of assistance needed to generate financial statements and reports to be filed with the Securities and Exchange Commission which fully comply as to required contents and which can be provided on a timely basis.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our Board of Directors consists of seven members, four of whom are deemed independent as defined in the North American Securities Administration Association ("NASAA") guidelines. A director is deemed to be independent if in the last two years he or she is not associated, directly or indirectly, with us or the Bus Companies. Serving as a director of an affiliated company does not, by itself, preclude a director from being considered an independent director, in accordance with the guidelines of NASAA applicable to REIT. The primary responsibilities of our Board of Directors are to provide oversight, strategic guidance, counseling and direction to our management. Our Board of Directors meets on a regular basis and additionally as required. Written or electronic materials are distributed in advance of meetings as a general rule and our Board of Directors schedules meetings with, and presentations from, members of our senior management on a regular basis and as required.
Directors are elected at the Annual Meetings of stockholders. We have a staggered Board of Directors. Class I directors have a term expiring at the Annual Meeting in 2010 and until their successors are elected and qualified. Class II directors have a term expiring at the Annual Meeting in 2008 and until their successors are elected and qualified. Class III directors have a term expiring at the Annual Meeting in 2009 and until their successors are elected and qualified. Directors elected at such time shall be elected to three year terms. Officers are appointed by the Board of Directors and serve at the pleasure of the Board of Directors.
The Board of Directors held seven meetings during the 2007 fiscal year. All of the Directors attended at least 75% of the meetings of the Board of Directors and of the committees on which they served. We encourage all members of the Board of Directors to attend annual meetings of stockholders, but there is no formal policy as to their attendance. At the 2007 Annual Meeting of stockholders, five members of the Board of Directors attended.
The following table sets forth the names and ages of our directors and executive officers and the positions they held with us as of March 1, 2008:
Name Age Position
---------------------------------------- --- ---------------------------------------------------------
Jerome Cooper 79 President and Chief Executive Officer and Chairman of the
Board of Directors and Class III Director
Paul Cooper 47 Vice President and Class II Director
Douglas Cooper 61 Vice President, Treasurer and Secretary and Class I
Director
Michael Kessman 56 Chief Accounting Officer
David Jang 47 Class II Director
John J. Leahy 65 Class III Director
Donald M. Schaeffer 57 Class III Director
Harvey I. Schneider 74 Class I Director
|
The principal occupation and business experience of each of the directors and executive officers are as follows:
Jerome Cooper has been a director and Chief Executive Officer of the Company since June 2006. Jerome Cooper has been principally employed as the Chief Executive Officer of the Company and its subsidiaries since March, 2007. Prior to that Jerome Cooper was principally employed as Chief Executive Officer of the Bus Companies and their subsidiaries for the past 10 years. Jerome Cooper received a Bachelors degree in Political Science from Ohio State University and a Bachelor of Laws degree from Fordham School of Law. Jerome Cooper is Paul Cooper's father and Douglas Cooper's uncle.
Paul A. Cooper has been a director and Vice President of the Company since June, 2006. For more than five years, Paul Cooper's principal occupation has been as principal of Lighthouse Real Estate Ventures and of its affiliates (collectively "Lighthouse"). Lighthouse owns, manages and leases commercial office buildings in the Greater New York metropolitan area for its own account and the account of its investors. Paul Cooper received a Bachelor of Science degree from the University of Pennsylvania and a Juris Doctor degree from Fordham University. Paul Cooper is the son of Jerome Cooper and the cousin of Douglas A. Cooper.
Douglas A. Cooper has been a director of the Company since June, 2006. Douglas Cooper has been a member of Ruskin Moscou Faltischek, P.C., counsel to the Company, since 1998, and another law firm for many years prior thereto, which have been counsel to the Bus Companies and then the Company. Douglas Cooper graduated from Hamilton College, and received his Juris Doctor degree from Fordham Law School. Douglas Cooper also earned a masters degree in Corporate Law from NYU Law School. Douglas Cooper is the nephew of Jerome Cooper and the cousin of Paul A. Cooper.
Michael Kessman has been employed by the Company and its subsidiaries, and before March 2007, by the Bus Companies, as the senior controller and Chief Accounting Officer since November 1985. Mr. Kessman graduated from Syracuse University with a bachelors degree in accounting.
David M. Jang has been a director for the Company since June, 2006. Mr. Jang has been a Vice President at Multi-Bank Securities, an investment-banking firm since August of 2005. Prior to joining Multi-Bank, Mr. Jang was the Director of Institutional Sales at Sovereign Securities from March 2003 to August 2005 and President of CPE Management from September 1999 to March 2003. Mr. Jang graduated from Wharton School, University of Pennsylvania with a Bachelors of Science in economics. Mr. Jang is deemed an independent director.
John J. Leahy has been a director of the Company since June, 2006. Mr. Leahy is presently President of JJL Consulting. From 1998 to 2006, Mr. Leahy was Managing Director of Citibank Private Bank operations in Long Island. Prior to that, Mr. Leahy was a Senior Vice President of Chase Manhattan Bank, N.A. Mr. Leahy holds a Bachelors degree in Mechanical Engineering from the University of Dayton, and a Masters degree in Business Administration from Long Island University. Mr. Leahy is deemed an independent director.
Donald M. Schaeffer has been a director of the Company since June, 2006. Mr. Schaeffer has extensive accounting and legal experience in real estate and tax. In 1982, he joined the accounting firm, Kandel Schaeffer, in which he eventually became an officer and owner. Through successor accounting firms, he became co-owner and President of Schaeffer & Sam, P.C., which he has practiced with for the past seven and a half years. He graduated from the Wharton School, University of Pennsylvania, in 1972 and Columbia University School of Law in 1975. He is a licensed certified public accountant in the State of New York. Mr. Schaeffer is deemed an independent director.
Harvey I. Schneider has been a director of the Company since June 2007. Mr. Schneider is currently a partner at the law firm of Putney, Twombly, Hall & Hirson LLP. Mr. Schneider is admitted to practice in New York and Florida. For over forty-five years he has practiced in the field of trusts and estates for individuals, and employee benefits and succession planning for business entities. Mr. Schneider is a 1955 graduate of the Pennsylvania State University with a B.S. in business administration and a 1958 graduate of the New York University School of Law. Mr. Schneider is deemed an independent director.
Committees of our Board of Directors
Audit Committee
We have an audit committee comprised of three directors Messrs. Jang, Leahy and Schaeffer, all of whom are deemed independent directors. Mr. Schaeffer is designated as Chairman. Our Board of Directors has determined that Mr. Schaeffer is a financial expert and meets the criteria for independence as described in the Securities and Exchange Act of 1934, as amended. The audit committee:
o makes recommendations to our Board of Directors concerning the engagement of independent public accountants;
o reviews the plans and results of the audit engagement with the independent public accountants;
o approves professional services provided by, and the independence of, the independent public accountants;
o considers the range of audit and non-audit fees; and
o consults with our independent public accountants regarding the adequacy of our internal accounting controls.
During the fiscal year ended December 31, 2007, the Audit Committee held three meetings and each member attended all of the meetings.
Executive Compensation Committee
We have an executive compensation committee comprised of Messrs. Schneider, Jang, and Leahy, all of whom are deemed independent directors, to establish compensation policies and programs for our directors and executive officers. During the fiscal year ended December 31, 2007, the Executive Compensation Committee held three meetings and each member attended all of the meetings, except for one member who attended 66% of the meetings.
No Nominating Committee
The Board of Directors does not have a nominating committee. Instead, the full Board of Directors carries out the duties of a nominating committee. The Board of Directors has not adopted written guidelines regarding nominees for director.
Directors' compensation
We pay each of our non-officer directors an annual retainer of $10,000 and annually grant a 5,000 share stock option at fair market value on the date of grant. In addition, we pay non-officer directors $500.00 for attending each board and committee meeting.
Code of Business Conduct and Ethics
Our Board of Directors has not adopted a code of business conduct and ethics as of this time, but expects to do so within the near future.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis of compensation arrangements of our named executive officers for 2007 should be read together with the compensation tables and related disclosures set forth below.
Overview of Objectives
The Compensation Committee of the Board of Directors establishes compensation policies, plans and programs to accomplish three objectives:
o to keep, incentivize and reward highly capable and well-qualified executives;
o to focus executives' efforts on increasing long-term shareholder value; and
o to reward executives at levels which are competitive with the marketplace for similar positions and consistent with the performance of each executive and of our company.
Our executive compensation program is designed to reward an individual's success in meeting and exceeding performance in various leadership functions, coupled with the ability to enhance long-term shareholder value. Some of the key elements in considering an executive's level of success are the executive's:
o effectiveness as it relates to our overall financial, operational, and strategic goals;
o the individual's level of responsibility and the nature and scope of these responsibilities;
o contribution to our financial results;
o effectiveness in leading initiatives to increase customer value and overall productivity; and
o contribution to our commitment to corporate responsibility, as well as, compliance with applicable laws, regulations, and the highest ethical standards.
Elements of Compensation
Our executive compensation program includes the following elements:
o annual compensation which is comprised of base salary, cash bonus, and other annual types of compensation; and
o long-term compensation which may include the award of stock options, and similar long-term compensation.
The Compensation Committee from time to time, evaluates and discusses the performance of certain executives. This evaluation and discussion may include, among other things, a review of the contribution and performance of such executive to the Company's overall performance, strengths, weaknesses, and development plans. Following this evaluation and discussion, input, as needed, is obtained from other senior officers. A discussion is held and the Compensation Committee makes its own assessment and determines the compensation of each executive. The committee continually strives to balance annual and long-term compensation by examining the entire compensation package of each executive.
Annual Compensation
Each compensation element is specifically designed to meet the objectives outlined above. As such, in determining the annual compensation budget for the current year and in fixing levels of executive compensation, the Compensation Committee considered:
o our performance relative to our growth and profitability goals and its peers' performance, both in the local geographic area and in institutions with similar lending portfolios;
o the relative individual performance of each executive; and
o our cash needs.
Base Salary
In establishing a base salary for executives, the following factors were considered: (i) the duties, complexities, specialization, and responsibilities of the position; (ii) the level of experience and/or training required; (iii) the impact of the executive's decision-making authority; and (iv) the compensation for positions having similar scope and accountability within and outside the Company.
The Compensation Committee, where it deems appropriate, reviews publicly available local, regional, and national compensation data to benchmark executive compensation. We believe that executive talent extends beyond our direct competitors and industry; therefore, the data may include a broad comparison group. While benchmarking provides a very useful tool, the Compensation Committee understands that an effective compensation program is based primarily on performance; therefore, adjustments to base salary benchmarks are driven primarily by individual performance and our projected cash needs.
Other Compensation
Jerome Cooper has been granted the use of a company-owned vehicle. The use of the company-owned vehicle provides an expense-saving opportunity, as this vehicle is used for business-related travel as needed, helping to cut out-of-pocket travel expenses. In addition, Stanley Brettschneider and Michael Kessman are reimbursed for costs associated for gas and tolls as their personal vehicles are used for business-related travel as needed, helping to cut out-of-pocket travel expenses.
Long-Term Compensation
The Compensation Committee continually strives to achieve a balance between promoting strong annual growth and ensuring long-term viability and success. To reinforce the importance of balancing these views, executives may be provided long-term incentives.
Stock Options
Our Compensation Committee believes that stockholder value of our Company can be further increased by aligning the financial interests of our key executives and certain other employees with those of our stockholders. Awards of stock options pursuant to our 2007 Incentive Award Plan (the "2007 Plan") are intended to meet this objective and constitute the long-term incentive portion of executive compensation. Participation in the 2007 Plan is specifically approved by the Board of Directors and consists of our directors and employees.
2007 Incentive Award
Our Board of Directors adopted the 2007 Plan on June 11, 2007. The stockholders approved the 2007 Plan at the annual meeting of stockholders held on February 7, 2008. The following is a summary of the principal features of the 2007 Plan. This summary highlights information from the 2007 Plan. Because it is a summary, it may not contain all the information that is important to you. To fully understand the 2007 Plan, you should carefully read the entire 2007 Plan, which is included as an exhibit to the this Annual Report on Form 10-K.
Securities subject to the 2007 Plan
The shares of stock subject to the 2007 Plan are our Common Stock. Under the terms of the 2007 Plan, the aggregate number of shares of our common stock subject to options, restricted stock awards, stock purchase rights, stock appreciation rights, or SARs, and other awards will be no more than 1,000,000 shares, subject to adjustment under specified circumstances.
Awards under the 2007 Plan
The Compensation Committee is the administrator of the 2007 Plan. The 2007 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock, deferred stock, dividend equivalents, performance awards and stock payments, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
Our officers, employees, consultants and non-officer Directors are eligible to receive awards under the 2007 Plan. The administrator determines which of our officers, employees, consultants, and non-officer Directors will be granted awards.
Nonqualified stock options, or NQSOs, provide for the right to purchase our Common Stock at a specified price which, except with respect to NQSOs intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), may not be less than fair market value on the date of grant, and usually will become exercisable, in the discretion of the administrator, in one or more installments after the grant date. The exercisability of the installments of a NQSO may be subject to the satisfaction of individual or company performance criteria established by the administrator. NQSOs may be granted for any term specified by the administrator.
Incentive stock options, or ISOs, are designed to comply with the provisions of Section 422 of the Code and are subject to certain restrictions contained in the Code. Among such restrictions, ISOs generally must have an exercise price of not less than the fair market value of a share of our common stock on the date of grant, may only be granted to officers and employees and must expire within ten years from the date of grant. In the case of an ISO granted to an individual who owns, or is deemed to own, at least 10% of the total combined voting power of all of our classes of stock, the 2007 Plan provides that the exercise price must be at least 110% of the fair market value of a share of our common stock on the date of grant and the ISO must expire within five years from the date of grant.
Restricted stock may be sold to participants at various prices or granted with no purchase price, and may be made subject to such restrictions as may be determined by the administrator. Restricted stock, typically, may be repurchased by us at the original purchase price if the vesting conditions are not met. In general, restricted stock may not be sold or otherwise hypothecated or transferred until restrictions are removed or expire. Purchasers of restricted stock, unlike recipients of options, will have voting rights and may receive distributions prior to the time the restrictions lapse. Also, distributions on restricted stock may be subject to vesting conditions and restrictions.
Deferred stock may be awarded to participants, typically without payment of consideration, but subject to vesting conditions based on performance criteria established by the administrator. Like restricted stock, deferred stock may not be sold or otherwise hypothecated or transferred until vesting conditions are removed or expire. Unlike restricted stock, deferred stock will not be issued until the deferred stock award has vested, and recipients of deferred stock generally will have no voting or distribution rights prior to the time when the vesting conditions are satisfied.
Stock appreciation rights may be granted in connection with stock options or separately. SARs granted by the administrator in connection with stock options typically will provide for payments to the holder based upon increases in the price of our common stock over the exercise price of the related option, but alternatively may be based upon an exercise price determined by the administrator. Except as required by Section 162(m) of the Code with respect to any SAR intended to qualify as performance-based compensation, there are no restrictions specified in the 2007 Plan on the exercise prices of SARs, although restrictions may be imposed by the administrator in the SAR agreements. The administrator may elect to pay SARs in cash or our common stock or a combination of both.
Distribution equivalents represent the value of the distributions per share paid by us, calculated with reference to the number of shares covered by the stock options, SARs or other awards held by the participant.
Performance awards may be granted by the administrator to officers, employees or consultants based upon, among other things, the achievement of performance goals. Generally, these awards will be based upon specific performance criteria and may be paid in cash or our common stock or a combination. Performance awards to officers, employees and consultants may also include bonuses granted by the administrator, which may be payable in cash or our common stock or a combination of both.
Stock payments may be authorized by the administrator in the form of shares of our common stock or an option or other right to purchase our common stock as part of a deferred compensation arrangement in lieu of all or any part of cash compensation, including bonuses, that would otherwise be payable to the officer, employee or consultant. Stock payments may be based on the achievement of performance goals.
The administrator may designate officers and employees as Section 162(m) participants, whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. The administrator may grant to Section 162(m) participants options, restricted stock, deferred stock, SARs, dividend equivalents, performance awards, cash bonuses and stock payments that are paid, vest or become exercisable upon the achievement of performance goals for our company, or any subsidiary, division or operating unit of our company related to one or more of the following performance criteria net income; pre-tax income; operating income; cash flow; earnings per share; earnings before interest, taxes, depreciation and/or amortization; return on equity; return on invested capital or assets; cost reductions or savings; or appreciation in the market value of a share of our common stock.
Option grants to non-officer Directors
Each of our non-officer Directors will receive an option for 5,000 shares of our common stock as of the date of their appointment and a similar option at each annual meeting of our stockholders thereafter ("Director Options"). Each person who thereafter is elected or appointed as a non-officer director will receive a Director Option on the date such person is first elected as a non-officer director and at each annual meeting of our stockholders thereafter. The Director Options will vest on grant.
Amendment and Termination of the 2007 Plan
The Board of Directors may not, without stockholder approval, amend the 2007 Plan to increase the number of shares of our stock that may be issued under the 2007 Plan.
The Board of Directors may terminate the 2007 Plan at any time. The 2007 Plan will be in effect until terminated by the Board of Directors. However, in no event may any award be granted under the 2007 Plan after ten years following the 2007 Plan's effective date. Except as indicated above, the Board of Directors may modify the 2007 Plan from time to time.
Other Long-Term Compensation
We offer a variety of health and welfare programs to all eligible employees. The executives generally are eligible for the same benefit programs on the same basis as other employees. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, prescription, dental and vision. We provide short-term disability coverage to every full time employee in New York, at no cost to the employee.
We offer a 401(k) plan to all eligible employees, including executives. The 401(k) plan is funded by contributions of participating employees. We do not offer any matching contributions to the participants in this plan.
Summary Compensation Table
The following table sets forth the compensation of each executive officer of the Company and/or their subsidiaries for the three years ended December 31, 2007:
Changes in
Pension
Non- Value
Equity and Non-
Incentive Qualified
Plan Deferred All Other
Stock Option Compen- Compensation Compen-
Name and Position Year Salary Bonus Awards Awards sation Earnings sation Total
----------------- ----- -------- -------- ------- -------- --------- -------------- --------- ---------------
Stanley
Brettschneider,
Officer of 2007 $ 528,328 -- -- -- -- -- $ 7,186 (3)(5) $ 535,514
Subsidiaries
2006 $ 496,443 -- -- -- -- -- -- $ 496,443
2005 $ 500,353 -- -- -- -- -- $49,258(2) $ 549,611
Jerome Cooper,
President,
Chief Executive
Officer and
Director
2007 $ 464,623 -- -- -- -- -- $ 5,839(3)(5) $ 470,462
2006 $ 420,257 -- -- -- -- -- $ 436(5) $ 420,693
2005 $ 436,699 -- -- -- -- -- $41,169(2)(5) $ 477,868
63
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Michael I
Kessman, Chief
Accounting
Officer
2007 $ 228,134 -- -- -- -- -- $ 7,186(3)(5) $ 235,320
2006 $ 211,241 $10,000 -- -- -- -- $ 4,422(2)(5) $ 225,663
2005 $ 232,110 -- -- -- -- -- $12,393(2)(5) $ 244,503
Paul Cooper,
Vice President
and Director 2007 $ 92,308 -- -- -- -- -- -- $ 92,308
2006 -- -- -- -- -- -- -- --
2005 -- -- -- -- -- -- -- --
Douglas Cooper,
Vice President,
Treasurer,
Secretary and
Director
2007 $ 92,308 -- -- -- -- -- -- $ 92,308
2006 -- -- -- -- -- -- $16,050(4) $ 16,050
2005 -- -- -- -- -- -- $16,050(4) $ 16,050
------------------
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(1) The pension plans were terminated in January 2006 and no contributions were
made by the Bus Companies for 2006.
(2) Consists of unpaid vacation pay.
(3) Consists of 401(K) contributions.
(4) Consists of pension contributions.
(5) Includes $436.00 paid for life insurance premiums
Compensation Committee Interlocks and Insider Participation
There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.
Compensation Committee Report
The following report of the Compensation Committee shall not be deemed to be "soliciting material" or to be "filed" with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into a filing.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Annual Report with management. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report.
THE COMPENSATION COMMITTEE
David Jang
John J. Leahy
Harvey I. Schneider
Grants of Plan Based Awards
All options granted to our named executive officers in 2007 are non-qualified stock options. The exercise price per share of each option granted to our named executive officers was determined in good faith by our Board of Directors on the date of the grant. All of the stock options granted to our named executive officers in 2007 were granted under our 2007 Plan.
The following table sets forth certain information regarding grants of plan-based awards to our named executive officers for the fiscal year ended December 31, 2007:
Grants of Plan-Based Awards
Estimated Future All Other All Other
Estimated Future Payouts Under Payouts Under Equity Stock Option
Non-Equity Incentive Plan Awards Incentive Plan Awards Awards(1): Awards:
----------------------------------------------------------------------------------------------------------------------------------
Date on Grant Date
Which the Number Number of Exercise of Fair Value
Board or of Shares Securities Base Price of Stock
Directors Grant of Stock Underlying of Option and Options
Name Took Action Date(1) Threshold Target Maximum Threshold Target Maximum or Units Options Awards(2) Awards(3)
-----------------------------------------------------------------------------------------------------------------------------------
Jerome
Cooper 6/11/07 - - - - - - - 100,000
Paul A.
Cooper 6/11/07 - - - - - - - 50,000 - -
Douglas A.
Cooper 6/11/07 - - - - - - - 50,000
Michael
Kessman - - - - - - - - - - -
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Outstanding Equity Awards At 2007 Fiscal Year-End
The following table sets forth certain information regarding equity awards granted to our named executive officers outstanding as of December 31, 2007:
Stock Awards
Option Awards Equity Incentive
Incentive Plan
Market Plan Awards:
Value Awards: Market
of Number or Payout
Equity Numbers Shares of Value of
Incentive of or Unearned Unearned
Plan Shares Units Shares, Shares,
Number of Number of Awards: or Units of Units, or Units or
Securities Securities Number of of Stock Stock Other Other
Underlying Underlying Securities That That Rights Rights
Name and Unexercised Unexercised Underlying Option Option Have Have That That
Principal Options - Options - Unearned Exercise Expiration Not Not Have Not Have Not
Position Exercisable Unexercisable Options Price(1) Date(2) Vested Vested Vested Vested
----------------------------------------------------------------------------------------------------------------------------
Jerome --- 100,000 --- $11.14 07.17 100,000 $1,111,400 --- ---
Cooper,
President,
Chief
Executive
Officer and
Director
Paul --- 50,000 --- $11.14 07.17 50,000 $ 555,700 --- ---
Cooper,
Vice
President
and Director
Douglas --- 50,000 --- $11.14 07.17 50,000 $ 555,700 --- ---
Cooper,
Vice
President,
Treasurer,
Secretary
and Director
Michael --- --- --- --- --- --- --- --- ---
Kessman,
Chief
Accounting
Officer
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(1) Fair market value of shares on the date of grant.
(2) 10 years from the date of grant.
Option Exercises and Stock Vested
No options were exercised by our named executive officers in 2007.
Pension Benefits
We do not currently maintain qualified or non-qualified defined benefit plans.
Non-qualified Deferred Compensation
We do not currently maintain non-qualified defined contribution plans or other deferred compensation plans.
Employee Agreements and Potential Payments Upon Termination or Change in Control
None.
Non-Officer Director Compensation
The following table sets forth a summary of the compensation we paid to our non-officer directors in 2007:
Change in Pension
Value and
Fees Nonqualified
Earned or Non-Stock Deferred All
Paid Stock Option Incentive Plan Compensation other
Name Cash Awards Awards Compensation Earnings Compensation Total
---- ---- ------ ------ ------------ -------- ------------ -----
David Jang $12,459 - 10,000 - - - $12,459
John J. Leahy 11,500 - 10,000 - - $4,200* 15,700
Donald M. Schaeffer 11,500 - 10,000 - - - 11,500
Harvey I. Schneider 10,500 - 5,000 - - - 10,500
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Our non-officer Directors receive the following forms of compensation:
o Annual Retainer. Our independent Directors receive an annual retainer of $10,000.
o Meeting Fees. Our independent Directors receive $500 for each Board meeting, each committee meeting attended in person or by telephone.
o Equity Compensation. Upon their initial election and annually on the date of the Annual Meeting of the Company's stockholders, each independent director receives 5,000 share stock option at fair market value on the date of grant.
o Other Compensation. We reimburse our Directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings, including committee meetings, of the Board of Directors. Independent Directors do not receive other benefits from us.
*Consulting fee
Limitation of liability and indemnification of our Directors and Officers
We have included in our charter a provision limiting the liability of our Directors and officers to us and our stockholders for money damages, except as may be required by Maryland law.
We will indemnify our present and former Directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities. However, we shall not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses.
Our charter provides that none of our Directors or officers will be liable to our company or our stockholders for money damages and that we will indemnify and pay or reimburse reasonable expenses in advance of the final disposition of a proceeding to our Directors, our officers, their affiliates and any individual who, while our director or officer at our request, served as a director, trustee, partner or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for losses they may incur by reason of their service in those capacities; provided, however, we will not indemnify or hold harmless our Directors and officers unless all of the following conditions are met:
o the party was acting on behalf of or performing services on the part of our company;
o our Directors and officers have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of our company;
o such indemnification or agreement to be held harmless is recoverable only out of our net assets and not from our stockholders; and
o such liability or loss was not the result of:
negligence or misconduct by our officers or Directors (other than the independent Directors); or
gross negligence or willful misconduct by the independent Directors.
The SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and unenforceable. Furthermore, our charter prohibits us from indemnifying our Directors for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:
o there has been a successful determination on the merits of each count involving alleged securities law violations as to the party seeking indemnification;
o such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the party seeking indemnification; or
o a court of competent jurisdiction approves a settlement of the claims against the party seeking indemnification and finds that indemnification of the settlement and related costs should be made and the court considering the request has been advised of the position of the Securities and Exchange Commission and of the published opinions of any state securities regulatory authority in which shares of our stock were offered and sold as to indemnification for securities law violations.
We may advance amounts to persons entitled to indemnification for reasonable expenses and costs incurred as a result of any proceeding for which indemnification is being sought in advance of a final disposition of the proceeding only if all of the following conditions are satisfied:
o the legal action relates to acts or omissions with respect to the performance of duties or services by the indemnified party for or on behalf of our company;
o the legal action is initiated by a third party who is not a stockholder of our company or the legal action is initiated by a stockholder of our company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement;
o the party receiving such advances furnishes our company with a written statement of his or her good faith belief that he or she has met the standard of conduct described above; and
o the indemnified party receiving such advances furnishes to our company a written undertaking, personally executed on his or her behalf, to repay the advanced funds to our company, together with the applicable legal rate of interest thereon, if it is ultimately determined that he or she did not meet the standard of conduct described above.
Authorizations of payments will be made by a majority vote of a quorum of disinterested Directors.
Also, our Board of Directors may cause our company to indemnify or contract to indemnify any person not specified above who was, is, or may become a party to any proceeding, by reason of the fact that he or she is or was an employee or agent of our company, or is or was serving at the request of our company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such person were specified as one whom indemnification is granted as described above. Any determination to indemnify or contract to indemnify will be made by a majority vote of a quorum consisting of disinterested Directors.
We intend to purchase and maintain insurance to indemnify such parties against the liability assumed by them in accordance with our charter in a sum of at least $5 million.
The indemnification provided in our charter is not exclusive to any other right to which any person may be entitled, including any right under policies of insurance that may be purchased and maintained by our company or others, with respect to claims, issues or matters in relation to which our company would not have obligation or right to indemnify such person under the provisions of our charter.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2008, information regarding the beneficial ownership of the Company's common stock by (1) each person who is known to the Company to be the owner of more than five (5%) percent of the Company's Common Stock, (2) each of the Company's directors and executive officers and (3) all directors and executive officers as a group. For purposes of this table, a person or group of persons is deemed to have beneficial ownership of any shares that such person has the right to acquire within 60 days of March 31, 2008.
Amounts and Nature of Percentage of
Name and Address of Beneficial Owner Beneficial Class(5)
--------------------------------------------------------------------- ---------------------- ----------------
Jerome Cooper 151,068 1.1%
Paul A. Cooper -0- *
Douglas A. Cooper -0- *
Michael Kessman -0- *
David Jang(1) 15,000 *
John J. Leahy(2) 15,000 *
Donald M. Schaeffer(3) 15,000 *
Harvey I. Schneider(4) 10,000
All Executive Officers and Directors as a Group 206,068 1.5%
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* Represents less than 1.0% of our outstanding common stock.
(1) Includes options to purchase 15,000 shares which may be purchased under the
2007 Plan.
(2) Includes options to purchase 15,000 shares which may be purchased under the
2007 Plan.
(3) Includes options to purchase 15,000 shares which may be purchased under the
2007 Plan.
(4) Includes options to purchase 10,000 shares which may be purchased under the
2007 Plan.
(5) Based on 13,472,281 shares outstanding as of March 31, 2008.
As of March 31, 2008, we have approximately 384 stockholders of record. There is no trading market for our common stock and none is expected to develop in the foreseeable future.
Change In Control Or Other Arrangements
Except for the foregoing, there are no other arrangements for compensation of directors and there are no employment contracts between the Company and the Board of Directors or any change in control arrangements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2005, the Directors and executive officers of the company, and their affiliates and associates have engaged in the following transactions with the Company, (excluding customary salary payments as employees of one or more of the Bus Companies).
Paul A. Cooper
Paul A. Cooper is a director and officer of the Company. In April, 2005, Lighthouse 444 Limited Partnership ("Lighthouse"), the owner of the building at 444 Merrick Road, Lynbrook, NY, and of which Paul Cooper is a general partner, leased 5,667 square feet of office and storage space to the Bus Companies for a term of five years at an annual rent of approximately $160,000 for the first year, increasing to approximately $177,000 for the fifth year. This space is currently occupied by the Company. In connection with this lease, there was a $231,000 expenditure (allowance) by the landlord for leasehold improvements. This lease will expire in April 2010. In February 2008, Lighthouse leased an adjoining 3,545 square feet of office space to the Company at an annual rent of approximately $106,000, which replaced 2,300 square feet of basement space covered by the prior lease having annual rent of approximately $37,000.
Lighthouse Real Estate Advisors, LLC ("LREA"), of which Paul Cooper is a member, received a leasing commission between 2003 and 2006 for the leasing of 23-85 87th Street, East Elmhurst, New York on behalf of a subsidiary of the Company to Avis Rent-A-Car System, Inc. in the aggregate sum of $1,100,000 (3.056% of gross rent). LREA also received a leasing commission in 2006 for the leasing of 85-01 24th Avenue, East Elmhurst, New York on behalf of Triboro Coach Holding Corp. to New York City in the aggregate sum of $840,540 (1.318% of gross rent).
In addition, LREM received a leasing commission in 2006 for the leasing of 114-15 Guy Brewer Boulevard, Jamaica, New York on behalf of Jamaica Bus Holding Corp. to New York City in the aggregate sum of $615,000 (1.645% of gross rent). LREM also received a leasing commission in 2006 for the leasing of (i) 165-25 147th Avenue, Jamaica, New York and (ii) 49-19 Rockaway Beach Boulevard, Edgemere, New York on behalf of Green Bus Holding Corp. to New York City in the aggregate sum of $1,281,579 (1.528% of gross rent).
The Avis fee was for finding the tenant and negotiating the lease. The New York City fees were for negotiating the leases. Paul Cooper is one of several partners or members of Lighthouse, LREA and LREM.
Douglas A. Cooper
Douglas Cooper is a director and officer of the Company and a partner of Ruskin Moscou Faltischek, P.C. ("RMF"), which has acted as counsel to the Bus Companies and now acts as counsel to the Company. Fees paid to RMF for the three years ended December 31, 2007 were $706,126, $662,429 and $505,126, respectively representing fees and expenses for litigation with New York City and others, the sale of the Bus Companies' bus assets to New York City or its agencies, preparation of all documentation related to the Reorganization and general corporate matters.
Stanley Brettschneider
Stanley Brettschneider is a key employee of outdoor maintenance businesses. Prior to September 1, 2003, the Bus Companies owned and operated a school bus operation, Varsity Transit, Inc. and Varsity Coach Corp. ("Varsity"). For the years ended December 31, 2002 and 2003, Varsity incurred losses from its school bus contract services of $3,485,620 and $3,971,856 respectively, due to the high
costs associated with labor, benefits, and maintenance. Terminating this business would have resulted in approximately $6,000,000 of penalties, and a negative performance report available to other municipalities. Accordingly, starting in February 2003, the Bus Companies determined to dispose of Varsity's buses and routes. In doing so, they met and negotiated with existing operators in the school bus industry, as well as entities ("Buyers") associated with Stanley Brettschneider, and owned by his wife and children, including Varsity Bus. Mr. Brettschneider was then a key employee of the Bus Companies, a member of their boards of directors and is related by marriage to certain of our directors and officers.
Initially 282 of Varsity's buses were sold to the Buyers for $3,101,708. Approximately 255 of Varsity's routes were sold to the Buyers for an initial payment of $3,000 per route, equaling $765,000, and additional payments of $1,000 per year per route for three years based on the recent five year operating extension offered to the New York City School Bus Contractors by the Department of Education which will equal $765,000, a total of $1,530,000.
The total sale price of $4,631,708 was payable as follows: $2,666,708 in cash, which was paid, and a four year promissory note in the amount of $1,200,000 with interest payable at six percent, which is being paid. The promissory note was reduced by means of a $250,000 lump sum payment made in 2003 and there are current monthly installments of $22,211. The $765,000 balance of the route purchase price was negotiated without a specific time of payment, because it depended on route renewals. $255,000 of such amount has been paid through September 30, 2006.
In connection with such sale, the Bus Companies leased to the Buyers a portion of the Wortman Property. Such leasing was on an oral basis, and the lease was reduced to writing in 2006. The lease, which began in 2003 and terminates in 2010, is subject to extension as described in Item 1 - Business Description of REIT Business - Portfolio of Real Properties.
In 2003, the Bus Companies estimated that the lease to the Buyers would represent an underpayment of estimated and projected market rent for the premises so leased of approximately $3,350,000 through 2010, but nevertheless believed the transaction was in the best interest of the Bus Companies because it curtailed the Bus Companies' losses of approximately $4 million per year, led to transactions with the Buyers and others for buses and routes aggregating an excess of $7 million and led to the vacancy of the 87th Street Property, then used for Varsity, so that the same could be leased to Avis Rent A Car for approximately $1.8 million a year. The underpayment of market rent appears, as of the current time, to be substantially in excess of such estimated and projected amount due to unforeseen increases in commercial rents in excess of the Consumer Price Index in the New York City metropolitan area and also due to significant increases in New York City real property taxes. In addition, the Buyers pay us a monthly fee for support services and purchase certain materials from us at book value. Varsity has four 5 year options to extend the term of the lease, starting in 2010, in each case at a rent equal to 90% of market rental of the leasehold at the time of the extension.
The Company believes that the terms of the above described transactions are at least as favorable to the Company and its subsidiaries as those which could have been obtained from non-related third parties.
The Board of Directors has not, as of this time, adopted any formal policies or procedures for the review and approval of related party transactions that may come before it. It is anticipated that the Board of Directors will adopt formal policies and procedures for such review and approval in the future, pending which such review and approval will be based upon the judgment of the Board of Directors on a case by case basis.
ITEM 14. PRINCIPAL ACCOUNTANT'S FEES AND SERVICES
Weiser LLP is our independent accountants and has reported on the financial statements in this 2007 Annual Report.
The following table presents aggregate fees billed for each of the years ended December 31, 2007 and 2006 for professional services rendered by Weiser LLP in the following categories:
Year Ended December 31,
2007 2006
---- ----
Audit fees $538,048 $ 898,740
Audit-Related Fees $ - $ 101,830
Tax Fees $ 53,200 $ 147,000
Other Fees $ - $ -
-------- ----------
Total $591,248 $1,147,570
|
Audit fees. These are fees for professional services performed for the audit of our annual financial statements and the required review of quarterly financial statements and other procedures performed by Weiser LLP in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements.
Audit-related fees. These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.
Tax fees. These are fees for all professional services performed by professional staff in our independent auditor's tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before the IRS and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
All other fees. These are fees for any services not included in the above-described categories, including assistance with internal audit plans and risk assessments.
In accordance with Section 10A(i) of the Exchange Act, before Weiser LLP is engaged by us to render audit or non-audit services, the engagement is approved by our Audit Committee.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Number Exhibit ------- -------------------------------------------------------------------- |
2.1 Merger Agreement and Plan of Merger (Incorporated by reference to
Registration Statement No. 333-136110)
3.1 Articles of Incorporation of the Registrant (Incorporated by reference to
Registration Statement No. 333-136110)
3.1(a) Form of Amended and Restated Articles of Incorporation of the Registrant
(Incorporated by reference to Amendment No. 1 to Registration Statement No.
333-136110)
3.2(a) Bylaws of the Registrant (Incorporated by reference to Registration
Statement No. 333-136110)
3.2(b) Amendment to Bylaws of the Registrant (filed herewith)
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Registration Statement No. 333-136110)
10.1 Form of 2007 Incentive Award Plan (filed herewith)
10.2 Form of Stockholder Rights Agreement (Incorporated by reference to
Amendment No. 1 to Registration Statement No. 333-136110)
10.3 Asset Purchase Agreement by and among Green Bus lines, Inc., Command Bus
Company, Inc., Triboro Coach Corp., Jamaica Buses, Inc. Varsity Transit,
Inc., GTJ Co., Inc. and the City of New York dated November 29, 2005.
(Incorporated by reference to Registration Statement No. 333-136110)
10.4 Agreement of Lease between Green Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 49-19 Rockaway Beach Boulevard, Arverne, New
York. . (Incorporated by reference to Registration Statement No.
333-136110)
10.5 Agreement of Lease between Green Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 165-25 147th Avenue, Jamaica, New York. .
(Incorporated by reference to Registration Statement No. 333-136110)
10.6 Agreement of Lease between Jamaica Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 114-15 Guy Brewer Boulevard, Jamaica, New
York. (Incorporated by reference to Registration Statement No.
333-136110)
10.7 Agreement of Lease between Triboro Coach Holding Corp., Landlord and the
City of New York, Tenant: Premises 85-01 24th Avenue East Elmhurst, New
York. (Incorporated by reference to Registration Statement No.
333-136110)
10.8 Agreement of Lease between GTJ Co., Inc., Landlord and Avis Rent A Car
System, Inc., Tenant: Premises 23-85 87th Street, East Elmhurst, New York.
(Incorporated by reference to Registration Statement No. 333-136110)
10.9 Lease by and between GTJ Co., Inc., Landlord and Varsity Bus Co., Inc.,
Tenant: Premises 626 Wortman Avenue, Brooklyn, New York and Cozine Avenue,
Brooklyn, New York dated September 1, 2003. . (Incorporated by reference to
Registration Statement No. 333-136110)
10.10 Agreement between Transit Facility Management Corporation and NYC Transit
dated August 7, 2001. (Incorporated by reference to Amendment No. 1 to
Registration Statement No. 333-136110)
10.11 Agreement between ShelterClean, Inc. and the City of Phoenix dated April
15, 2006. (Incorporated by reference to Amendment No. 1 to Registration
Statement No. 333-136110)
10.12 Agreement between CEMUSA, Inc. and Shelter Express Corp. dated June 26,
2006. (Incorporated by reference to Amendment No. 1 to Registration
Statement No. 333-136110)
10.13 ING Loan Agreement (Incorporated by reference to the Registrant's report
on Form 8-K filed on July 10, 2007)
10.14 ING Form of Pledge Agreement (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.15 ING Confirmation and ISDA Master Agreement, dated as of December 13, 2006,
with SMBC Derivative Products Limited (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.16 ING Libor Cap Security Agreement (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.17 ING Mortgage Notes (Incorporated by reference to the Registrant's report
on Form 8-K filed on July 10, 2007)
10.18 ING Mortgages (Incorporated by reference to the Registrant's report on
Form 8-K filed on July 10, 2007)
10.19 ING Assignment of Leases and Rents (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.20 Real Estate Purchase and Sale Agreement by and between Eight Farms Springs
Road Associates, LLC and Farm Springs Road LLC. (Incorporated by reference
to the Registrant's report on Form 8-K filed February 5, 2008)
10.21 Lease by and between Eight Farm Springs Road Associates, L.L.C. and
Hartford Fire Insurance Company, including First Lease Amendment. (filed
herewith)
10.22 Agreement of Lease dated April __, 2005 between Lighthouse 444 Limited
Partnership and GTJ Co., Inc. (filed herewith)
10.23 Space Substitution Agreement dated November __, 2007 between Lighthouse
444 Limited Partnership and Shelter Express Corp. (filed herewith)
21.1 Subsidiaries of GTJ REIT, Inc. (filed herewith)
31.1 Certification of Chief Executive Officer (filed herewith)
31.2 Certification of Chief Accounting Officer (filed herewith)
32.1 Certification of Chief Executive Officer (filed herewith)
32.2 Certification of Chief Accounting Officer (filed herewith)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GTJ REIT, INC.
Dated: April 30, 2008 By: /s/ Jerome Cooper
---------------------------
Jerome Cooper
Chief Executive Officer
By: /s/ Michael Kessman
---------------------------
Michael Kessman
Chief Accounting Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Jerome Cooper Chief Executive Officer and Director April 30, 2008 ------------------------------------- Jerome Cooper /s/ Paul A. Cooper Vice President and Director April 30, 2008 ------------------------------------- Paul A. Cooper /s/ Douglas A. Cooper Vice President and Director April 30, 2008 ------------------------------------- Douglas A. Cooper /s/ David Jang Director April 30, 2008 ------------------------------------- David Jang /s/ John J. Leahy Director April 30, 2008 ------------------------------------- John J. Leahy /s/ Donald M. Schaeffer Director April 30, 2008 ------------------------------------- Donald M. Schaeffer /s/ Harvey I. Schneider Director April 30, 2008 ------------------------------------- Harvey I. Schneider |
EXHIBIT LIST
Exhibit Number Exhibit ------- -------------------------------------------------------------------- |
2.1 Merger Agreement and Plan of Merger (Incorporated by reference to
Registration Statement No. 333-136110)
3.1 Articles of Incorporation of the Registrant (Incorporated by reference to
Registration Statement No. 333-136110)
3.1(a) Form of Amended and Restated Articles of Incorporation of the Registrant
(Incorporated by reference to Amendment No. 1 to Registration Statement No.
333-136110)
3.2(a) Bylaws of the Registrant (Incorporated by reference to Registration
Statement No. 333-136110)
3.2(b) Amendment to Bylaws of the Registrant (filed herewith)
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Registration Statement No. 333-136110)
10.1 Form of 2007 Incentive Award Plan (filed herewith)
10.2 Form of Stockholder Rights Agreement (Incorporated by reference to
Amendment No. 1 to Registration Statement No. 333-136110)
10.3 Asset Purchase Agreement by and among Green Bus lines, Inc., Command Bus
Company, Inc., Triboro Coach Corp., Jamaica Buses, Inc. Varsity Transit,
Inc., GTJ Co., Inc. and the City of New York dated November 29, 2005.
(Incorporated by reference to Registration Statement No. 333-136110)
10.4 Agreement of Lease between Green Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 49-19 Rockaway Beach Boulevard, Arverne, New
York. . (Incorporated by reference to Registration Statement No.
333-136110)
10.5 Agreement of Lease between Green Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 165-25 147th Avenue, Jamaica, New York. .
(Incorporated by reference to Registration Statement No. 333-136110)
10.6 Agreement of Lease between Jamaica Bus Holding Corp., Landlord and the City
of New York, Tenant: Premises 114-15 Guy Brewer Boulevard, Jamaica, New
York. (Incorporated by reference to Registration Statement No.
333-136110)
10.7 Agreement of Lease between Triboro Coach Holding Corp., Landlord and the
City of New York, Tenant: Premises 85-01 24th Avenue East Elmhurst, New
York. (Incorporated by reference to Registration Statement No.
333-136110)
10.8 Agreement of Lease between GTJ Co., Inc., Landlord and Avis Rent A Car
System, Inc., Tenant: Premises 23-85 87th Street, East Elmhurst, New York.
(Incorporated by reference to Registration Statement No. 333-136110)
10.9 Lease by and between GTJ Co., Inc., Landlord and Varsity Bus Co., Inc.,
Tenant: Premises 626 Wortman Avenue, Brooklyn, New York and Cozine Avenue,
Brooklyn, New York dated September 1, 2003. . (Incorporated by reference to
Registration Statement No. 333-136110)
10.10 Agreement between Transit Facility Management Corporation and NYC Transit
dated August 7, 2001. (Incorporated by reference to Amendment No. 1 to
Registration Statement No. 333-136110)
10.11 Agreement between ShelterClean, Inc. and the City of Phoenix dated April
15, 2006. (Incorporated by reference to Amendment No. 1 to Registration
Statement No. 333-136110)
10.12 Agreement between CEMUSA, Inc. and Shelter Express Corp. dated June 26,
2006. (Incorporated by reference to Amendment No. 1 to Registration
Statement No. 333-136110)
10.13 ING Loan Agreement (Incorporated by reference to the Registrant's report
on Form 8-K filed on July 10, 2007)
10.14 ING Form of Pledge Agreement (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.15 ING Confirmation and ISDA Master Agreement, dated as of December 13, 2006,
with SMBC Derivative Products Limited (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.16 ING Libor Cap Security Agreement (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.17 ING Mortgage Notes (Incorporated by reference to the Registrant's report
on Form 8-K filed on July 10, 2007)
10.18 ING Mortgages (Incorporated by reference to the Registrant's report on
Form 8-K filed on July 10, 2007)
10.19 ING Assignment of Leases and Rents (Incorporated by reference to the
Registrant's report on Form 8-K filed on July 10, 2007)
10.20 Real Estate Purchase and Sale Agreement by and between Eight Farms Springs
Road Associates, LLC and Farm Springs Road LLC. (Incorporated by reference
to the Registrant's report on Form 8-K filed February 5, 2008)
10.21 Lease by and between Eight Farm Springs Road Associates, L.L.C. and
Hartford Fire Insurance Company, including First Lease Amendment. (filed
herewith)
10.22 Agreement of Lease dated April __, 2005 between Lighthouse 444 Limited
Partnership and GTJ Co., Inc. (filed herewith)
10.23 Space Substitution Agreement dated November __, 2007 between Lighthouse
444 Limited Partnership and Shelter Express Corp. (filed herewith)
21.1 Subsidiaries of GTJ REIT, Inc. (filed herewith)
31.1 Certification of Chief Executive Officer (filed herewith)
31.2 Certification of Chief Accounting Officer (filed herewith)
32.1 Certification of Chief Executive Officer (filed herewith)
32.2 Certification of Chief Accounting Officer (filed herewith)
EXHIBIT 3.2(B)
AMENDMENT TO THE BY-LAWS
OF GTJ REIT, INC.
1. Article 3 of the By-Laws of GTJ REIT, Inc. (the "Corporation") is hereby amended to include a new Section 3.19 to read as follows:
Section 3.19 Nomination of Directors. The Board of Directors at a special or regular meeting shall be entitled to nominate one or more persons to act as a director or directors of the corporation with respect to any directorship or directorships the term of which has or have expired or will expire. Such nominee or nominees may in the discretion of the Board be the person or persons who held or hold such directorship or directorships.
2. Except as herein amended, the By-Laws of the Corporation remain in full force and effect.
/s/ Douglas A. Cooper -------------------------------- Douglas A. Cooper Secretary |
EXHIBIT 10.1
THE 2007 INCENTIVE AWARD PLAN
OF
GTJ REIT, INC.
GTJ REIT, Inc., a Maryland corporation, has adopted the 2007 Incentive Award Plan of GTJ REIT, Inc., (the "Plan"), effective June 11, 2007 (the "Effective Date").
The purposes of the Plan are as follows:
(1) To provide an additional incentive for Directors, Officers, Key Employees and Consultants (as such terms are defined below) to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock and/or rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of Directors, Officers, Key Employees and Consultants considered essential to the long range success of the Company by offering them an opportunity to own stock in the Company and/or rights which will reflect the growth, development and financial success of the Company.
ARTICLE I.
DEFINITIONS
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
1.1. "Administrator" shall mean the entity that conducts the general administration of the Plan as provided herein. With reference to the administration of the Plan with respect to Options and Restricted Stock granted to Independent Directors, the term "Administrator" shall refer to the Board of Directors. With reference to the administration of the Plan with respect to any other Award, the term "Administrator" shall refer to the Committee unless the Board of Directors has assumed the authority for administration of the Plan generally as provided in Section 10.1.
1.2. "Award" shall mean an Option, a Restricted Stock award, a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment award or a Stock Appreciation Right which may be awarded or granted under the Plan.
1.3. "Award Agreement" shall mean a written agreement executed by an authorized officer of the Company and the Holder which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.
1.4. "Award Limit" shall mean a number of shares of Common Stock, as adjusted pursuant to Section 11.3 as determined by the Board of Directors; provided, however, that solely with respect to Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean an amount determined by the Board of Directors.
1.5. "Board" shall mean the Board of Directors of the Company.
1.6. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.7. "Committee" shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.1.
1.8. "Common Stock" shall mean the common stock of the Company, par value $.001 per share.
1.9. "Company" shall mean GTJ REIT, Inc., a Maryland corporation.
1.10. "Consultant" shall mean any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the Company or any Subsidiary;
(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and
(c) The consultant or adviser is a natural person who has contracted directly with the Company to render such services.
1.11. "Deferred Stock" shall mean Common Stock awarded under Article VIII of the Plan.
1.12. "Director" shall mean a member of the Board.
1.13. "Dividend Equivalent" shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock awarded under Article VIII of the Plan.
1.14. "DRO" shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.
1.15. "Employee" shall mean any employee of the Company or of any Subsidiary.
1.16. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
1.17. "Fair Market Value" of a share of Common Stock as of a given date shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as reported on any composite index which includes such principal exchange), on the trading day previous to such date, or if shares were not traded on the trading day previous to such date, then on the next preceding date on which a trade occurred, or (b) if Common Stock is not traded on an exchange but is quoted on Nasdaq or a successor quotation system, the mean between the closing representative bid and asked prices for the Common Stock on the trading day previous to such date as reported by Nasdaq or such successor quotation system, or (c) if Common Stock is not publicly traded on an exchange and not quoted on Nasdaq or a successor quotation system, the Fair Market Value of a share of Common Stock as established by the Administrator acting in good faith.
1.18. "Holder" shall mean a person who has been granted or awarded an Award.
1.19. "Incentive Stock Option" shall mean an option which conforms to the applicable provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator.
1.20. "Independent Director" shall mean a member of the Board who is not associated and has not been associated with the Company for at least two years.
1.21. "Key Employee" shall mean an Employee so designated by the Board or the Committee.
1.22. "Non-Qualified Stock Option" shall mean an Option which is not designated as an Incentive Stock Option by the Administrator or which does not conform to the applicable provisions of Section 422 of the Code.
1.23. "Officer" shall mean any officer of the Company, or of any Subsidiary.
1.24. "Option" shall mean a stock option granted under Article IV of the Plan. An Option granted under the Plan shall, as determined by the Administrator, be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however, that Options granted to Independent Directors and Consultants shall be Non-Qualified Stock Options.
1.25. "Ownership Limit" shall mean the ownership of not more than 5% of the outstanding shares of Common Stock (as defined in the Company's Articles of Incorporation) of the Company.
1.26. "Performance Award" shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VIII of the Plan.
1.27. "Performance Criteria" shall mean the following business criteria
with respect to the Company, any Subsidiary or any division or operating unit:
(a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock, and (k) earnings before any one or more of the following items: interest, taxes, depreciation or amortization; each as determined in accordance with generally accepted accounting principles or subject to such adjustments as may be specified by the Committee with respect to an Award.
1.28. "Plan" shall mean the 2007 Incentive Award Plan of GTJ REIT, Inc.
1.29. "Restricted Stock" shall mean Common Stock awarded under Article VII of the Plan.
1.30. "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.
1.31. "Section 162(m) Participant" shall mean any Officer or key Employee designated by the Administrator as an Officer or key Employee whose compensation for the fiscal year in which the Officer or key Employee is so designated or a future fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.
1.32. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.33. "Stock Appreciation Right" shall mean a stock appreciation right granted under Article IX of the Plan.
1.34. "Stock Payment" shall mean (a) a payment in the form of shares of Common Stock, or (b) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to an Officer, key Employee or Consultant in cash, awarded under Article VIII of the Plan.
1.35. "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Subsidiary" shall also mean any partnership or limited liability company in which the Company, or any Subsidiary, owns a partnership or membership interest representing fifty percent (50%) or more of the capital or profit interests of such partnership or limited liability company.
1.36. "Substitute Award" shall mean an Option granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided, however, that in no event shall the term "Substitute Award" be construed to refer to an award made in connection with the cancellation and repricing of an Option.
1.37. "Termination of Consultancy" shall mean the time when the engagement of a Holder as a Consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a Consultant's service at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing.
1.38. "Termination of Directorship" shall mean the time when a Holder who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors.
1.39. "Termination of Employment" shall mean the time when the employee-employer relationship between a Holder and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of a Holder by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment; provided, however, that, with respect to Incentive Stock Options, unless otherwise determined by the Administrator in its discretion, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Awards initially shall be Common Stock. Subject to adjustment as provided in Section 11.3, the aggregate number of such shares which may be issued upon exercise of such Options or rights or upon any such Awards under the Plan shall not exceed 1,000,000. The shares of Common
Stock issuable upon exercise of such Options or rights or upon any such awards may be either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other Award under the Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted shall be
considered cancelled and may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Shares of Common Stock which are
delivered by the Holder or withheld by the Company upon the exercise of any
Award under the Plan, in payment of the exercise price thereof or tax
withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.5
or 7.6 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code.
b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m) Participant, including Restricted Stock, the restrictions with respect to which lapse upon the attainment of performance goals which are related to one or more of the Performance Criteria, and any performance or incentive award described in Article VIII that vests or becomes
exercisable or payable upon the attainment of performance goals which are related to one or more of the Performance Criteria.
(c) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles VII and VIII which may be granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants, (ii) select the Performance Criteria applicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, as applicable, which may be earned for such fiscal year or other designated fiscal period or period of service, and (iv) specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards, as applicable, to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period or period of service. Following the completion of each fiscal year or other designated fiscal period or period of service, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period or period of service. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan or any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
3.4. Consideration. In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of (or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Award Agreement or by action of the Administrator following grant of the Award) after the Award is granted (or, in the case of an Independent Director, until the next annual meeting of shareholders of the Company).
3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO OFFICERS, EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility. Any Officer, Key Employee, Consultant or Independent Director selected by the Administrator pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option.
4.2. Disqualification for Stock Ownership. No person may be granted an Incentive Stock Option under the Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any then existing Subsidiary or parent corporation (within the meaning of Section 422 of the Code) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive Stock Option shall be granted to any person who is not an Officer or Employee.
4.4. Granting of Options to Officers, Employees and Consultants.
(a) The Committee shall from time to time, in its absolute discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are Key Employees and select from among the Officers, Key Employees or Consultants (including Officers, Employees or Consultants who have previously received Awards under the Plan) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Officers, key Employees or Consultants;
(iii) Subject to Section 4.3, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options
are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with the Plan; provided, however, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of an Officer, Key Employee or Consultant to be granted an Option, the Committee shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be modified by the Committee, with the consent of the Holder, to disqualify such Option from treatment as an "incentive stock option" under Section 422 of the Code.
4.5. Granting of Options to Independent Directors. The Board shall from time to time, in its absolute discretion, and subject to applicable limitations of the Plan:
(a) Select from among the Independent Directors (including Independent Directors who have previously received Options under the Plan) such of them as in its opinion should be granted Options;
(b) Determine the number of shares to be subject to such Options granted to the selected Independent Directors;
(c) Subject to the provisions of Article 5, determine the terms and conditions of such Options, consistent with the Plan.
4.6. Options in Lieu of Cash Compensation. Options may be granted under the Plan to Officers, Employees and Consultants in lieu of cash bonuses which would otherwise be payable to such Officers, Employees and Consultants, pursuant to such policies which may be adopted by the Administrator from time to time.
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each Option granted to Officers, Employees and Consultants shall be set by the Committee; provided, however, that such price shall be no less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted, and:
(a) In the case of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted;
(b) In the case of Incentive Stock Options, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code);
(c) In the case of Incentive Stock Options granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code), such price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Officer, Employee or
Consultant shall be set by the Committee in its discretion; provided, however,
that, in the case of Incentive Stock Options, the term shall not be more than 10
years from the date the Incentive Stock Option is granted, or five years from
the date the Incentive Stock Option is granted if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code). Except as limited by the requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment or Termination of
Consultancy of the Holder, or amend any other term or condition of such Option
relating to such a termination.
5.3. Option Vesting.
(a) The period during which the right to exercise, in whole or in part, an Option granted to an Officer, Employee or a Consultant vests in the Holder shall be set by the Committee and the Committee may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of an Option, the Committee may, in its sole and absolute discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option granted to an Officer, Employee or Consultant vests.
(b) No portion of an Option granted to an Officer, Employee or Consultant which is unexercisable at Termination of Employment or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Committee either in the Award Agreement or by action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year (under the Plan and all other incentive stock option plans of the Company and any parent or subsidiary corporation, within the meaning of Section 422 of the Code) of the Company, exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options into account in the order in which they were granted. For purposes of this Section 5.3(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted.
5.4. Terms of Options Granted to Independent Directors. The price per share of the shares subject to each Option granted to an Independent Director shall equal 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted. Options granted to Independent Directors shall be subject to such other terms and conditions as are determined by the Administrator, consistent with the Plan.
5.5. Substitute Awards. Notwithstanding the foregoing provisions of this Article V to the contrary, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, that the excess of:
(a) The aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award; over
(b) The aggregate exercise price thereof; does not exceed the excess of:
(c) The aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company; over
(d) The aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office:
(a) A written notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Administrator may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 11.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with respect to which the Option, or portion thereof, is exercised. However, the Administrator may, in its discretion, (i) allow a delay in payment up to 30 days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock which have been owned by the Holder for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator; (vi) allow payment, in whole or in part, through the delivery of a notice that the Holder has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided that payment of such proceeds is then made to the Company upon settlement of such sale; or (vii) allow payment through any combination of the consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the Administrator may also prescribe the form of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law.
6.3. Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which in the discretion of the Administrator may be in the form of consideration used by the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Shareholders. Holders shall not be, nor have any of the rights or privileges of, shareholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.
6.6. Additional Limitations on Exercise of Options. Holders may be required to comply with any timing or other restrictions with respect to the settlement or exercise of an Option, including a window-period limitation, as may be imposed in the discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be awarded to any Officer or Employee who the Committee determines is an Officer, Key Employee or any Consultant who the Committee determines should receive such
an Award. Each Independent Director shall be eligible to be granted shares of Restricted Stock at the times and in the manner set forth in Section 7.3.
7.2. Award of Restricted Stock to Officers, Employees, Consultants and Directors.
(a) The Committee may from time to time, in its absolute discretion:
(i) Determine which Employees are Key Employees and select from among the Officers, Key Employees, Consultants and Directors (including Officers, Employees, Consultants or Directors who have previously received other awards under the Plan) such of them as in its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and conditions applicable to such Restricted Stock, consistent with the Plan.
(b) The Committee shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that such purchase price shall be no less than the par value of the Common Stock to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock.
(c) Upon the selection of an Officer, key Employee or Consultant to be awarded Restricted Stock, the Committee shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.
7.3. [Omitted.]
7.4. Rights as Shareholders. Subject to Section 7.5, upon delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 7.7, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a shareholder with respect to said shares, subject to the restrictions in his or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that in the discretion of the Administrator, any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 7.5.
7.5. Restriction. Except as otherwise provided in Section 7.3, all shares of Restricted Stock issued under the Plan (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions as the Administrator shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment or service with the Company, Company performance and individual performance; provided, however, that, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, by action taken after the Restricted Stock is issued, the Administrator may, on such terms and
conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. If no consideration was paid by the Holder upon issuance, a Holder's rights in unvested Restricted Stock shall lapse, and such Restricted Stock shall be surrendered to the Company without consideration, upon Termination of Employment or, if applicable, upon Termination of Consultancy or Termination of Directorship with the Company. Notwithstanding the foregoing, the Administrator in its sole and absolute discretion may provide that such rights shall not lapse in the event of a Termination of Employment following a "change of ownership or control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because of the Holder's death or disability; provided, further, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, the Administrator in its sole and absolute discretion may provide that no such lapse or surrender shall occur in the event of a Termination of Employment, Termination of Consultancy, or Termination of Directorship, without cause or following any change in control of the Company or because of the Holder's retirement, or otherwise.
7.6. Repurchase of Restricted Stock. The Administrator shall provide in the terms of each individual Award Agreement that the Company shall have the right to repurchase from the Holder the Restricted Stock then subject to restrictions under the Award Agreement immediately upon a Termination of Employment or, if applicable, upon a Termination of Consultancy or Termination of Directorship, between the Holder and the Company, at a cash price per share equal to the price paid, if any, by the Holder for such Restricted Stock; provided, however, that the Administrator in its sole and absolute discretion may provide that no such right of repurchase shall exist in the event of a Termination of Employment following a "change of ownership or control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because of the Holder's death or disability; provided, further, that, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, the Administrator in its sole and absolute discretion may provide that no such right of repurchase shall exist in the event of a Termination of Employment, Termination of Consultancy or Termination of Directorship, without cause or following any change in control of the Company or because of the Holder's retirement, or otherwise.
7.7. Escrow. The Secretary of the Company or such other escrow holder as the Administrator may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Award Agreement with respect to the shares evidenced by such certificate expire or shall have been removed. With respect to shares of Restricted Stock granted or awarded to the Company's Officers, Employees, Consultants and Independent Directors, upon the expiration or removal of such restrictions, the Secretary of the Company, or other escrow holder, shall transfer the shares to the Holder. With respect to shares of Restricted Stock granted to a Subsidiary's Officers or Employees, upon the expiration or removal of such restrictions, the Secretary of the Company, or other escrow holder, shall transfer the shares to the Subsidiary. As soon as practicable after the receipt of such shares by the Subsidiary, the Subsidiary shall transfer such shares to the Holder for no additional consideration.
7.8. Legend. In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Administrator shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are still subject to restrictions under Award Agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby.
7.9. Section 83(b). A Holder may not make an election under Section 83(b) of the Code with respect to any share of Restricted Stock granted or awarded hereunder without the consent of the Company, which the Company may grant or withhold in its sole discretion.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more Performance Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may be granted to any Officer or Employee whom the Committee determines is an Officer, Key Employee or any Consultant whom the Committee determines should receive such an Award.
8.2. Performance Awards.
(a) Any Officer, Key Employee or Consultant selected by the Committee may be granted one or more Performance Awards. The value of such Performance Awards may be subject to the achievement of performance goals which are related to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Officer, Key Employee or Consultant.
(b) Without limiting Section 8.2(a), the Committee may grant Performance Awards to any Section 162(m) Participant in the form of a cash bonus payable upon the attainment of objective performance goals which are established by the Committee and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such bonuses paid to 162(m) Participants shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Section 3.2. The maximum amount of any Performance Award payable to a Section 162(m) Participant under this Section 8.2(b) shall not exceed the Award Limit with respect to any calendar year of the Company. Unless otherwise specified by the Committee at the time of grant, the Performance Criteria with respect to a Performance Award payable to a Section 162(m) Participant shall be determined on the basis of generally accepted accounting principles.
8.3. Dividend Equivalents.
(a) Any Officer, Key Employee or Consultant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on Common Stock,
to be credited as of dividend payment dates, during the period between the date a Stock Appreciation Right, Deferred Stock or Performance Award is granted, and the date such Stock Appreciation Right, Deferred Stock or Performance Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee.
(b) Any Holder of an Option who is an Officer, Employee or Consultant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option is granted, and the date such Option is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee.
(c) Any Holder of an Option who is an Independent Director selected by the Board may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option is granted and the date such Option is exercised, vests or expires, as determined by the Board. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Board.
(d) Dividend Equivalents granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code shall be payable, with respect to pre-exercise periods, regardless of whether such Option is subsequently exercised.
8.4. Stock Payments. Any Officer, Key Employee or Consultant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any Officer, Key Employee or Consultant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Common Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Holder of Deferred Stock shall have no rights as a Company shareholder with respect to such Deferred Stock until such time as the Award has vested and the Common Stock underlying the Award has been issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the Committee in its discretion.
8.7. Exercise or Purchase Price. The Committee may establish the exercise or purchase price of a Performance Award, shares of Deferred Stock or shares received as a Stock Payment; provided, however, that such price shall not be less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law.
8.8. Exercise Upon Termination of Employment; Termination of Consultancy. A Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or payable only while the Holder is an Officer, Employee, or Consultant, as applicable; provided, however, that the Administrator in its sole and absolute discretion may provide that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to a Termination of Employment following a "change of control or ownership" (within the meaning of Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; provided, further, that except with respect to Performance Awards granted to Section 162(m) Participants, the Administrator in its sole and absolute discretion may provide that Performance Awards may be exercised or paid following a Termination of Employment or a Termination of Consultancy without cause, or following a change in control of the Company, or because of the Holder's retirement, death or disability, or otherwise.
8.9. Form of Payment. Payment of the amount determined under Section 8.2 or 8.3 above shall be in cash, in Common Stock or a combination of both, as determined by the Committee. To the extent any payment under this Article VIII is effected in Common Stock, it shall be made subject to satisfaction of all provisions of Section 6.4.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any Officer, key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Common Stock on the date of exercise of the CSAR by the number of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose.
9.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to any Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Common Stock as the Committee may determine. The exercise price per share of Common Stock subject to each ISAR shall be set by the Committee. An ISAR is exercisable only while the Holder is an Officer, Employee or Consultant; provided, that the Committee may determine that the ISAR may be exercised subsequent to Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company, or because of the Holder's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by the number of shares of Common Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Committee may impose.
9.4. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee. To the extent such payment is effected in Common Stock it shall be made subject to satisfaction of all provisions of Section 6.4 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to comply with any timing or other restrictions with respect to the settlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee. The Compensation Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a "non-employee director" as defined by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Any such grant or award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options, Dividend Equivalents and Restricted Stock granted to Independent Directors.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions. Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and the Company's officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Holders, the Company and all other interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Awards, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation.
10.5. Delegation of Authority to Grant Awards. The Committee may, but need not, delegate from time to time some or all of its authority to grant Awards under the Plan to a committee consisting of one or more members of the Committee or of one or more officers of the Company; provided, however, that the Committee may not delegate its authority to grant Awards to individuals (a) who are subject on the date of the grant to the reporting rules under Section 16(a) of the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are officers of the Company who are delegated authority by the Committee hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Committee. At all times, any committee appointed under this Section 10.5 shall serve in such capacity at the pleasure of the Committee.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable.
(a) Except as otherwise provided in Section 11.1(b):
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed.
(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
(iii) During the lifetime of the Holder, only he or she may exercise an Option or other Award (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of with the consent of the Administrator pursuant to a DRO. After the death of the Holder, any exercisable portion of an Option or other Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his or her personal representative or by any person empowered to do so under the deceased Holder's will or under the then applicable laws of descent and distribution.
(b) Notwithstanding Section 11.1(a), in the case of Options granted to Independent Directors, an Optionee who is an Independent Director may transfer an Option to a Permitted Transferee (as defined below) subject to the following
terms and conditions: (i) an Option transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO; (ii) any Option which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Option as applicable to the original Holder (other than the ability to further transfer the Option); and (iii) the Holder and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. Shares of Common Stock acquired by a Permitted Transferee through the exercise of an Option have not been registered under the Securities Act or any state securities act and may not be transferred, nor will any assignee or transferee thereof be recognized as an owner of such shares of Common Stock for any purpose, unless a registration statement under the Securities Act and any applicable state securities act with respect to such shares shall then be in effect or unless the availability of an exemption from registration with respect to any proposed transfer or disposition of such shares shall be established to the satisfaction of counsel for the Company. For purposes of this Section 11.1(b), "Permitted Transferee" shall mean, with respect to a Holder, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder's household (other than a tenant or employee), a trust in which these persons (or the Holder) control the management of assets, and any other entity in which these persons (or the Holder) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Administrator after taking into account any state or federal tax or securities laws applicable to transferable Options.
11.2. Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 11.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Administrator (including, but not limited to, an amendment to the number of
shares that may be subject to future awards of Restricted Stock pursuant to
Section 7.3). However, without approval of the Company's shareholders given
within 12 months before or after the action by the Administrator, no action of
the Administrator may, except as provided in Section 11.3, increase the limits
imposed in Section 2.1 on the maximum number of shares which may be issued under
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Award be granted under
the Plan after the first to occur of the following events:
(a) The expiration of 10 years from the date the Plan is adopted by the Board; or
(b) The expiration of 10 years from the date the Plan is approved by the Company's shareholders under Section 11.4.
11.3. Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 11.3(e), in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator's sole discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:
(i) The number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued and adjustments of the Award Limit);
(ii) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and
(iii) The grant or exercise price with respect to any Award.
(b) Subject to Sections 11.3(c) and 11.3(e), in the event of any transaction or event described in Section 11.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Administrator, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder's request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Holder's rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised or become payable after such event;
(iii) To provide that such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 5.3 or the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and
(v) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future.
(vi) To provide that, for a specified period of time prior to such event, the restrictions imposed under an Award Agreement upon some or all shares of Restricted Stock or Deferred Stock may be terminated, and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase under Section 7.6 or forfeiture under Section 7.5 after such event.
(c) Subject to Sections 11.3(e), 3.2 and 3.3, the Administrator may, in its discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company.
(d) With respect to Awards which are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 11.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 11.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Award is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Award shall always be rounded to the next whole number.
(e) The existence of the Plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
11.4. Approval of Plan by Stockholders. The Plan will be submitted for the approval of the Company's stockholders at the next annual shareholder's meeting following the date of the Board's initial adoption of the Plan. Awards may be granted or awarded prior to such stockholder approval, provided that such Awards shall not be exercisable nor shall such Awards vest prior to the time when the Plan is approved by the shareholders, and provided further that if such approval has not been obtained at the next annual shareholder's meeting, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void. In addition, if the Board determines that Awards other than Options or Stock Appreciation Rights which may be granted to Section 162(m) Participants should continue to be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to and approved by the Company's shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which the Company's shareholders previously approved the Performance Criteria.
11.5. Tax Withholding. The Company shall be entitled to require payment in cash or compensation payable to each Holder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting, exercise or payment of any Award. The Administrator may in its discretion and in satisfaction of the foregoing requirement allow such Holder to elect to have the Company withhold shares of Common Stock otherwise issuable under such Award (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Common Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Holder of such Award within six months after such shares of Common Stock were acquired by the Holder from the Company) in order to satisfy the Holder's federal and state income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal and state tax income and payroll tax purposes that are applicable to such supplemental taxable income.
11.6. Restrictions on Awards. This Plan shall be interpreted and construed in a manner consistent with the Company's intended status as a real estate investment trust ("REIT"), within the meaning of Sections 856 through 860 of the Code. No Award shall be granted or awarded, and with respect to an Award already granted under the Plan, such Award shall not vest, or be exercisable, distributable or payable:
(a) to the extent such Award could cause the Holder to be in violation of the Ownership Limit; or
(b) if, in the discretion of the Administrator, such Award could impair the Company's status as a REIT.
11.7. Loans. To the extent permitted under applicable law, the Committee may, in its discretion, extend one or more loans to Officers or key Employees in connection with the exercise or receipt of an Award granted or awarded under the Plan, or the issuance of Restricted Stock or Deferred Stock awarded under the Plan; provided, however, that no such loan shall be an extension or maintenance of credit, an arrangement for the extension of credit, or a renewal of an extension of credit in the form of a personal loan to or for any Director or executive officer of the Company that is prohibited by Section 13(k) of the Exchange Act or other applicable law. The terms and conditions of any such loan shall be set by the Committee.
11.8. Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Holder to agree by separate written instrument, that (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Common Stock underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (iii) the Holder incurs a Termination of Employment, Termination of Consultancy or Termination of Directorship for cause.
11.9. Effect of Plan Upon Options and Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company (a) to establish any other forms of incentives or compensation for Officers, Employees, Directors or Consultants of the Company or any Subsidiary, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.
11.10. Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of shares of Common Stock and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
11.11. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.
11.12. Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Maryland without regard to conflicts of laws thereof.
ARTICLE XII.
SPECIAL PROVISIONS RELATED TO SECTION 409 OF THE CODE.
12.1. Compliance with Section 409. Notwithstanding anything in the Plan or in any Award Agreement to the contrary, to the extent that any amount or benefit that would constitute "deferred compensation" for purposes of Section 409 of the Code would otherwise be payable or distributable under the Plan or any Award Agreement by reason of the occurrence of a change in control of the Company, or because of the Holder's disability, or separation from service, such amount or benefit will not be payable or distributable to the Holder by reason of such circumstance unless (i) the circumstances giving rise to such change of control, disability or separation from service meet the description or definition of "change in control event", "disability" or "separation from service", as the case may be, in Section 409 of the Code and applicable proposed or final regulations, or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409 of the Code by reason of the short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any Award or the vesting of any right to eventual payment or distribution of any amount or benefit under the Plan or any Award Agreement.
12.2. Amendments in Violation of Section 409. Notwithstanding anything in the Plan or in any Award Agreement to the contrary, to the extent necessary to avoid the application of Section 409 of the Code, (i) the Committee may not amend an outstanding Option, Stock Appreciation Right or similar Award to extend the time to exercise such Award beyond the later of the 15th day of the third month following the date at which, or December 31 of the calendar year in which, the Award would otherwise have expired if the Award had not been extended, based on the terms of the Award at the original grant date under the Award Agreement (the "Safe Harbor Extension Period"), and (ii) any purported extension of the exercise period of an outstanding Award beyond the Safe Harbor Extension Period shall be deemed to be an amendment to the last day of the Safe Harbor Extension Period and no later.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of GTJ REIT, Inc. on June 11, 2007.
Executed on the 24th day of April, 2008.
/s/ Douglas A. Cooper ------------------------------- Secretary |
* * *
I hereby certify that the foregoing Plan was approved by the stockholders of GTJ REIT, Inc. on February 7, 2008.
Executed on this 24th day of April, 2008.
/s/ Douglas A. Cooper -------------------------------- Secretary |
LANDLORD: EIGHT FARM SPRINGS ROAD ASSOCIATES, L.L.C.
and
TENANT: HARTFORD FIRE INSURANCE COMPANY
|
TABLE OF CONTENTS
SECTION PAGE
1. Premises............................................................
2. Term................................................................
3. Preparation for Occupancy...........................................
4. Rent................................................................
5. Maintenance and Repairs. Taxes and Operating Expenses...............
6. Services............................................................
7. Alterations and Improvements........................................
8. Inspection..........................................................
9. Casualty ...........................................................
10. Insurance and Indemnity ............................................
11. Condemnation........................................................
12. Default ............................................................
13. Holdover............................................................
14. Assignment and Subletting ..........................................
15. Quiet Enjoyment ....................................................
16. Subordination ......................................................
17. Rules and Regulations ..............................................
18. Estoppel Certificate ...............................................
19. Change of Name .....................................................
20. Mechanics Liens ....................................................
21. Extension ..........................................................
22. Option to Terminate.................................................
23. Intentionally Omitted...............................................
24. Intentionally Omitted...............................................
25. Intentionally Omitted ..............................................
26. Attachments ........................................................
27. Notices ............................................................
28. Miscellaneous ......................................................
29. Brokerage Fees .....................................................
30. Transfer by Landlord ...............................................
31. Landlord's Liability ...............................................
32. Applicable Law .....................................................
33. Arbitration ........................................................
ATTACHMENTS
Exhibit A - Space
Exhibit B - Land
Exhibit C - Hazardous Material Disclosure
Exhibit D - Work Letter
Exhibit E - Intentionally omitted
Exhibit F - Rules and Regulations
Exhibit G - Nationwide Lease
Exhibit H - Subordination, Non-Disturbance and Attornment Agreement
Exhibit I - Memorandum of Lease
Exhibit J - Form of Assignment and Assumption Agreement
Exhibit K - Estoppel certificate
LEASE
THIS LEASE, made as of the l5thofNOVember, 1996, between EIGHT FARM SPRINGS ROAD ASSOCIATES, L.L.C., a Connecticut limited liability company, having an office at do Edward Savides, 1709 Page Boulevard, Springfield, Massachusetts 01104 (Landlord), and HARTFORD FIRE INSURANCE COMPANY, a Connecticut corporation having its principal office at Hartford Plaza, Hartford, Connecticut 06115 (Tenant).
1. Premises
(a) Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord the following: a building consisting of approximately 107,654 square feet of rentable area (the "Building") shown on Exhibit A, located on real property known as 8 Farm Springs Road, Farmington, Connecticut, as more particularly described in Exhibit B (the "Land"), together with all hallways, corridors, lobbies, lavatories, elevators, stairways, entrances, exits, sidewalks, driveways and the parking areas and all other areas and facilities of the Building and Land appurtenant thereto (the "Appurtenances") and all improvements located thereon. The Building, the Land and the Appurtenances are hereinafter collectively referred to as the "Premises". This Lease confers no right or obligation (except as otherwise may be expressly set forth in this Lease) either with respect to subsurface of the Land beneath the Building or the air space above the Building, except that Tenant shall have a license to access the subsurface areas to repair utility lines and for other matters incidental to Tenant's rights and obligations under this Lease.
(b) Subject to the rights of Nationwide Mutual Insurance Company, referenced below, Landlord warrants that it and no other person or entity has the right to lease the Premises to Tenant. Except for any express representations of Landlord contained herein and those matters which Landlord has expressly retained liability for under the terms of this Lease, Tenant acknowledges and agrees that it has accepted the Premises in its "As Is, Where Is and with All Defects" condition. Tenant represents that it has not relied
upon any representations and warranties of Landlord or its agents except for those representations expressly set forth in this Lease.
(c) (i) Landlord has executed a lease dated August 27, 1996, with Nationwide Mutual Insurance Company (Nationwide), as tenant, for approximately 8,625 square feet of rentable area in the Building (Nationwide Lease), and Landlord represents to Tenant that a true, accurate and complete copy of the Nationwide Lease, including any and all amendments thereto, is attached and made a part of this Lease as Exhibit G. Landlord shall pay all brokerage commissions or fees arising from the execution of the Nationwide Lease, if any. Tenant will, at its expense, complete the improvements of Nationwide's premises in the Building as required under the Nationwide Lease (Nationwide work). Effective as of the execution date of this Lease, Landlord shall be deemed to have assigned to Tenant all of Landlord's right, title and interest in and to the Nationwide Lease (except to cure any default of Landlord under the Nationwide Lease preceding the assumption of the Nationwide Lease by Tenant) and except for the item listed in the preceding parenthesis, Tenant shall, effective as of the execution date of this Lease, be deemed to have assumed all of Landlord's rights and obligations under the Nationwide, and Tenant will perform and observe all the covenants and conditions therein contained on Landlord's part to be performed and observed, which shall accrue from and after the date of such assumption. without limitation to Tenant's other rights as landlord under the Nationwide Lease, Tenant shall be entitled to collect the rent (fixed minimum rent and additional rent) from Nationwide. Landlord and Tenant shall execute an instrument confirming such assignment and assumption in the form of Exhibit J hereto, promptly following the execution date of this Lease, however such instrument shall not be deemed a pre-condition to the consummation of the assignment and assumption of the Nationwide Lease as the assignment and assumption provisions hereof shall be deemed self-operative. Such instrument of assignment and assumption of the Nationwide Lease shall promptly be recorded of
record and if this Lease shall terminate prior to the termination of the Nationwide Lease, then the Nationwide Lease shall automatically be deemed re-assigned to Landlord without the formality of a signed writing of assignment. Tenant agrees, however, that in such event it shall execute a reasonable instrument in recordable form reassigning the Nationwide Lease to Landlord in confirmation of such assignment. Tenant shall indemnify and hold Landlord harmless from and against any breach by Tenant of its obligations as landlord under the Nationwide Lease, which indemnity shall survive the termination of this Lease. Tenant further agrees to exercise its rights as landlord thereunder to require Nationwide to comply with Nationwide's obligations thereunder to provide subordination agreements. estoppel certificates, notice and opportunity to cure to Landlord and its lenders and any other matters that may expose Landlord to liability. Landlord shall have, and hereby reserves, the right to cure defaults of Landlord under the Nationwide Lease occurring prior to the date that the Nationwide Lease is assumed by Tenant and those obligations of Landlord which are not being assigned to Tenant and Landlord also reserves the right, at its option. to enforce the landlord's rights under the Nationwide Lease to the extent such enforcement is necessary to the preservation of Landlord's rights hereunder and with respect to the Premises, including Nationwide's obligation to provide subordination agreements and estoppel certificates. Once the Nationwide Lease is assigned to Tenant, Landlord shall have the right to look to Tenant as the tenant of the entire Building pursuant to this Lease, and Tenant shall enforce the Nationwide Lease in the manner necessary for Tenant comply with this Lease.
(ii) Intentionally omitted.
(iii) Tenant and Nationwide may agree to terminate or amend the Nationwide Lease without consent of the Landlord, unless any such amendment would create any obligation on the part of Landlord, alter any rights of Landlord thereunder which might effect Landlord's ability to finance the Premises or such amendment
would survive any termination of this Lease. Notwithstanding the foregoing, Landlord agrees that it shall not unreasonably withhold, delay or condition its consent to any such amendment, and if Tenant requests that Landlord approve an amendment and Landlord fails to notify Tenant whether Landlord has consented or denied such amendment within 20 days after receipt of such request, then such failure shall be deemed to be an approval of such amendment. Any such amended Nationwide Lease must remain fully subordinated to any present or future mortgage and other rights and interests of Landlord's present and future lenders and any present or future ground leases.
(d) The Premises shall be used only for general office purposes and all lawful uses incidental or related thereto.
2. Term
The term of this Lease shall commence on the execution date of this Lease (the "Commencement Date") and end on December 31, 2006 (the Expiration Date"), both dates inclusive (the "Original Term"), unless the original Term is extended as provided in Section 21. "Term", as used in this Lease, shall be deemed to include the Original Term and any extensions thereof (such extensions, or any of them, being sometimes referred to as the "Extended Term").
3. Preparation for Occupancy
(a) On the execution date of this Lease, Landlord shall deliver possession of the Premises to Tenant in an "as is, where is, with all defects condition" (except as otherwise maybe expressly set forth in this Lease) free and clear of all tenants except Nationwide.
(b) Upon delivery of possession of the Premises, Tenant shall proceed to prepare the Premises in accordance with the Work Letter attached hereto as Exhibit D.
4. Rent
(a) Commencing January 1, 1997, Tenant shall pay, without notice from Landlord, an annual Fixed Rent in equal monthly installments in advance on the first day of each calendar month during the original Term in lawful money of the
United States without demand, right of set off, abatement, counterclaim or demand (except as maybe expressly permitted in this Lease), to Landlord at P.O. Box 3097, Springfield. Massachusetts 01101-3097 (or for overnight courier delivery to 1709 Page Boulevard, Springfield, Massachusetts 01104), or at such other address as Landlord shall give notice of from time to time in accordance with the following schedule (or pursuant to electronic transfer of funds as may be subsequently agreed to between Landlord and Tenant)
Lease Fixed Rent Monthly installment Period Per Annum of Fixed Rent ------ --------- ------------------- 1997 $ 975,345.24 $ 81,278.77 1998 1,007,641.40 83,970.12 1999 1,039,937.64 86,661.47 2000 1,072,233.84 89,352.47 2001 1,104,530.04 92,044.17 2002 1,136.826.24 94,735.52 2003 1,169,122.44 97,426.87 2004 1,201,418.64 100,118.22 2005 1,233,714.84 102,809.57 2006 1,266,011.04 105,500.92 |
The Fixed Rent for any period of less than one (1) month shall be apportioned based on the number of days in that month and shall be payable on the first day of such period. Except for those items expressly set forth in this Lease that Landlord is responsible for, Tenant shall pay all other costs associated with the Premises including, without limitation, the repair, replacement, maintenance and operation of the Premises, real estate taxes, assessments and special assessments (which Tenant shall be permitted to pay over the longest period permitted by the assessing authority and except for assessments directly attributable to Tenant's actions (which shall remain the responsibility of Tenant even after the Expiration Date or earlier termination of this Lease), Tenant shall be responsible only for payments of assessments due during the Term), insurance and all other costs and expenses, as additional rent, but Tenant shall have no obligation to pay for Landlord's Structural
Repair Obligation (as defined in Section 5) unless resulting from Tenant's negligence or willful misconduct (exclusive of matters covered and paid for by Landlord's casualty insurance) . Tenant shall pay the Fixed Rent, additional rent and all other charges payable by Tenant pursuant to this Lease (collectively the "Rent") to Landlord at the address set forth above or, in the case of items other than Fixed Rent, Taxes and Insurance Premium Cost (as both terms are defined below), directly to the party charged with the collection thereof or to such other place as Landlord may designate by notice to Tenant. in the case of payments directly to other parties, Tenant shall, upon request of Landlord, provide Landlord with reasonable evidence of such payment.
(b) Upon notice from Landlord, Tenant shall pay, on the first day of each month of the Term, one twelfth (1/12) of Taxes and Insurance Premium Cost as reasonably estimated by Landlord. Landlord shall notify Tenant of the amount of such monthly payments. and Landlord may change the amount of such monthly payments from time to time during the Term to more closely reflect the actual anticipated cost thereof. On or before March 30th of each calendar year (or as soon thereafter as Landlord deems practical). Landlord shall deliver to Tenant a statement of Taxes and Insurance Premium Costs for the preceding calendar year, together with such documentation as Tenant may reasonably require to confirm the amount of such monthly payments. Landlord reserves the right, however, to deliver such statements on a quarterly basis rather than yearly basis. If actual Taxes and insurance Premium Costs for the immediately preceding calendar year (or quarter. as applicable) exceeds the aggregate of the estimated monthly payments made by Tenant for such year (or quarter. as applicable). Tenant shall within thirty (30) days of the receipt of such statement, tender to Landlord an amount equal to such excess as additional rent. If such aggregate of the estimated monthly payments exceeds the actual costs therefor for such preceding calendar year (or quarter. as applicable), then Landlord shall credit against Tenant's next ensuing monthly installment or installments of Rent an amount
equal to such difference until the credit is exhausted, or at Tenant's election, Landlord shall refund such excess to Tenant within 30 days after any such reconciliation.
(c) Tenant covenants and agrees to pay to Landlord interest on all installments of Fixed Rent and additional rent not paid - then due, from the due date through the date of payment, such interest to be at the rate of three percent (3%) plus the "Prime Rate" (as used herein, "Prime Rate" shall mean the rate of interest per annum published from time to time by the Wall Street journal as the prime commercial lending rate); provided, however, that Tenant shall not pay such interest on any two (2) occasions during a calendar year unless five (5) business days have passed after written notice of Tenant's delinquency.
5. Maintenance and Repairs, Taxes and Operating Expenses
(a) With the exception of Landlord's structural Repair Obligation and any other matter which this Lease expressly provides that Landlord is, or shall remain, responsible for, this is an absolute net lease; the Fixed Rent due Landlord hereunder being absolute net to Landlord and it is the express agreement of the parties that (except as otherwise maybe expressly required by this Lease) Landlord shall have no financial obligations whatsoever with respect to the Premises during the Term. Except for those matters which this Lease expressly provides that Landlord is, or shall remain, responsible for, Tenant shall pay as additional rent as and when due and before the occurrence of any late charge or :ate payment penalty, all costs and expenses of every kind whatsoever with respect to the Premises, known, unknown, absolute, contingent, present and future, as though Tenant were the sole owner of the Premises, and Landlord shall have no obligation whatsoever with respect thereto. Except as expressly set forth in this Lease, no failure of services, utility shortages or outages, casualty, condemnation or any other matter whatsoever shall release Tenant from its obligations to pay all Fixed Rent and additional rent under this Lease. Except as expressly set forth in this Lease, there are no circumstances, foreseeable or unforeseeable, under which Tenant shall be permitted or shall
have the right or power to abate or set off against Fixed Rent or additional rent, or terminate this Lease. Tenant shall, however, be permitted to pursue, judicially, remedies available to it at law or equity for a breach by Landlord of any Landlord obligations hereunder. Without limitation to the broad undertaking of the Tenant herein to pay for all costs and expenses of the Premises as though Tenant were the owner thereof:
(i) Tenant covenants and agrees to discharge and pay to Landlord or its lender (or if required by Landlord to the authority charged with the collection thereof) before the same become delinquent and before any fine, penalty or interest may be added for nonpayment of any and all real estate taxes with respect to the Premises, unless Landlord shall have exercised its option to accrue for Real Estate Taxes as set forth in Section 4 (b). "Real Estate Taxes' or "Taxes" are defined as all real estate taxes and assessments (subject to the qualification set forth in section 4), license or permit fees, excises, imposts and charges of any kind that are levied or assessed against the Premises, this Lease or the leasehold estate created hereby or any taxes which shall be levied on the rentals of the Premises in lieu of any such real estate taxes. Taxes for any portion of the Term shall be the amount of the real estate taxes as are finally determined to be legally payable by legal proceedings or otherwise. if the Real Estate Taxes for any portion of the Term are reduced after Tenant has paid them, Tenant shall be entitled to receive all credits or refunds therefrom. Landlord and Tenant shall each promptly furnish to the other copies of any bill received for Real Estate Taxes. If Tenant fails to pay any Real Estate Taxes when due, Landlord, without declaring a default hereunder and without relieving Tenant of any liability hereunder, may, but shall not be obligated to, pay any such Real Estate Taxes and any amount so paid by Landlord, together with all reasonable costs and expenses incurred by Landlord in connection therewith, shall constitute additional rent hereunder and shall be paid immediately by Tenant to Landlord on demand with interest. Tenant's obligation to pay Real
Estate Taxes and any other charges hereunder which accrue during the Term shall survive any termination of this Lease. Anything in the foregoing to the contrary notwithstanding, Landlord shall be liable for and shall pay any fees, interest or penalties incurred by Tenant due to Landlord's failure to promptly furnish Tenant with a copy of any bill so received by Landlord.
(ii) Tenant covenants and agrees that it shall pay when due all charges for all public or private utility services incurred with respect to the Premises including, but not limited to, water, sewer, gas, light, heat and air conditioning, telephone, electricity, cable television, trash removal, power and other utility and communications services that are rendered to the Premises at any time during the Term.
(iii) Tenant shall also be solely responsible for and shall pay when due all charges for cleaning and janitorial services with respect to the Premises, pest control and extermination services, removal of ice and snow from the driveways and parking areas and for security services.
(iv) Except as otherwise may be expressly set forth in this Lease, Tenant shall, at all times during the Term, maintain the premises in good condition and repair, and consistent with the condition of such items in other first class office buildings located in the area in which the Building is located ("Reasonably Good Condition"), and except for Landlord's structural Repair Obligations, perform all maintenance, non-structural repairs and non-structural replacements to the Premises, including grounds keeping, landscape maintenance, janitorial and security services and exterior lighting necessary to keep the Premises in Reasonably Good Condition and the parking lots, all Building systems, sewer and septic systems, elevators, plumbing, electrical and all heating, air-conditioning and ventilation systems and equipment, and all other improvements which are structural components of the Land, the Building and Appurtenances in a commercially reasonable manner and Tenant shall pay all costs
and expenses therefor, and except as otherwise may be expressly set forth in this Lease, Landlord shall have no responsibility for any such repairs, replacements and maintenance items.
Landlord shall, at its sole cost and expense, maintain in good condition and repair throughout the Term, the major structural components of the Building which shall be deemed to consist solely of the sub-roof, load bearing structural steel, foundation, footings, structural roof deck (excluding the roof skin), major repairs of a capital nature to the exterior skin of the Building, and shall also include the repair of any and all damage caused by the maintenance or repair of any of the above listed items, but shall exclude, without limitation, ordinary and necessary repairs to any such items such as nonstructural cracking of the Building skin, caulking, windows, window frames, doors, door frames, penetrations, appearance and cosmetic matters, painting, cleaning, utility lines (interior and exterior), parking lot and any matters resulting from the negligence, failure to properly maintain in a commercially reasonable manner or willful misconduct by Tenant (the preceding obligation of Landlord being referred to herein as "Landlord's Structural Repair Obligation"). Landlord shall, at Landlord's sole cost and expense, perform Landlord's structural Repair Obligation so that such items are maintained in good repair and condition and consistent with the condition of such items in other first class office buildings located in the area in which the Building is located, and all replacement installations shall be at least equal in quality to the quality in place as of the date of this Lease. Landlord shall perform such repairs, maintenance and replacements at a time and in a manner so as to minimize, to the extent reasonably possible, any disruption of or interference with Tenant's business or access to the Premises (although such efforts shall not obligate Landlord to pay overtime or nighttime. weekend or holiday rates in order to perform such work).
(v) Except for Landlord's structural Repair Obligation and all other matters which this Lease expressly provides that Landlord remains responsible, Tenant shall at its sole cost and expense, comply with all rules, regulations,
orders, laws, ordinances and legal requirements (including the Occupational safety and Health Act, as amended) and standards issued thereunder by any governmental authority or fire rating organization ("Laws") which affect the Premises, Appurtenances. Land, Building, and equipment and improvements or that require repairs, alterations, changes or additions thereto, including structural repairs, alterations, changes or additions. All boilers and other pressure vessel equipment, if any, shall be maintained by Tenant and repaired or replaced (in part or whole) in accordance with current ASME standards and Code.
(vi) (A) As of the Commencement Date, Landlord represents that it has
reviewed a Phase I environmental site assessment of the Building and Land
performed during the calendar year of 1995, and to the best of Landlord's
knowledge except for those matters disclosed on' the attached Exhibit C, there
is no "Hazardous Material" in. on or under the Premises, Building or Land,
"Hazardous Material" shall mean: (1) asbestos or asbestos containing material,
(2) polychlorinated biphenyls in concentrations greater than 50 parts per
million and (3) any other material or substance, whether solid, gaseous or
liquid, which ~ay pose a present or potential hazard to human health or the
environment when improperly disposed of, treated, stored, transported, or
otherwise managed, including (a) hazardous waste identified in accordance with
section 3001 of the Federal Resource Conservation and Recovery Act of 1976, as
amended, and (b) hazardous waste or material identified by regulation of any
governmental authority regulating environmental or health matters. Tenant
acknowledges and accepts, in its "As Is, Where Is and with All Defects
Condition", asbestos containing materials known to exist in the roof flashing
material and in boiler gaskets.
(B) Except for Hazardous Materials discovered in or on the Premises due to the acts or omissions of Landlord, or Landlord's agents, employees or contractors or Hazardous Materials discovered subsurface of the Land beneath the Building (unless due to the acts or omission of Tenant or its agents, employees
or contractors) which Landlord has retained liability therefor and which Landlord shall cause to be removed or remediated to the extent required by and in compliance, with all applicable Laws and in accordance with the requirements of this section; if any Hazardous Material is discovered in or on the Premises during the Term, Tenant shall, at its sole cost and expense, completely remove or remediate all of such Hazardous Material strictly in accordance with all Laws within 30 days after Tenant is notified or becomes aware of such discovery. If Tenant discovers Hazardous Material (or is given notice thereof) in the premises, Tenant shall give Landlord prompt notice of the same. If the removal or remediation of such Hazardous Material cannot be completed within such 30-day period, this period shall be extended for a reasonable additional time, provided Tenant has commenced the removal or remediation or has commenced the process for determining the method of such removal or remediation and the receipt of approvals, if required, for any such removal, within 30 days after notice of discovery and proceeds diligently thereafter to effect such removal or remediation. If either the presence, removal or remediation of any Hazardous Material which Landlord has retained liability for under this Lease will prevent Tenant from carrying on its normal business operations, in Tenant's reasonable judgment, for a period of more than 365 days, then Tenant may terminate this Lease by giving notice to Landlord. If Landlord shall, in good faith, dispute Tenant's determination that the presence, removal or remediation of such Hazardous Material will prevent Tenant from carrying on its normal business operations, in Tenant's reasonable judgment, during such 365-day period, then Landlord shall have the right to require the matter to be arbitrated pursuant to the arbitration provisions of Section 33 and any termination by Tenant shall not be deemed effective until a final decision is rendered pursuant thereto. The Rent shall abate equitably based on the practical nonavailability of any portion of the premises for the purposes permitted by this Lease due to the presence, removal or remediation of the Hazardous Material. Upon any such termination,
Tenant's obligations hereunder, including the obligation to pay Rent, shall cease as of the date specified in the notice as though this Lease had expired by lapse of time. Rent shall be apportioned as of the date of termination and all prepaid Rent shall be repaid to Tenant. Each party shall provide the other prompt notice of the discovery of Hazardous Material of which such party becomes aware.
(C) Landlord shall indemnify Tenant and hold it harmless against any claims, damages, losses or liabilities (including reasonable attorneys' fees) incurred by Tenant and arising from the installation, presence or removal of Hazardous Material which Landlord has retained liability for under this Lease and, further, if Landlord has received from any state, federal or local governmental authority or agency notice of a violation by Landlord of any Hazardous Material Laws or has received an order from any such governmental authority or agency to comply with any such Hazardous Material Laws and such violation relates to Hazardous Material which Landlord has retained liability for under this Lease, then if Landlord fails to remedy or to comply with any such order, Landlord shall indemnify Tenant and hold it harmless against any claims damages, losses or liabilities (including reasonable attorneys' fees) incurred by Tenant as a result of Landlord's failure to so comply; provided however, the foregoing indemnity shall not apply to (i) any substance currently in the Premises but determined to be a Hazardous Material after the Commencement Date or (ii) any substance installed by Landlord, its agents, contractors or employees in or on the Premises after the Commencement Date and subsequently determined to be Hazardous Material except insofar as any claims, damages, losses or liabilities (including reasonable attorneys' fees) arise from the removal thereof.
(D) Tenant represents and warrants that Tenant, its agents, contractors or employees shall not bring, keep, store or discharge any Hazardous Material on or in the Premises, the Building or the Land, except that Tenant shall be expressly
permitted to use such quantities of such Hazardous Material as is customarily found and used in the operation of a business office or in the management of an office building, provided the same are used in accordance with applicable Laws. Tenant shall indemnify Landlord and hold it harmless against any claims, damages, losses or liabilities (including reasonable attorneys' fees) incurred by Landlord and arising from any breach of the foregoing representation and warranty of Tenant and from the installation, presence or removal of the Hazardous Material by Tenant, its agents, contractors or employees; provided, however, the foregoing indemnity shall not apply to any substance installed by Tenant, its agents, contractors or employees in or on the Premises and subsequently determined to be Hazardous Material, except insofar as any claims, damages, losses or liabilities (including reasonable attorneys' fees) arise from the presence or removal thereof.
6. Services
(a) Tenant shall, at its sole cost and expense, contract directly with the appropriate utility company or governmental entity for the following utilities, as well as all other services necessary for Tenant's specifications and the legal use and occupancy of the Premises:
(i) Running water.
(ii) Electricity.
(iii) Sanitary sewer service.
(iv) Natural Gas.
(b) Landlord represents that the foregoing services are available to the Building and are adequate for general office use of the Premises.
7. Alterations and Improvements
(a) Tenant at its own expense may, without Landlord's consent, make from time to time such nonstructural alterations, additions and improvements ("Nonstructural Alterations") in and to the Premises as it may deem necessary or desirable; provided any such Nonstructural Alterations does not adversely affect the base Building systems and such Nonstructural Alterations will not reduce the
fair market value of the Premises. Landlord shall cooperate with Tenant in securing any necessary building and other permits, the cost thereof being borne by Tenant. Tenant at its own expense may, with Landlord's consent, such consent not to be unreasonably withheld, conditioned or delayed (but subject to Landlord's rights to disapprove such alterations as provided in section 1 of the Work Letter), make such structural alterations, additions and improvements ("Structural Alterations") in and to the Premises as it may deem necessary or desirable provided, however, that if Landlord fails to respond to Tenant's request for consent within 20 days, then Landlord's consent shall be deemed approved, provided that such notice clearly states that Landlord's failure to respond within 20 days of receipt of such notice shall constitute consent by Landlord, and Tenant may proceed with such alterations or improvements. Notwithstanding the foregoing, Landlord may condition the approval of Structural Alterations upon the requirement that such alterations be removed by Tenant at the expiration of the Term, which requirement shall be stated in writing to Tenant at the time that Landlord gives its permission to make such alterations and Tenant shall at its expense repair any damage to the Premises or the Building caused by the removal. Work shall be done in good and workmanlike manner and Tenant shall keep the Premises free of all materialmen's or mechanic's liens in connection with any such work by Tenant and Tenant shall maintain worker's compensation insurance for the work being performed. In connection with Structural Alterations and nonstructural Alterations, Tenant shall select a reputable general contractor to perform the work and Tenant agrees to permit Landlord to submit a bid for any work costing in excess of $50,000.00 during the first 365 days after possession of the Premises is delivered to Tenant, however the parties understand and agree that Tenant shall not be required to award the work to Landlord in its sole discretion.
(b) Tenant may, at its option, remove from the Premises any furniture, furnishings, trade fixtures, business equipment or other property which are not built into the Premises and were installed by or for Tenant at its expense
("Tenant's Property") Tenant at its expense shall repair any damage caused by such removal.
8. Inspection
Landlord shall, upon advance notice to Tenant (except in an emergency), have the right at all reasonable times to inspect the Premises, to make repairs and improvements thereto (as expressly required or permitted in this Lease) and to bring and place materials in the Premises related thereto and to show the same to prospective and current mortgagees and purchasers; provided, however, that Landlord shall use all reasonable efforts to minimize disturbance to Tenant's use and occupancy of the Premises (although such efforts shall not obligate Landlord to pay overtime or nighttime, weekend or holiday rates in order to perform such work). During the last year of the Term, Landlord shall also have the right to show the Premises to prospective tenants.
9. Casualty
(a) (i) If the Building, the Premises, or the Appurtenances are damaged by fire or other casualty, Tenant shall provide Landlord with immediate notice and Landlord shall promptly obtain a bid for the repair or restoration (but not with respect to Tenant's Property) and shall deliver to Tenant notice, together with a statement prepared by a reputable contractor or architect setting forth the contractor's or architect's estimate, of the time required to repair the damage (the "Repair period"), said notice being given to Tenant within 30 days after the date of the damage (unless Landlord completes such repairs within the 30 days) . For purposes of determining the Repair period, it shall be deemed to commence on the date of Landlord's receipt from Tenant of notice of the damage. If the Repair period is determined to be longer than 365 days (such estimate being referred to as the "outside Repair Period") and if such damage will prevent Tenant's ability to carry on its business operations during the outside Repair period as reasonably determined by Tenant, Tenant shall give Landlord notice thereof ("Interruption Notice") within 30 days after notice of the
outside Repair period. If Tenant gives Landlord the Interruption Notice, either Landlord or Tenant may elect to terminate this Lease by giving notice to the other ("Termination Notice") within 15 days after the Interruption Notice, of a date on which the termination shall be effective, which date shall be not less than 30 days nor more than 90 days after the Termination Notice. If Landlord shall, in `good faith, dispute Tenant's determination that the damage will prevent Tenant's ability to carry on its business operations during the outside Repair period, then Landlord shall have the right to require the matter to be arbitrated pursuant to the arbitration provisions of Section 33 and any termination by Tenant shall not be deemed effective until a final decision Is rendered pursuant thereto. Upon such termination, this Lease, including the obligation of Tenant to pay the Rent, shall cease as of the date of termination as though by lapse of time, provided, however, that the Rent shall equitably abate from the date of the damage.
(ii) If the Lease Is not terminated and Landlord undertakes to repair and restore and comply with the provisions of Section 91b1 below, and the outside Repair period is longer than 365 days, then Landlord shall deliver to Tenant between the 90th and 120th day a statement prepared by the contractor or architect of the time remaining to complete the repair and restoration ("Second Repair Notice"). If the Second Repair Notice indicates that the period for repair will extend more than 90 days after the original estimated outside Repair period (except for delays due to Force Majeure and except that the period shall be extended one day for each day of delay caused by Tenant's acts or omissions), then Tenant shall have a right to terminate this Lease by notice to Landlord and upon such termination, Tenant's obligations hereunder, including the obligation to pay Rent, shall cease as ,of the day of such termination, provided, however, Rent shall abate equitably for that portion of the Premises so damaged or rendered untenantable from the date of the damage.
(b) If the Lease is not terminated: (I) the Rent shall abate for the period the Premises are untenantable, and if a portion of the premises are tenantable,
Tenant shall pay the Rent for only such portion of the Premises which Tenant in its reasonable judgment may reasonably occupy; and (ii) all repairs necessary to restore the Premises to their original condition (subject, however, to the limitations of law and the availability of materials) shall be: (1) commenced within 30 days after the occurrence of such damage (obtaining plans, specifications, estimates and permits and demolition work shall be deemed part of Landlord's commencement); (2) performed in a diligent and workmanlike manner with material at least consistent with that in the Building (subject, however, to the limitations of law and the availability of materials), the Premises, and the Appurtenances as of the date of this Lease; (3) completed by Landlord at its expense and, to the extent practicable, with minimum interference to Tenant's normal business operations. Anything in the foregoing to the contrary notwithstanding, Landlord shall have no obligation to restore and repair if the event which causes the damage or destruction is one which cannot be insured by the policy of insurance described in Section 10 below, or if the insurance company issuing coverage fails to fund the proceeds of the applicable policy due to its insolvency or with respect to any claims involving Tenant; provided that Landlord's failure to restore and repair for such reasons shall not affect Tenant's right to terminate this Lease for failure to repair and restore as provided in this Lease.
(c) Landlord shall carry for the benefit of Landlord, Landlord's lender and Tenant rent loss insurance sufficient to cover the Fixed Rent and additional rent at least equal to the real estate taxes, and operating expenses for the prior year, payable for a period of 12 months, or such greater coverage as Landlord may elect. Landlord shall obtain such insurance from an insurance company licensed to do business in the State of Connecticut with one of the following ratings: Best's rating of at least A:XII, or Moody's of at least Aa2, or a standard and Poor's rating of at least AA. Landlord shall provide Tenant evidence of such coverage, upon request. The cost of such insurance maintained
by Landlord shall be paid by Tenant to Landlord, as additional rent hereunder (together with the cost of the other Landlord insurances described herein being referred to as "Insurance Premium Costs"), as provided in Section 10(f).
10. Insurance and Indemnity
(a) Landlord shall, from and after the date hereof, maintain insurance policies covering the Building and the Appurtenances against loss, damage, or destruction caused by boiler explosion or machinery breakdown, fire and the perils specified in the standard extended coverage endorsement, by vandalism and malicious mischief, and by sprinkler, gas, water, steam and sewer leakage, and shall also maintain when appropriate builder's risk insurance. Fire and extended coverage shall equal at least 80 percent of the full replacement cost (valued at the full replacement cost without deduction for depreciation) of the Building and the Appurtenances, exclusive of architectural and engineering fees, excavation, footings and foundations, but in any event sufficient to prevent application of any coinsurance provision, and shall include an inflation guard endorsement, or such greater coverage as Landlord shall reasonably determine. Such policies shall provide for a deductible not greater than $10,000.00 from any loss payable and shall contain appropriate endorsements denying Landlord's insurers the right of subrogation against Tenant and providing Tenant 30 days notice of cancellation. Tenant may inspect the policies upon request.
(b) Landlord shall, from and after the date hereof, maintain insurance policies covering Landlord's liability for all claims or losses (other than those for which liability is waived by express provision in this Lease) resulting from any injury on the Land or Building to property or persons from any cause whatsoever in a single limit of not less than $5,000,000.
(c) During the Term, Tenant shall keep its personal property in and about the Premises insured against loss or damage caused by peril covered under fire, extended coverage and all risk insurance in an amount equal to at least 80
percent of the full insurable value thereof. The proceeds of such insurance shall be used only for the replacement or restoration of such personal property. Such policies shall contain appropriate endorsements denying Tenant's insurer the right of subrogation against Landlord and providing Landlord 30 days notice of cancellation. Landlord may inspect Tenant's policies upon request. Notwithstanding the foregoing, this section 10(c) shall be suspended and of no force and effect for so long as the named Tenant or any affiliate thereof remains a tenant hereunder. Tenant agrees that Landlord shall have no liability or responsibility whatsoever for any damage to any person or property within the Premises due to Landlord or its agents, employees or contractors, except to the extent that the insurance policies listed in Sections 10(a) and (b) cover, and then only to the extent of such coverage ("Insured Risks"); provided, however, that Landlord shall continue to remain liable for claims and losses that are not covered by the terms of such policies ("Uninsured Risks").
(d) During the Term, Tenant shall procure, keep in force and pay for comprehensive general liability insurance insuring Tenant on an occurrence basis against all claims and demands for personal liability including bodily injury, sickness, disease and death) or damage to property which may be claimed to have occurred from and after the time Tenant entered the Premises of not less than $5,000,000.00 in the event of personal injury to any number of persons or damage to property, arising out of any one occurrence. Such insurance shall provide that it shall not be canceled or modified without at least 30 days prior written notice to each insured named therein. Landlord may inspect the policies upon request. Notwithstanding the foregoing, this Section 10(d) shall be suspended and of no force and effect for so long as the named Tenant or any affiliate thereof remains a tenant hereunder.
(e) Tenant indemnifies and agrees to hold harmless Landlord from all claims or losses (other than those for which liability is waived by express provision in this Lease) resulting from any injury upon the Premises to property or
persons due to any negligence of Tenant, its agents, employees or contractors, Landlord indemnifies and agrees to hold harmless Tenant from all claims and losses (other than those for which liability is waived by express provision in this Lease) resulting from any injury in or upon the Land or the Building to property or persons due to any negligence of Landlord, its agents, employees or contractors, but only to the extent that such claims and losses are, or would be, covered by the policies of insurance required to be carried by Landlord hereunder (also "Insured Risks"); provided, however, that Landlord shall continue to remain liable for claims and losses that are not, or would not be, covered by the terms of such policies (also "uninsured Risks"). Neither party's indemnification of the other party as provided in this Section 10 shall be applicable to the extent that such claims result in whole or in part from the negligence or the breach of this Lease by the other party, nor in any event shall either party be liable to the other for indirect or consequential damages.
(f) The costs of all insurance pursuant to this section maintained by Landlord for the benefit of Landlord and Tenant shall be paid by Tenant to Landlord, as additional rent hereunder, within 30 days of a written request therefor from Landlord to Tenant accompanied by a statement setting forth the premium for such insurance, or as set forth in Section 4.
11. Condemnation
(a) (i) If all of the Land, the Building, the premises and the Appurtenances shall be permanently condemned for public use, or voluntarily transferred by Landlord to a public or quasi-public body in lieu of condemnation (any of which occurrences is hereafter referred to as a "Taking"), this Lease shall terminate as of the date such taking is final and the Rent shall be adjusted to the date of termination.
(ii) If a material portion of the Building, the Premises, or the Appurtenances shall be taken as a result of a Taking, Tenant shall provide Landlord with immediate notice and Landlord shall promptly obtain a bid for the
repair or restoration and shall deliver to Tenant notice, together with a statement prepared by a reputable contractor or architect setting forth the contractor's or architects' estimate, of the time required to repair the damage (the "Condemnation Repair period"), said notice being given to Tenant within 30 days after Landlord receives notice from Tenant of the Taking (unless Landlord completes such repairs within the 30 days). For purposes of determining the condemnation Repair period, it shall be deemed to commence on the date of the Taking. If the condemnation Repair period is determined to be longer than 365 days ("Outside Condemnation Repair period') and if such Taking will prevent Tenant's ability to carry on its business operations during the outside condemnation Repair period as reasonably determined by Tenant, Tenant shall give Landlord notice thereof ("Condemnation Interruption Notice") within 30 days after notice of the outside Condemnation Repair Period. If Tenant gives Landlord the Condemnation Interruption Notice, either Landlord or Tenant may elect to terminate this Lease by giving notice to the other ("Condemnation Termination Notice") within 15 days after the condemnation Interruption Notice, of a date on which the termination shall be effective, which date shall be not less than 30 days nor more than 90 days after the condemnation Termination Notice. If Landlord shall, in good faith, dispute Tenant's determination that the Taking will prevent Tenant's ability to carry on its business operations during the outside Repair period, then Landlord shall have the right to require the matter to be arbitrated pursuant to the arbitration provisions of Section 33 and any termination by Tenant shall not be deemed effective until a final decision is rendered pursuant thereto. Upon such termination, this Lease shall terminate as though by lapse of time, including the obligation to pay the Rent, shall cease as of the date of termination, provided, however, that the Rent shall equitably abate from the date of the Taking.
(iii) If the Lease is not terminated and Landlord undertakes to repair and restore and comply with the provisions of Section 11(b) below, and the outside
Condemnation Repair period is longer than 365 days, then Landlord shall deliver to Tenant between the 90th and 120th day a statement prepared by the contractor or architect of the time remaining to complete the repair and restoration ("Second Condemnation Repair Notice"). If the Second Repair condemnation Notice indicates that the period for repair will extend more than 90 days after the original estimated outside Condemnation Repair Period (except for delays due to Force Majeure and except that the Period shall be extended one day for each day of delay caused by Tenant's acts or omissions) then Tenant shall have a right to terminate this Lease by notice to Landlord and upon such termination, this Lease shall be deemed terminated as though by lapse of time, including the obligation to pay Rent as of the date of such Taking and the Rent shall abate equitably for any portion of the Premises so damaged or rendered untenantable by the Taking.
(b) If the Lease is not terminated: (i) the Rent shall abate for the period the Premises are untenantable, and if a portion of the premises or the portion not so Taken are tenantable, Tenant shall pay the Rent for only such portion of the Premises which Tenant in its reasonable judgment may reasonably occupy (except that if Landlord, in good faith, disputes Tenant's conclusion, the matter shall be arbitrated pursuant to the arbitration provision of Section 33 and all Rent shall continue to be paid pending the outcome thereof); and (ii) all repairs necessary to restore the Premises (or the portion thereof remaining following such Taking) to their original condition (subject, however, to the limitations of law and the availability of materials) shall be (1) commenced within 30 days after Landlord receives notice of the occurrence of such Taking (obtaining plans, specifications, estimates and permits and demolition work shall be deemed part of Landlord's commencement); (2) performed in a diligent and workmanlike manner with material at least consistent with the improvements in the Building (subject, however, to the limitations of law and the availability of materials), the Premises, and the Appurtenances as of the date
of this Lease; (3) completed by Landlord at its expense and, to the extent practicable, with minimum interference to Tenant's normal business operations.
(c) Tenant shall not be entitled to any portion of the award or settlement resulting from the Taking. provided the same shall not result in a reduction to Landlord's claim, Tenant shall have the right to bring a separate claim against the Taking authority for Tenant's moving costs and the unamortized book value of tenant improvements paid for by Tenant and not reimbursed by Landlord (and in such case, Landlord shall have no obligations to rebuild any such tenant improvements)
12. Default
(a) If Tenant shall default in the payment of the Rent and additional rent (provided, however, that the first two (2) times during any calendar year, Tenant shall not be in default of this provision and no interest shall be due unless such failure to pay Rent continues for ten (10) days after notice thereof from Landlord) or if Tenant shall default in the performance of any of its other obligations under this Lease and such default shall continue for 30 days after notice from Landlord specifying Tenant's default (except that if such default cannot be cured within said 30-day period, this period shall be extended for a reasonable additional time, provided that Tenant commences to cure such default within the 30-day period and proceeds diligently thereafter to effect such cure) or if Tenant shall file a petition commencing or a proceeding under any bankruptcy or similar laws, or if such a proceeding is filed against Tenant and not dismissed within 60 days after the filing thereof, or if Tenant shall be adjudged bankrupt or shall make an assignment for the benefit of its creditors or if the Premises or any portion thereof or any interest therein become subject to a lien resulting from the entry of a final, non- appealable judgment against Tenant and Tenant shall have failed to release, discharge or otherwise bond such lien within 60 days after written notice of such lien has been given by Landlord to Tenant but in any event prior to foreclosure of such lien, or if a receiver
of any property of Tenant in or upon the Premises shall be appointed in any action, suit or proceeding by or against Tenant and is not removed within 30 days after appointment, then, in any of such events, Landlord shall have the immediate option to:
(1) cure such default and any reasonable costs and expenses incurred by Landlord therefor shall be deemed additional rent payable on demand; or
(2) with or without terminating this Lease, reenter the Premises and take possession thereof from Tenant by legal proceedings or otherwise. If Landlord takes possession of the Premises and terminates this Lease, thereafter Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss Tenant proves could have been reasonably avoided (assuming that Landlord is not required to prefer the rental of Tenant's space over other available space in the Building); plus (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided (assuming that Landlord is not required to prefer the rental of Tenant's space over other available space in the Building); plus (iv) at Landlord's election, such other amounts in addition to or in lieu of the foregoing necessary to compensate Landlord for all detriment caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom. The remedies for default contained herein are in addition to and not in limitation of any rights and remedies available to Landlord at law or equity. As used in subparagraphs (i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the rate of 1% per month from and after the first day following the date(s) Rent becomes due. As used in subparagraph (iii) above, the "worth at the
time of award" is computed by discounting such amount at the "Discount Rate" published from time to time in The Wall Street Journal at the time of award plus one percent (1%)
If Landlord shall re-enter the Premises and take possession from Tenant without terminating this Lease, provided that Tenant has vacated the Premises and is not contesting Landlord's right to possession of the premises, Landlord will use reasonable efforts to relet the Premises and thereby mitigate the damages which Landlord shall incur. Tenant hereby agrees that Landlord's agreement to use reasonable efforts to relet the Premises in order to mitigate its damages shall not be deemed to impose upon Landlord any obligation to relet the premises (i) for any purpose other than the use permitted under this Lease, or (ii) to any tenant who is not financially capable of performing the duties and obligations imposed upon such tenant under the applicable lease, or (iii) to prefer the Premises over any other space available in the Building (if this Lease has been modified by Landlord and Tenant such that Tenant then occupies less than the entire building). In such event. Tenant shall pay to Landlord monthly the Rent due and payable under this Lease, less the net proceeds of any such reletting after deducting Landlord's reasonable costs and expenses incurred in connection with such reletting, including, without limitation, reasonable brokerage and attorneys' fees and expenses and the reasonable costs of alterations or repairs. Any excess proceeds from reletting shall be held by Landlord and applied in payment of future Rent due hereunder.
(3) continue this Lease in full force and effect for so long as Landlord does not exercise Landlord's right to terminate this Lease and Landlord may enforce all Landlord's rights and remedies under this Lease, including the right to recover the Rent as it becomes due.
In all events where this Lease has been terminated by Landlord, Landlord shall use reasonable efforts to mitigate its damages in the event of Tenant's default, but shall not be required to prefer the rental of Tenant's space over
other available space in the Building or to relet for any purpose other than the use permitted under this Lease, or to any tenant who is not financially capable of performing the obligations imposed upon such tenant under the applicable lease.
(b) If Landlord shall default in the performance of any of its obligations under this Lease, and such default shall continue for 30 days after notice from Tenant specifying Landlord's default (except that if such default cannot be cured within said 30-day period, this period shall be extended for a reasonable additional time, provided that Landlord commences to cure such default within the 30-day period and proceeds diligently thereafter to effect such cure), Tenant may, without prejudice to any of its other rights under this Lease, correct or cure such default by Landlord and invoice Landlord for the cost and expenses incurred by Tenant therefor, and Landlord shall reimburse Tenant within 30 days following receipt of such invoice and data supporting the sum requested.
13. Holdover
Any holding over after the expiration of the Term shall be deemed and construed to be a tenancy at sufferance with the Fixed Rent equal to 150% of said Fixed Rent for any succeeding months of holdover and shall otherwise be on the terms and conditions herein specified so far as applicable.
14. Assignment and Subletting
Tenant may assign this Lease or sublet the premises in whole or in part at
any time during the Term with the prior consent of Landlord (which consent shall
not be unreasonably withheld, conditioned or delayed), provided that any such
assignment or sublease shall limit use of the Premises in accordance with
Section 1(c) of this Lease and shall otherwise be in compliance with the terms
hereof to the extent applicable. In such event, Tenant shall notify Landlord
thereof, and shall provide Landlord with a copy of such assignment or sublease
and shall remain responsible for the faithful performance of all of the
covenants, terms and conditions hereof on Tenant's part to be performed. Any
such sublessee or assignee shall execute and deliver to Landlord, a commercially reasonable form of Landlord consent. Landlord agrees that if Tenant assigns this Lease and the assignee defaults under a non-monetary obligation under this Lease and fails to cure such default within the applicable grace period. Landlord shall not prevent Tenant from recovering possession of the Premises and curing the assignee's default within 30 days after the expiration of the applicable cure period under this Lease, but nothing herein shall be deemed to extend any period for cure by more than thirty (30) days. In the case of default by such assignee, Landlord agrees to give notice thereof to Tenant. Landlord shall have the right to approve all signage proposed to be placed on the Premises in connection with any such assignment or sublease (subject to the provisions of section 19), such approval not to be unreasonably withheld.
15. Quiet Enjoyment
So long as Tenant is not in default beyond the applicable grace periods in the payment of the Rent or in the performance of any other covenant or agreement herein contained, Landlord covenants that Tenant may peaceably and quietly have, hold, occupy and enjoy the premises free and clear of claims arising through Landlord, subject, nevertheless, to the terms of this Lease.
16. Subordination
This Lease, and all of the rights of Tenant hereunder are and shall be subordinate to (i) the lien of any mortgage which may now or hereafter affect the Premises and to all renewals, modifications, consolidations, replacements and extensions thereof and to any and all advances now or hereafter made thereunder, (ii) all future ground leases of the premises, and (iii) all encumbrances hereafter of record (each holder of such superior interest being referred to herein as a "Mortgagee"); providing such Mortgagee executes and delivers to Tenant a commercially reasonable nondisturbance agreement (and the parties agree a form of nondisturbance agreement substantially similar to that attached hereto as Exhibit H is a reasonable form thereof). Landlord shall be
responsible for any fees charged by Mortgagee in connection with Mortgagee's review and approval of an amendment to this Lease. In confirmation of such subordination, within ten (10) days next following Landlord's request, Tenant shall execute and deliver such certificate in recordable form. In the event that Tenant shall fail or refuse to execute such certificate or document within the aforesaid time period, then Landlord shall send Tenant a second request therefor (Second Request). If Tenant fails to deliver such certificate or document within 5 days after Tenant's receipt of the Second Request then Tenant's failure to do so within such 5-day period shall be an event of default, and without limitation to Landlord's remedies for Tenant's defaults hereunder, Tenant hereby appoints the Landlord as its attorney-in-fact, coupled with an interest, to execute the same on behalf of Tenant, agrees that such appointment shall be binding upon Tenant, and further agrees to hold Landlord harmless of and from any and all liability or loss which the Landlord may sustain by reason of Tenant's failure to execute said certificate or document.
Tenant agrees to give to any Mortgagee by certified mail, return receipt requested. or by reputable overnight courier, a copy of any notice of default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing (by way of Notice of Assignment of Rents and Leases, or otherwise delivered to Tenant pursuant to the notice provisions hereof) of the address of such Mortgagee. `Tenant further agrees that if Landlord shall have failed to cure such default within the time permitted therefor, then such Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot reasonably be cured within that time, then such reasonable additional time as may be necessary to cure such default providing that within such thirty (30) days, such lender has commenced and is diligently pursuing the remedies necessary to cure such default, in which event this Lease shall not be terminated while such remedies are being so diligently pursued.
If the Mortgagee or any other party shall succeed to the rights of the Landlord under the Lease, then at the request of such party so succeeding to Landlord's rights, Tenant shall attorn to and recognize such successor landlord as Tenant's landlord under this Lease providing such successor shall recognize Tenant's rights under this Lease, subject to the limitation of any subordination, nondisturbance and attornment agreement between the parties, and shall, within fifteen (15) days next following such landlord's request, execute and deliver any commercially reasonable instrument that such successor landlord may reasonably request to evidence such attornment. In the event that Tenant shall fail or refuse to execute such instrument within the aforesaid time period, then such landlord shall send Tenant a Second Request therefor). If Tenant fails to deliver such instrument within such 5-day period, then Tenant hereby appoints Landlord as its attorney-in-fact, coupled with an interest to execute the same on behalf of Tenant, and agrees that such instrument shall be binding upon Tenant, and further agrees to hold Landlord harmless of and from any and all liability or loss which Landlord may sustain by reason of Tenant's failure to execute said instrument. Upon such attornment, this Lease shall continue in full force and effect as if it were a direct Lease between the successor landlord and Tenant upon all of the terms conditions and covenants as are set forth in this Lease and shall be applicable after such attornment; subject, however, to the limitations of any non-disturbance agreement between the parties, if any.
17. Rules and Regulations
Tenant shall abide by and observe the rules and regulations attached hereto as Exhibit_7, as well as such other reasonable rules and regulations as may be promulgated from time to time by Landlord for the operation, safety, security and maintenance of the Building, the same being in conformity with common practice and usage in similar buildings and not inconsistent with the provisions of this Lease.
18. Estoppel Certificate
Tenant shall, at any time and from time to time, upon not less than 15 business days prior notice from Landlord, deliver to Landlord a commercially reasonable estoppel certificate. Tenant agrees the estoppel certificate attached hereto as Exhibit K is a commercially reasonable estoppel certificate. Landlord shall, at any time and from time to time upon not less than 15 business days prior notice from Tenant, deliver to Tenant an estoppel certificate, in substance and form similar to that described above, relative to the status of this Lease and any ground lease, underlying lease or mortgage encumbering the Building or Land.
19. Change of Name
Landlord shall not change the name of the Building or Premises without Tenant's consent. If Landlord proposes a change to the name of the Building or the exterior signs affixed to the Building or the Land, Landlord shall notify Tenant at least 60 days prior to the date of the proposed change. If the proposed new name or sign identifies, or in Tenant's reasonable judgment may be associated with, a competitor of Tenant and Landlord denies Tenant's written request, made within 30 days after notification of the proposed change, not to use the proposed name or install the new sign, Tenant shall have the right and power to obtain injunctive relief requiring Landlord to alter the name of the Building so as to not violate the provisions hereof. This Section 19 shall only be effective for so long as the named Tenant or its affiliate is a tenant under this Lease.
20. Mechanics' Liens
Tenant shall promptly discharge by payment, bond or otherwise, mechanics' liens filed against the Premises for work, labor. services or materials claimed to have been performed at or furnished to the Premises for or on behalf of Tenant, except when the mechanics' liens are filed by a contractor, subcontractor, materialman or laborer of Landlord, in which event Landlord shall discharge the liens by payment, bond or otherwise. If, however, Tenant notifies Landlord in writing that Tenant desires to contest the same, Tenant shall not be required to discharge such lien, so long as no forfeiture or foreclosure of
Landlord's or Tenant's interests occurs and Landlord shall not be placed in default of any mortgage encumbering title to the Premises, but shall diligently prosecute the contest thereof to final judgment and decision, and shall pay any judgment that may be rendered on account thereof, and shall cause the Premises to be freed and discharged from any lien or charge adjudged against the same.
21. Extension
Provided the Tenant shall not be in default hereof beyond any applicable grace period as of the date of exercise or the date of commencement of the Extended Term, Tenant shall have the right to extend the Term for an additional period of 5 years, upon the same terms and conditions contained herein, except that the Fixed Rent during the Extended Term shall be $1,298,307.24 per annum, payable in monthly installments in the amount of $108,192.27 by giving notice of its intention to extend to Landlord at least 12 months prior to the Expiration Date, and thereupon the original Term and the Expiration Date shall be so extended without any further action by either party.
22. Intentionally Omitted.
23. Intentionally Omitted.
24. Intentionally Omitted.
25. Intentionally Omitted.
26. Attachments
Exhibits A, B, D, F, C, H, I. J and K are attached to this Lease and made a part hereof.
27. Notices
All notices, demands or other communications ("notices") permitted or required to be given hereunder shall be in writing and, shall be deemed given on the date of actual receipt. Notices shall be addressed as follows: (a) if to Eight Farm Springs Road Associates, LLC, 2150 Post Road, Fairfield, Connecticut 06430 with a copy to Edward Savides at P.O. Box 3097, Springfield, Massachusetts 01101-3097 (or for overnight delivery to Edward Savides at 1709 Page Boulevard, Springfield, Massachusetts 01104) and (b) if to Tenant, to Hartford Fire
Insurance Company, Hartford plaza, Hartford, Connecticut 06115 Attention:
Corporate Real Estate Department, with a copy mailed to Tenant at the Premises.
Landlord and Tenant may from time to time by notice to the ocher designate such
other place or places for the receipt of future notices. The inability to
deliver because of a changed address of which no notice was given or rejection
or other refusal to accept any notice shall be deemed to be the receipt of the
notice as of the date of such inability to deliver or rejection or refusal to
accept.
28. Miscellaneous
(a) The language of this Lease shall be construed according to its normal and usual meaning and not strictly for or against either Landlord or Tenant.
(b) No remedy or election given by any provision in this Lease shall be deemed exclusive unless so indicated, but each shall, wherever possible, be cumulative in addition to all other remedies in law or equity which either party may have arising out of the default of the other party and failure to cure such default within the applicable grace period.
(c) Failure of either party to cure a default of the other under this Lease shall not render such non-defaulting party in any way liable therefor, or relieve the defaulting party from any of its obligations hereunder.
(d) The acceptance of possession of the premises by Tenant shall not be deemed a waiver of any of the obligations under this Lease to be performed by Landlord.
(e) Landlord hereby covenants that, subject to the terms of this Lease, Tenant may deal with any person, firm or corporation for services, supplies, materials, labor, equipment, transportation, tools, machinery and any other similar or dissimilar services or items in connection with the use and occupation of the Premises and any work performed therein.
(f) Intentionally Omitted.
(g) Intentionally Omitted.
(h) Subject to Section 7, upon any termination or expiration of this Lease, Tenant shall surrender the Premises in Reasonably Good Condition, except for that degree of wear and tear occurring in the ordinary course of operating the Building for extended hours with all appropriate commercially reasonable maintenance and repair maintained throughout the Term, damage caused by any casualty and matters which Landlord has retained express liability under this Lease.
(i) Intentionally Omitted.
(j) If any clause or `provision of this Lease is or becomes illegal, invalid, or unenforceable because of present or future laws or any rule or regulation of any governmental body or entity, effective during the Term, the intention of the parties hereto is that the remaining parts of this Lease shall not be affected thereby.
(k) As used in this Lease, any list of 1 or more items preceded by the word "including" shall not be deemed limited to the stated items but shall be deemed without limitation,
(1) This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective executors, heirs, representatives, successors and permitted assigns.
(m) This Lease contains the entire agreement of the parties and may not be modified except by an agreement in writing signed by both parties.
(n) The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease or of any provision hereof.
(o) This Lease has been executed in several counterparts, all of which constitute one and the same instrument.
(p) Landlord and Tenant shall be excused for the period of any delay in the performance of any obligation hereunder when prevented from so doing by an event of "Force Majeure". Force Majeure shall mean any cause beyond its control, including acts of God, labor disputes, civil commotion, hostilities, sabotage,
governmental regulations or controls, fire or other casualty, inability to obtain any material or services (except those due to failure to timely order, or due to improper scheduling of work), accidents (provided such accidents are not due to such party's negligence), but excepting therefrom both the inability to obtain financing and any other matter which can be corrected by the payment of a commercially reasonable sum of money. In no event, however, shall an event of Force Majeure be deemed to exceed 90 days. Neither party shall be entitled to rely upon this Section unless it shall give the other party notice of the existence of an event of Force Majeure preventing its performance of its obligation hereunder within a reasonable period of time after the commencement of the event of such Force Majeure.
(q) Either Landlord or Tenant shall, at the request of the other, execute a Memorandum or Notice of Lease in recordable form in substantially the same form as Exhibit I attached specifying the date of this Lease and such other information as may be required by statute. Either Landlord or Tenant may at its expense record said Memorandum or Notice of Lease.
(r) The use of the neuter singular pronoun to refer to either party shall be deemed a proper reference even though it may be an individual, partnership, corporation or a group of 2 or more individuals or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural number where there is more than 1 Landlord or Tenant and to either corporations, associations, partnerships or individuals, males or females, shall in all instances be assumed as though in each carefully expressed.
(s) In any action or proceeding which Landlord or Tenant may be required to prosecute to enforce its respective rights hereunder, the unsuccessful party agrees to pay all costs incurred by the prevailing party therein, including reasonable attorneys' fees.
(t) Tenant may install Tenant's name and suite numerals at the main entrance door to the Premises in conformance with the Building standard.
(u) Time shall be of the essence in this Lease with respect to the payment of all monies by one party to the other and as to the exercise of any options to extend the Term of this Lease granted herein by Landlord to Tenant.
29. Brokerage Fees
Landlord and Tenant each represent and warrant each to the other that they have only dealt with Colliers, Dow & Condon, Inc. (representing Landlord) and Farley Whittier Partners (representing Tenant) in connection with this Lease and each party indemnifies and shall defend the other party from any claims, expenses, liabilities, and losses (including reasonable attorneys' fees) resulting from any breach of the foregoing representation and warranty.
30. Transfer by Landlord
In the event Landlord shall transfer or assign or otherwise dispose of its
interest in the Premises or in this Lease, Landlord shall thereupon be released
and discharged from, any and all liabilities and obligations under this Lease
(except those accruing prior to such transfer, assignment or other disposition)
and such liabilities and obligations thereafter accruing shall be binding upon
the assignee of Landlord's interest under this Lease.
31. Landlord's Liability
Landlord shall have no personal liability with respect to any of the provisions of this Lease. If Landlord is in default with respect to its obligations under this Lease, Tenant shall look solely to the equity of Landlord in and to the Premises for satisfaction of Tenant's remedies, if any. It is expressly understood and agreed that Landlord's liability under the terms of this Lease shall in no event exceed the amount of its interest in and to said Premises. In no event shall any partner of Landlord nor any joint venturer in Landlord, nor any officer, director, member, agent or shareholder of Landlord or any such partner, member or joint venturer of Landlord be personally liable with
respect to any of the provisions of this Lease.
32. Applicable Law
This Lease shall be construed under and enforced in accordance with the laws of the State of Connecticut.
33. Arbitration
Unless otherwise expressly set forth herein and expressly excluding summary process proceedings, every dispute between the parties with respect to this Lease shall be determined by arbitration in the manner provided in this Subsection.
The party requesting arbitration shall do so by giving written notice to
that effect to the other party (the "Arbitration Notice"). The Arbitration
Notice shall specify the name and address of the person designated to act as an
arbitrator on its behalf. Within ten (10) days after the service of the
Arbitration Notice, the other party shall give notice to the first party
specifying the name and address of the person designated to act as an arbitrator
on its behalf. If the second party fails to notify the first party of the
appointment of its arbitrator, as aforesaid, within the time above specified,
then the appointment of the second arbitrator shall be made in the same manner
as hereinafter provided for the appointment of a third arbitrator in a case
where the two arbitrators appointed hereunder and the parties are unable to
agree Upon such appointment. If, within ten (10) days after the second
arbitrator is appointed, the two arbitrators shall not have determined the
dispute, they shall together appoint a third arbitrator. In the event of their
being unable to agree upon such appointment within fifteen (15) days after the
appointment of the second arbitrator, the third arbitrator shall be selected by
the parties themselves if they can agree thereon within a further period of ten
(10) days. If the parties do not so agree, then either party, on behalf of both
or on notice to the other, may request such appointment' by the American
Arbitration Association, or any successor organization thereto in accordance
with its rules then prevailing. If the American Arbitration Association, or such
successor organization, shall fail to appoint a third arbitrator within ten (10) days after such request is made, then either party may apply on notice to the other, to the Superior Court for Hartford County, Connecticut, or to any other court having jurisdiction and exercising functions similar to those now exercised by said court, for the appointment of such third arbitrator, and the other party shall not raise any question as to such court's full power and jurisdiction to entertain the application and make the appointment. Each arbitrator chosen or appointed pursuant to this Section shall be a disinterested person having at least ten (10) years experience in the State of Connecticut in a calling connected with the dispute.
Arbitration shall be conducted by three arbitrators appointed in accordance with the provisions hereof and, to the extent consistent with this Section. in accordance with the then prevailing rules of the American Arbitration Association, or any successor organization thereto, for Hartford County. The arbitrators have the right to retain and consult experts and competent authorities skilled in the matters under arbitration. The arbitrators shall render their decision and award, upon the concurrence of at least two of their number, within thirty (30) days after the appointment of the third arbitrator or fifteen (15) days after the final hearing of the arbitrators, whichever is later. Such decision and award shall be in writing and counterpart copies thereof shall be delivered to each of the parties. In rendering such decision and award, the arbitrators shall not add to, subtract from or otherwise modify the provisions of this Lease. Judgment may be entered on the determination and award made by the arbitrators in any court of competent jurisdiction and may be enforced in accordance with the laws of the State of Connecticut.
If for any reason `whatsoever the written decision and award of the arbitrators shall not be rendered within the time limits set forth in this Section, but in any case no later than 180 days following the Arbitration Notice, either party may apply to the Superior Court for Hartford County, Connecticut, or to any other court having jurisdiction and exercising the
functions similar to those now exercised by such court, by action, proceeding or otherwise (but not by a new arbitration proceeding) as may be proper to determine the question in dispute consistently with the provisions of this Lease.
Each party shall pay the fees and expenses of the one of the two original arbitrators appointed by or for such party and the fees and expenses of the third arbitrator and all other expenses of the arbitration shall be borne by the parties equally. However, each party shall bear the expense of its own counsel, experts and presentation of proof.
Notwithstanding anything to the contrary elsewhere provided in this Lease, if the subject matter of a dispute which is provided in this Lease to be determined by arbitration is one which would directly affect the liability of an insurer under any of the policies of insurance referred to herein or a Mortgagee and, the party which is the insured under such policy or is the mortgagor to such Mortgagee so notifies the other party, then unless such insurer or Mortgagee gives its written consent to the determination of such matter by arbitration pursuant to the provisions of this Lease, the dispute shall not be determined by arbitration and the parties shall be left to such other remedies as they may have.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this Lease.
(TENANT) (LANDLORD)
HARTFORD FIRE INSURANCE COMPANY EIGHT FARM SPRINGS ROAD
ASSOCIATES, L.L.C.
By: /s/ Peter L. Holland By: /s/ Edward Savides
----------------------------- --------------------------
Peter L. Holland Edward Savides
Its Assistant Vice President Its Member
By: /s/ Anthony F. Izzo
---------------------------
Anthony F. Izzo
|
Its Member
[EXHIBITS INTENTIONALLY OMITTED]
FIRST LEASE AMENDMENT
This First Lease Amendment (Amendment) is made as of July 2, 1997 between EIGHT FARM SPRINGS ROAD ASSOCIATES, L.L.C. (Landlord) and HARTFORD FIRE INSURANCE COMPANY (Tenant).
RECITALS:
Landlord and Tenant entered into a lease dated as of November 15, 1996
(Lease) for certain premises known as 8 Farm Springs Road, Farmnington,
Connecticut (Building).
The parties desire to amend the Lease, subject to the terms hereof.
Any capitalized term used herein and not otherwise defined herein shall have the same meaning given to it in the Lease.
NOW THEREFORE, the parties agree as follows:
1. The parties acknowledge that Hartford Fire Insurance Company, as assignee of Landlord's right, title and interest in and to that certain lease dated August 27, 1996 between Eight Farm Springs Road Associates, LLC and Nationwide Mutual Insurance Company for space in the Building (Nationwide Lease), terminated the Nationwide Lease effective December 19, 1996, and all references to the Nationwide Lease and provisions relating thereto are deemed deleted and of no further force or effect.
2. The Expiration Date (as defined in Section 2 of the Lease) shall be extended to August 31, 2012. The Original Term (as defined in Section 2 of the Lease) shall be amended to end on August 31, 2012.
3. Section 4(a) of the Lease shall be modified as follows:
(a) The reference to "1709 Page Boulevard, Springfield, Massachusetts 01104" for delivery of overnight courier packages is deleted and "do ESCO Realty, Inc., 330 Whitney Avenue, Suite 450, Holyoke, Massachusetts 01040" is inserted in lieu thereof
(b) The rent schedule set forth in Section 4(a) of the Lease shall be
modified as follows
Fixed Rent Monthly Installments
Lease Period Per Annum of Fixed Rent
------------ ---------- --------------------
1/1/97-8/31/97 $ 975,345.24 $ 81,278.77
9/1/97-8/31/98 1,838,730.32 153,227.53
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Fixed Rent Monthly Installments
Lease Period Per Annum of Fixed Rent
------------ ---------- --------------------
9/1/98-8/31/99 $1,871,026.52 $155,918.88
9/1/99-8/31/00 1,903,322.72 158,610.23
9/1/00-8/31/01 1,935,618.92 161,301.58
9/1/01-8/31/02 1,967,915.12 163,992.93
9/1/02-8/31/03 2,000,211.32 166,684.28
9/1/03-8/31/04 2,032,507.52 169,375.63
9/1/04-8/31/05 2,064,803.72 172,066.98
9/1/05-8/31/06 2,097,099.92 174,758.33
9/1/06-8/31/07 2,129,396.12 177,449.68
9/1/07-8/31/08 2,161,692.32 180,141.03
9/1/08-8/31/09 2,193,988.52 182,832.38
9/1/09-8/31/10 2,226,284.72 185,523.73
9/1/10-8/31/11 2,258,580.92 188,215.08
9/1111-8/31/12 2,290,877.12 190,906.43.
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4. At the end of Section 20 add: "In addition, Tenant shall, upon request of Landlord but not more than 2 times per 12-month period (or if more are requested, then Landlord shall pay Tenant its reasonable costs to process such requests (which costs may include the costs attributable to in-house counsel), execute and deliver to Landlord, Landlord's title insurance company's standard owner's affidavit with respect to parties in possession and the absence of facts which could give rise to mechanics liens, but subject to the reasonable modifications of Tenant; provided such modifications do not result in such title company reasonably refusing to delete the tenant (but subject to Tenant's possession of the Property, or any assignee or subtenant's possession of the Property as may be permitted under the Lease)) and mechanics liens exceptions in such policy of title insurance, or increasing the premium therefor (unless Tenant agrees to pay for any increase in the premium attributable to Tenant's modifications), If Tenant has caused work to be performed or materials to be supplied to the Premises within the applicable mechanics lien period (currently 90-days) preceding Landlord's request and Tenant is unable to certify as to the absence of such work or materials within such period, then at Landlord's request Tenant shall enter into an indemnity or other agreement with such title company which is reasonably acceptable to such title company so as to allow such title insurance company to insure over and thus delete from the policy any exception for mechanic's liens, with such indemnity or other agreement being reasonably
acceptable to Tenant in form and substance."
5. Delete Section 21 of the Lease and substitute: "Provided Tenant is not in default of this Lease beyond any applicable grace period as of the date of exercise or the date of commencement of the Extended Term, Tenant may extend the Original Term for a further term of 10 years at a Fixed Rent equal to the market rental rate for the Premises and otherwise upon the same terms and conditions contained herein, by giving notice to Landlord of its intention to extend at least 12 months prior to the Expiration Date. Determination of the market rental rate shall include, without limitation, consideration of: the reputation and creditworthiness of Tenant; the location, size and as-is condition of the Premises and the lack of added inducements; the amount of the brokerage commission payable on the extension; and the manner for paying taxes, operating costs, electricity and repair and maintenance obligations remaining the same; for these purposes also, the market shall be other comparable first class office buildings in the area in which the Building is located (the. "Market Rental Rate"). Pursuant to this option and not later than 15 months prior to the Expiration Date, Tenant shall request Landlord's designation of the Market Rental Rate for the Extended Term (such designation, when received, hereinafter referred to as the "Rate Notice") and Tenant may extend the Term based on the Market Rental Rate set forth in the Rate Notice. Landlord shall designate the Market Rental Rate within 30 days of Tenant's request therefore and the parties shall, not later than 30 days after Tenant's receipt of the Market Rental Rate, negotiate the Market Rental Rate. if the parties agree on the Market Rental Rate within such 30-day period, the parties shall promptly thereafter execute an agreement modifying the Fixed Rent, the Expiration Date and all other necessary terms. If the parties are unable to agree on the Market Rental Rate within such 30-day period, then this Lease shall terminate on the original Expiration Date as if the Rate Notice was never given, Tenant shall have no further option to extend the Term and the Term shall terminate as provided in this Lease; provided, however, if Tenant disapproves the Market Rental Rate, Tenant can avoid termination of this option by giving Landlord notice (Appraisal Notice) not later than 15 days after the expiration of the 30-thy period that Tenant elects to determine the Market Rental Rate by appraisal. The appraisal shall be made as follows:
(a) The Appraisal Notice must contain the name of the appraiser appointed by Tenant to determine the Market Rental Rate. Within 15 days after Landlord
receipt of the Appraisal Notice, Landlord shall give Tenant notice of the name of the appraiser appointed by Landlord to determine the Market Rental Rate. The two appraisers so appointed shall promptly appoint a third appraiser; if they fail to appoint such third appraiser within 15 days after they receive notice of their joint appointment, then either Landlord or Tenant, upon notice to the other, may request the assignment of a third appraiser by the then President of the local chapter of the American Institute of Real Estate Appraisers. All appraisers shall have at least 10 years experience and be familiar with commercial office rentals in buildings comparable to the Building which are located in the area in which the Building is located.
(b) The 3 appraisers shall jointly establish the Market Rental Rate within 30 days after the appointment of the third appraiser and if they cannot agree, the average of the 2 closest estimates will be accepted by the parties as the Market Rental Rate, unless the avenge of all 3 estimates equals one of the 3 estimates, in which case such average estimate shall be accepted by the parties as the Market Rental Rate.
(c) if Landlord fails to appoint an appraiser within the period permitted above, then the appraiser appointed by Tenant shall have the power to proceed as sole appraiser to establish the Market Rental Rate.
(d) Landlord and Tenant shall each pay the fees of the appraiser appointed by it and one-half of the fees of the third appraiser and the general expenses of the appraisal except that Tenant may elect to reject the Market Rental Rate, and if Tenant does so reject, then Tenant shall pay the fees of all three appraisers and the general expenses of the appraisal.
(e) After determination of the Market Rental Rate, the parties shall execute an agreement, in form reasonably satisfactory to both, modifying the Expiration Date, the Fixed Rent, the Monthly Installments of Fixed Rent and all other relevant mailers."
6. Section 27 of the Lease is hereby amended by deleting the reference therein to "1709 Page Boulevard, Springfield, Massachusetts 01104" and inserting in lieu thereof the following: "do ESCO Realty, Inc., 330 Whitney Avenue, Suite 450, Holyoke, Massachusetts 01040".
7. In Exhibit D of the Lease:
(a) Delete the last sentence of Section 1(b); and
(b) At the end of Section 3 add: "Tenant acknowledges receipt from Landlord of the sum of One Million Five Hundred One Thousand Four Hundred Sixty-Three Dollars and eight cents ($1,501,463.08)(the Initial Sum). Provided that Tenant shall not be in material default hereunder beyond any applicable grace period, in consideration for Tenant's entering into this Amendment, Landlord shall pay to Tenant, on or before September 1, 1997 (or if Tenant shall be in material default hereunder on September 1, 1997, then on the fifth business day after Landlord after Tenant has cured such default and Landlord has received notice from Tenant that such default has been cured), such date of payment being hereinafter referred to as the "Payment Date", an additional sum of Seven Million Five Hundred Fifty-Six Thousand Five Hundred Twenty-One Dollars and no cents ($7,556,521.00)(the Additional Sum)."
8. Add new Section 4 to Exhibit D of the Lease: "Tenant desires to construct a parking garage at the rear of the Property containing at least one hundred fifty (150) additional parking spaces and consisting of at least a one-story above ground parking deck (Parking Garage). Tenant shall construct the Parking Garage substantially in accordance with the terms of this Work Letter as modified herein and except that Sections 1 and the portion of 3 attributable to the Initial Allowance shall not be applicable, and the Architect shall be an reputable architect, licensed in the State chosen by Tenant and approved by Landlord, If Tenant shall determine that it cannot or chooses not to construct the Parking Garage, then Tenant shall pay Landlord the sum of $560,000.00 (the Tenant Payment) on September 1, 1998. If Tenant has elected to construct the Parking Garage and the construction of the Parking Garage has not been substantially completed by January 1, 1999 (as such date shall be delayed one thy for each thy of delay due to Landlord or events of Force Majeure; provided that such events of Force Majeure shall not be deemed limited to 90 days and events of Force Majeure shall be deemed to include delays in obtaining all appropriate permits, approvals and licenses from the appropriate governmental authorities for the Parking Garage), then Tenant shall deliver the Tenant Payment to Landlord on January 1, 1999 (as such date may be extended in accordance with this Section), increased by interest accrued on such sum at 9 percent per annum for the period from September 1, 1998 through the date that such payment is received by Landlord; provided, however, if Tenant has commenced such construction by such date and is diligently pursuing the same to completion
on such date, then Landlord shall extend such date for reasonable additional time to enable Tenant to substantially complete such construction."
9. This Amendment is conditioned upon Tenant's receipt of the Additional Sum on or before the Payment Date. If Landlord fails to deliver the Additional Sum to Tenant by such date then this Amendment shall be null and void and of no force or effect whatsoever.
10. Delete Exhibit K attached to the Lease and substitute Exhibit K attached hereto.
11. This Amendment shall be binding upon the parties, and their respective heirs, successor and assigns, as the case may be.
12. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original.
13. This Amendment contains the entire understanding of the parties with respect to the matters contained herein. There are no representations, warranties, promises, covenants or undertakings other than those expressly set forth herein. This Amendment may not altered or modified except by a writing executed by the parties hereto.
14. This Amendment shall be governed in all respects by and construed in accordance with laws of the State of Connecticut.
15. Except as modified herein, the Lease is ratified and confirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment.
(Landlord) (Tenant)
EIGHT FARM SPRINGS ROAD HARTFORD FIRE INSURANCE COMPANY
ASSOCIATES, L.L.C.
By /s/ Anthony Izzo By /s/ Peter L. Holland
--------------------------------- -----------------------------
Anthony Izzo Peter L. Holland
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Its Member Its Assistant Vice President
By /s/ Edward Savides
---------------------------------
Edward Savides
Its Member
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[Consent of Mortgagee appears on the next page]
Agreed:
AETNA LIFE INSURANCE COMPANY
AGREEMENT OF LEASE
Between
LIGHTHOUSE 444 LIMITED PARTNERSHIP,
Owner
and
GTJ CO., INC.,
Tenant
Premises
Portion Third (3rd) Floor
444 Merrick Road
Lynbrook, New York
Dated as of: April ___, 2005
TABLE OF CONTENTS
ARTICLE 1 Demised Premises, Term, Rents
ARTICLE 2 Use and Occupancy
ARTICLE 3 Alterations
ARTICLE 4 Ownership of Improvements
ARTICLE 5 Repairs
ARTICLE 6 Compliance With Laws
ARTICLE 7 Subordination, Attornment, Etc.
ARTICLE 8 Property Loss, Etc.
ARTICLE 9 Destruction-Fire or Other Casualty
ARTICLE 10 Eminent Domain
ARTICLE 11 Assignment and Subletting
ARTICLE 12 As Is/ Owner's Initial Work
ARTICLE 13 Access to Demised Premises
ARTICLE 14 Vault Space
ARTICLE 15 Certificate of Occupancy
ARTICLE 16 Default
ARTICLE 17 Remedies
ARTICLE 18 Damages
ARTICLE 19 Fees and Expenses; Indemnity
ARTICLE 20 Entire Agreement
ARTICLE 21 End of Term
ARTICLE 22 Quiet Enjoyment
ARTICLE 23 Escalation
ARTICLE 24 No Waiver
ARTICLE 25 Mutual Waiver of Trial by Jury
ARTICLE 26 Inability to Perform
ARTICLE 27 Notices
ARTICLE 28 Partnership Tenant
ARTICLE 29 Utilities and Services
ARTICLE 30 Table of Contents, Etc.
ARTICLE 31 Miscellaneous Definitions, Severability and Interpretation
Provisions
ARTICLE 32 Adjacent Excavation
ARTICLE 33 Building Rules
ARTICLE 34 Broker
ARTICLE 35 Intentionally Omitted
ARTICLE 36 Arbitration, Etc.
ARTICLE 37 Parties Bound
ARTICLE 38 Substitute Space
ARTICLE 39 Tenant's Termination Option
ARTICLE 40 Tenant's Right of First Offer For Additional Space
ARTICLE 41 Renewal Options
EXHIBIT A Floor Plan of Demised Premises
EXHIBIT B Owner's Initial Work
SCHEDULE A Building Rules
SCHEDULE B Owner's Cleaning Services
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LEASE dated as of the ___ day of April, 2005, between LIGHTHOUSE 444 LIMITED PARTNERSHIP, a Delaware limited partnership having its principal office at c/o Lighthouse Real Estate Management, LLC, 444 Merrick Road, Lynbrook, New York, 11563, as landlord (referred to as "Owner"), and GTJ CO., INC., a ______________ corporation, having its principal office at ____________________________, as tenant (referred to as "Tenant").
W I T N E S S E T H:
Owner and Tenant hereby covenant and agree as follows:
ARTICLE 1
DEMISED PREMISES, TERM, RENTS
Section 1.01. Demised Premises: Owner hereby leases to Tenant and Tenant hereby hires from Owner a portion of the third (3rd) floor known as Suite 370 and a portion of the basement, each as more particularly shown by outlining and diagonal markings on the floor plans annexed hereto and made a part hereof as Exhibits "A-1" and "A-2" respectively, in the building known as 444 Merrick Road in the Village of Lynbrook, Town of Hempstead, County of Nassau and State of New York (said building is referred to as the "Building", and the Building together with the land upon which it stands is referred to as the "Real Property"), at the annual rental rate or rates set forth in Section 1.03, and upon and subject to all of the terms, covenants and conditions contained in this Lease. The premises leased to Tenant, together with all appurtenances, fixtures, improvements, additions and other property attached thereto or installed therein at the commencement of, or at any time during, the term of this Lease, other than Tenant's Personal Property (as defined in Article 4), are referred to, collectively, as the "Demised Premises".
Section 1.02. Demised Term: A.The Demised Premises are leased for a term (referred to as the "Demised Term") to commence on a date fixed by Owner in a notice to Tenant not sooner than five (5) days next following the giving of such notice, which notice shall state that Owner has, or prior to the commencement date fixed in such notice, will have, substantially completed Owner's Initial Work (as defined in Article 12), and to end on the last day of the calendar month in which the day immediately preceding the fifth (5th) anniversary of the Rent Commencement Date (as hereinafter defined) shall occur, unless the Demised Term shall sooner terminate pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. For purposes hereof, Owner's Initial Work shall be deemed substantially completed notwithstanding the fact that details of construction, or decoration, if any, remain to be performed, which such omissions do not materially interfere with Tenant's performance of Tenant's work to prepare the Demised Premises for Tenant's initial occupancy, or Tenant's occupancy of the Demised Premises for the conduct of its business.
B. Notwithstanding anything in Subsection A of this Section 1.02 to the contrary, if, on or prior to the date set forth in said Subsection A for the commencement of the Demised Term, Owner shall have failed substantially to complete Owner's Initial Work, then: (a) the Demised Term shall not commence on the date set forth in said Subsection A but shall, instead, commence on a date, fixed by Owner in a notice to Tenant, not sooner than five (5) days next following the date of the giving of such notice, which notice shall state that Owner has, or prior to the commencement date fixed in said notice will have, substantially completed Owner's Initial Work; and (b) the Demised Term shall end on the last day of the calendar month in which the day immediately preceding the fifth (5th) anniversary date of the Rent Commencement Date shall occur, unless sooner terminated pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law; and (c) except as aforesaid, neither the validity of this Lease nor the obligations of Tenant under this Lease shall be affected thereby. The date upon which the Demised Term shall commence pursuant to Subsection A of this Section or pursuant to this Subsection B is referred to as the "Commencement Date", and the date fixed pursuant to said Subsection A or this Subsection B as the date upon which the Demised Term shall end is referred to as the "Expiration Date".
C. Tenant waives any right to rescind this Lease under Section 223-a of the New York Real Property Law or any successor statute of similar import then in force and further waives the right to recover any damages which may result from
Owner's failure to deliver possession of the Demised Premises on the date set forth in Subsection A of this Section, or in any notice given pursuant to Subsection B of this Section, for the commencement of the Demised Term.
D. After the determination of the Commencement Date, Owner and Tenant each agree, upon demand of the other party, to execute, acknowledge and deliver to the requesting party, an instrument, in form reasonably satisfactory to Owner and Tenant, setting forth said Commencement Date and the Expiration Date.
Section 1.03. The Lease is made at the following annual rental rates (referred to as "Fixed Rent":
1. ONE HUNDRED TWENTY-THREE THOUSAND SEVEN HUNDRED TWENTY-FIVE AND
50/100 ($123,725.50) DOLLARS with respect to the period (referred to as the
"First Rent Period") from the Commencement Date to and including first
(1st) anniversary of the Commencement Date;
2. ONE HUNDRED TWENTY-SEVEN THOUSAND FOUR HUNDRED THIRTY-SEVEN AND 27/100 ($127,437.27) DOLLARS with respect to the next year of the Demised Term (referred to as the "Second Rent Period");
3. ONE HUNDRED THIRTY-ONE THOUSAND TWO HUNDRED SIXTY AND 38/100 ($131,260.38) DOLLARS with respect to the next year of the Demised Term (referred to as the "Third Rent Period");
4. ONE HUNDRED THIRTY-FIVE THOUSAND ONE HUNDRED NINETY-EIGHT AND 19/100 ($135,198.19) DOLLARS with respect to the next year of the Demised Term (referred to as the "Fourth Rent Period"); and
5. ONE HUNDRED THIRTY-NINE THOUSAND TWO HUNDRED FIFTY-FOUR AND 14/100 ($139,254.14) DOLLARS with respect to the remainder of the Demised Term (referred to as the "Fifth Rent Period").
The parties acknowledge that the Fixed Rent set forth in this Section 1.03(A) represents the Fixed Rent due and payable with respect to the entire Demised Premises.
B. The Fixed Rent, any increases in the Fixed Rent and any additional rent payable pursuant to the provisions of this Lease shall be payable by Tenant to Owner at its office (or at such other place as Owner may designate in a notice to Tenant) in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment or by Tenant's good check drawn on a bank or trust company with a branch located in Nassau County and which is a member of the New York Clearinghouse Association, without prior demand therefor and without any offset or deduction whatsoever except as otherwise specifically provided in this Lease. The Fixed Rent shall be payable in equal monthly installments in advance, on the first (1st) day of each month during the Demised Term (except as otherwise provided in C of this Section), as follows:
1. TEN THOUSAND THREE HUNDRED TEN AND 46/100 ($10,310.46) DOLLARS with respect to the First Rent Period;
2. TEN THOUSAND SIX HUNDRED NINETEEN AND 77/100 ($10,619.77) DOLLARS
with respect to the Second Rent Period;
3. TEN THOUSAND NINE HUNDRED THIRTY-EIGHT AND 37/100 ($10,938.37)
DOLLARS with respect to the Third Rent Period;
4. ELEVEN THOUSAND TWO HUNDRED SIXTY-SIX AND 52/100 ($11,266.52)
DOLLARS with respect to the Fourth Rent Period; and
5. ELEVEN THOUSAND SIX HUNDRED FOUR AND 51/100 ($11,604.51) DOLLARS
with respect to the Fifth Rent Period.
C. The sum of TEN THOUSAND THREE HUNDRED TEN and 46/100 ($10,310.46)
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DOLLARS, representing the installment of Fixed Rent for the first (1st) full calendar month of the Demised Term after the expiration of the Rent Holiday Period (as hereinafter defined), is due and payable at the time of the execution and delivery of this Lease. In the event that the Rent Commencement Date (as hereinafter defined) shall occur on a date other than the first (1st) day of any calendar month, Tenant shall pay to Owner, on the first (1st) day of the month next succeeding the month during which the Rent Commencement Date shall occur, a sum equal to THREE HUNDRED FORTY-THREE and 68/100 ($343.68) DOLLARS, multiplied by the number of calendar days in the period from the Rent Commencement Date to the last day of the month in which the Rent Commencement Date shall occur, both inclusive. Such payment, together with the sum paid by Tenant upon the execution of this Lease, shall constitute payment of the Fixed Rent for the period from the Rent Commencement Date to and including the last day of the next succeeding calendar month.
D. If Tenant shall use or occupy all or any part of the Demised Premises for the conduct of business prior to the Commencement Date, such use or occupancy shall be deemed to be under all of the terms, covenants and conditions of this Lease, including, without limitation, the covenant to pay Fixed Rent for the period from the commencement of said use or occupancy to and including the date immediately preceding the Commencement Date, without, however, affecting the Expiration Date. The provisions of the foregoing sentence shall not be deemed to give to Tenant any right to use or occupy all or any part of the Demised Premises prior to the Commencement Date without the consent of Owner.
E. To reflect the fact that the portion of the Demised Premises located in the basement of the Building (the "Storage Space") shall be used for storage purposes and not for executive and general offices of Tenant, the parties agree that:
(i) The Fixed Rent allocable to the Storage Space is as follows:
1. THIRTY-FOUR THOUSAND FIVE HUNDRED AND 00/100 ($34,500.00) DOLLARS per annum with respect to the First Rent Period;
2. THIRTY-FIVE THOUSAND FIVE HUNDRED THIRTY-FIVE AND 00/100 ($35,535.00) DOLLARS per annum with respect to the Second Rent Period;
3. THIRTY-SIX THOUSAND SIX HUNDRED ONE AND 05/100 ($36,601.05) DOLLARS per annum with respect to the Third Rent Period;
4. THIRTY-SEVEN THOUSAND SIX HUNDRED NINETY-NINE AND 08/100 ($37,699.08) DOLLARS per annum with respect to the Fourth Rent Period; and
5. THIRTY-EIGHT THOUSAND EIGHT HUNDRED THIRTY AND 05/100 ($38,830.05) DOLLARS per annum with respect to the Fifth Rent Period.
The remainder of the Fixed Rent is allocable to the remainder of the Demised Premises.
(ii) Notwithstanding anything to the contrary contained in Section 2.01, Tenant shall only use the Storage Space portion of the Demised Premises for storage purposes in connection with the use by Tenant of the remainder of the Demised Premises.
(iii) Notwithstanding anything to the contrary contained in Articles 9, 10 and 11 of the Lease, any abatements and apportionments and reductions of the Fixed Rent referred to in said Articles shall take into consideration the allocation of Fixed Rent between the remainder of the Demised Premises and the Storage Space, and Tenant shall not have any right to sublet the Storage Space except in its entirety to a subtenant of all or a portion of the remainder of the Demised Premises.
(iv) Notwithstanding anything to the contrary contained in Article 15 of the Lease, the Certificate of Occupancy covering the Storage Space shall permit the Storage Space to be used only for storage.
(v) Notwithstanding anything to the contrary contained in Article 29
of the Lease, Owner shall not in any event be required to furnish any
services to the Storage Space except (1) elevator facilities pursuant to
the provisions of Section 29.01; and (2) (so long as Owner shall continue
to furnish or redistribute electrical energy pursuant to the provisions of
Section 29.04) electrical services for lighting purposes only, and no
representations set forth in Section 29.04 with respect to the amount of
electrical service available to the Demised Premises shall apply to the
Storage Space.
Section 1.04. Tenant's General Covenant: Tenant covenants (i) to pay the Fixed Rent, any increases in the Fixed Rent, and any additional rent payable pursuant to the provisions of this Lease, and (ii) to observe and perform, and to permit no violation of, the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed.
Section 1.05. Rent Holiday: Provided Tenant is not then in default in the observance and performance of any of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, Tenant shall be entitled to a conditional rent holiday and shall not be required to pay any portion of the Fixed Rent with respect to the period (the "Rent Holiday Period") from the Commencement Date to and including the day immediately preceding the day forty-five (45) days next following the Commencement Date but during such period Tenant shall otherwise be required to comply with all of the other terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, including, but not limited to, the obligation to make all payments pursuant to the provisions of Article 23 and Article 29. If at any time during the Demised Term, Tenant shall be in default in the observance and performance of any of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, then the total sum of the Fixed Rent and increases therein so conditionally excused by operation of the foregoing provisions of this Section shall become immediately due and payable by Tenant to Owner. If, as of the Expiration Date, Tenant shall not then be in default in the observance and performance of any of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, Owner shall waive payment of all such Fixed Rent and increases therein so conditionally excused. The day next following the expiration of the Rent Holiday Period shall be referred to herein as the "Rent Commencement Date".
Section 1.06. A. Tenant's Option to Cancel Due to Owner's Failure to Deliver Demised Premises: Notwithstanding anything in this Lease to the
contrary, in the event that the Commencement Date of this Lease shall not have occurred on or prior to the date (said date, as same may be extended pursuant to the following provisions of this Section 1.06, referred to as the "Final Delivery Deadline") which is seven (7) months following the date on which Tenant shall approve (in writing) Owner's Work Plans (as defined in Exhibit B of this Lease), then Tenant shall have a single option ("Tenant's Single Cancellation Option") to cancel this Lease and the Demised Term by giving notice ("Tenant's Cancellation Notice") to Owner of such cancellation on or prior to the date which is ten (10) days immediately following the Final Delivery Deadline. Time is of the essence with respect to the exercise by Tenant of such Tenant's Single Cancellation Option. Notwithstanding anything to the contrary contained in the foregoing provisions of this Section, in the event that in the event that (x) Owner shall substantially complete Owner's Initial Work prior to Tenant's delivery of Tenant's Cancellation Notice or (y) Tenant shall use or occupy all or any part of the Demised Premises for any purpose (including, without limitation, the performance of any initial Alterations therein) prior to the Commencement Date, then Tenant's Single Cancellation Option shall be of no further force or effect and any Tenant's Cancellation Notice delivered after the Commencement Date shall be of no force and effect.
B. Exercise of Tenant's Cancellation Option: Upon the giving of such Tenant's Cancellation Notice described in subsection A above, this Lease and the Demised Term shall expire and come to an end as of the date of the giving of such Tenant's Cancellation Notice, and any prepaid rent and security deposited by Tenant hereunder shall be promptly returned to Tenant, and Owner and Tenant shall be released and discharged of and from any and all liability under the provisions of this Lease. If Tenant shall fail to give timely Tenant's Cancellation Notice exercising Tenant's Single Cancellation Option, then the Demised Term shall commence and end in accordance with the provisions of Section 1.02 and Tenant's Single Cancellation Option shall be of no further force or effect.
C. Owner's Right To Extend Date of Delivery of Demised Premises: Owner shall have the right to extend the Final Delivery Deadline set forth above in this Section by a period equal to the aggregate of: (i) the number of days, if any, of delay or delays in the commencement or substantial completion of Owner's Initial Work occasioned by reason of Tenant's delays in submitting any plans and specifications or in supplying information, or in approving plans, specifications or estimates, or in giving authorizations or by reason of any similar acts or omissions of Tenant; plus (ii) the number of days, if any, of delay or delays in the commencement or substantial completion of Owner's Initial Work occasioned by reason of strikes or other labor disputes, fire or other casualty (or reasonable delays in adjustment of insurance), accidents, Legal Requirements, or by any other cause beyond Owner's reasonable control, whether or not such other cause shall be similar in nature to those hereinbefore enumerated. Owner shall give Tenant prompt notice of any events or delays which shall trigger Owner's right to extend the Final Delivery Deadline; however, failure to give such notice shall not prohibit the extension of said date by Owner for the reasons set forth above.
ARTICLE 2
USE AND OCCUPANCY
Section 2.01. General Covenant of Use: Tenant shall use and occupy the Demised Premises for the following purpose: General and executive offices and, with respect to the Storage Space, for storage purposes in connection with Tenant's use of the remainder of the Demised Premises, for no other purpose.
Section 2.02. No Adverse Use: Tenant shall not use or occupy, or permit the use or occupancy of, the Demised Premises or any part thereof, for any purpose other than the purpose specifically set forth in Section 2.01, or in any manner which, in Owner's judgment, (a) shall adversely affect or interfere with (i) any services required to be furnished by Owner to Tenant or to any other tenant or occupant of the Building, or (ii) the proper and economical rendition of any such service, or (iii) the use or enjoyment of any part of the Building by any other tenant or occupant, or (b) shall tend to impair the character or dignity of the Building.
Section 2.03. Prohibited Uses: Without in any way limiting the generality of Section 2.02, Tenant shall not use or occupy or permit the use or occupancy of, the Demised Premises or any part thereof as (i) a restaurant, bar, cocktail lounge or coffee shop, or (ii) a commercial bank, savings bank or savings and loan association.
ARTICLE 3
ALTERATIONS
Section 3.01. General Alteration Covenants: Tenant shall not make or
perform, or permit the making or performance of, any alterations, installations,
decorations, improvements, additions or other physical changes in or about the
Demised Premises (referred to collectively, as "Alterations" and individually as
an "Alteration") without Owner's prior consent in each instance. Owner agrees
not unreasonably to withhold its consent to any non-structural Alterations
proposed to be made by Tenant to adapt the Demised Premises for Tenant's
business purposes; however, Owner may arbitrarily withhold such consent if, in
Owner's reasonable judgment, the estimated aggregate cost of any such
Alterations constituting a single project exceeds the sum of Fifty Thousand
($50,000) Dollars. Owner agrees that Tenant may, without Owner's prior consent,
make Alterations which are merely decorative or cosmetic changes or other
non-structural Alterations in the Demised Premises, provided that the estimated
cost of same constituting a single project shall not exceed the sum of
Twenty-Five Thousand and 00/100 ($25,000.00) Dollars and the same shall not
affect the electrical, plumbing, heating, ventilation, air-conditioning or any
other Building system or any portion of the Building outside of the Demised
Premises (any such merely decorative or cosmetic Alteration meeting the
aforesaid criteria is referred to as a "Decoration" and any such other
non-structural Alteration meeting the aforesaid criteria is referred to as a
"Qualified Non-Structural Alteration"). Although Owner's consent shall not be
required with respect to whether Tenant may perform any Qualified Non-Structural
Alteration, at least ten (10) days prior to the commencement of such work,
Tenant shall submit to Owner detailed plans and specifications as required under
Section I below to enable Owner to determine the nature and extent of such work
and to allow Owner to review the manner in which any such proposed Qualified
Non-Structural Alterations are to be performed. Notwithstanding the foregoing
provisions of this Section or Owner's consent to any Alterations, all
Alterations shall be made and performed in conformity with and subject to the
following provisions:
A. All Alterations shall be made and performed at Tenant's sole cost and expense and at such time and in such manner as Owner may, from time to time, designate;
B. No Alteration shall adversely affect the structural integrity of the Building;
C. Alterations shall be made only by contractors or mechanics approved by Owner, such approval not unreasonably to be withheld (notwithstanding the foregoing, all Alterations requiring mechanics in trades with respect to which Owner has adopted or may hereafter adopt a list or lists of approved contractors shall be made only by contractors selected by Tenant from such list or lists and Owner shall have sole discretion with respect to the contractor performing connections to the Building Class E Fire Alarm and Communication System);
D. No Alteration shall affect any part of the Building other than the Demised Premises or adversely affect any service required to be furnished by Owner to Tenant or to any other tenant or occupant of the Building (including, without limitation, the Building-wide standard systems required to provide elevator, heat, ventilation, air-conditioning and electrical and plumbing services in the Building);
E. No Alteration shall reduce the value or utility of the Building or any portion thereof;
F. No Alteration shall affect the Certificate of Occupancy for the Building or the Demised Premises;
G. No Alteration shall affect the outside appearance of the Building or the color or style of any venetian blinds (except that Tenant may remove any venetian blinds provided that they are promptly replaced by Tenant with blinds of a similar type, material and color);
H. All business machines and mechanical equipment shall be placed and maintained by Tenant in settings sufficient, in Owner's judgment, to absorb and prevent vibration, noise and annoyance to other tenants or occupants of the Building;
I. Tenant shall submit to Owner detailed plans and specifications stamped
by Tenant's architect (including layout, architectural, mechanical and
structural drawings) for each proposed Alteration, subject to the terms and
conditions of Subsection X of this Section 3.01 and shall not commence any such
Alteration without first obtaining Owner's approval of such plans and
specifications, which approval shall not be unreasonably withheld with respect
to Alterations to which Owner's consent is not required or to which Owner has
agreed hereunder to not unreasonably withhold consent. If detailed plans and
specifications (i) would not, in accordance with good construction practice
typically be prepared for such proposed Qualified Non-Structural Alteration,
(ii) are not prepared by or on behalf of Tenant and (iii) are not required to be
filed with any Governmental Authority in connection with obtaining permits
required to perform the same, then in lieu of submitting detailed plans and
specifications, and notwithstanding the terms and conditions of this Subsection
I, Tenant shall submit detailed information (along with any existing more
general plans or drawings) to enable Owner to determine the nature and extent of
the work proposed to be performed. Following the completion of each Alteration,
Tenant shall submit to Owner a computerized "as built" drawing file for the
Demised Premises (or if the Demised Premises comprise more than one (1) floor,
for each floor of the Demised Premises being altered); such file will be in
Auto-Cad format and contain, on a separate layer, all ceiling-height partitions
and doors within the Demised Premises (or if the Demised Premises comprise more
than one (1) floor, within each floor of the Demised Premises being altered);
J. Prior to the commencement of each proposed Alteration, Tenant shall have procured and paid for and exhibited to Owner, so far as the same may be required from time to time, all permits, approvals and authorizations of all Governmental Authorities (as defined in Section 6.01.) having or claiming jurisdiction;
K. Prior to the commencement of each proposed Alteration, Tenant shall furnish to Owner duplicate original policies of workmen's compensation insurance covering all persons to be employed in connection with such Alteration, including those to be employed by all contractors and subcontractors, and of comprehensive public liability insurance (including property damage coverage) in which Owner, its agents, the holder of any Mortgage (as defined in Section 7.01.) and any lessor under any Superior Lease (as defined in Section 7.01.) shall be named as parties insured, which policies shall be issued by companies, and shall be in form and amounts, satisfactory to Owner and shall be maintained by Tenant until the completion of such Alteration;
L. In the event Owner or its agents employ any independent architect or engineer to examine any plans or specifications submitted by Tenant to Owner in connection with any proposed Alteration, Tenant agrees to pay to Owner a sum equal to any reasonable fees incurred by Owner in connection therewith.
M. All fireproof wood test reports, electrical and air conditioning certificates, and all other permits, approvals and certificates required by all Governmental Authorities shall be timely obtained by Tenant and submitted to Owner;
N. All Alterations, once commenced, shall be made promptly and in a good and workmanlike manner;
O. Notwithstanding Owner's approval of plans and specifications for any Alteration, all Alterations shall be made and performed in full compliance with all Legal Requirements (as defined in Section 6.01.) and with all applicable rules, orders, regulations and requirements of the New York Board of Fire Underwriters and the New York Fire Insurance Rating Organization or any similar body;
P. All Alterations shall be made and performed in such manner as Owner may from time to time reasonably designate pursuant to the conditions for Alterations prescribed by Owner for the Demised Premises;
Q. All materials and equipment to be installed, incorporated or located in the Demised Premises as a result of all Alterations shall be new and first quality;
R. No materials or equipment shall be subject to any lien, encumbrance, chattel mortgage or title retention or security agreement of any kind;
S. Tenant, before commencement of any Alteration(s) which constituting a single project shall exceed Twenty-Five Thousand and 00/100 ($25,000.00) Dollars, shall furnish to Owner a performance bond or other security satisfactory to Owner, in an amount at least equal to the estimated cost of such Alteration, guaranteeing the performance and payment thereof;
T. No Alteration shall be commenced unless any preceding Alteration shall have been fully paid for and proof of such payment furnished to Owner;
U. Intentionally Deleted;
V. Following the completion of each Alteration, Tenant, at Tenant's expense, shall obtain certificates of final approval of such Alteration required by any Governmental Authority and shall furnish Owner with copies thereof;
W. Tenant agrees that Tenant will not install, affix, add or paint in or on, nor permit, any work of visual art (as defined in the Federal Visual Artists' Rights Act of 1990 or any successor law of similar import) or other Alteration to be installed in or on, or affixed, added to, or painted on, the interior or exterior of the Demised Premises, or any part thereof, including, but not limited to, the walls, floors, ceilings, doors, windows, fixtures and on land included as part of the Demised Premises, which work of visual art or other Alteration would, under the provisions of the Federal Visual Artists' Rights Act of 1990, or any successor law of similar import, require the consent of the author or artist of such work or Alteration before the same could be removed, modified, destroyed or demolished; and
X. No Owner consent (as set forth above) and no submission or review of plans referred to in Subsection I above shall be required for performance by Tenant of any Decoration, provided that such work is performed in compliance with the requirements of this Article (except for Subsection I above). Tenant shall, however, within a reasonable period of time prior to the commencement of the performance of the Decoration, provide Owner with reasonably detailed information setting forth the nature of the Decoration to be done, the anticipated scheduling of the same, the parties performing such work and any other information with respect to the performance of such Decoration which may be reasonably requested by Owner.
Section 3.02. No Consent to Contractor/No Mechanics Lien: Nothing in this Lease shall be deemed or construed in any way as constituting the consent or request of Owner, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen, for the performance of any labor or the furnishing of any material for any specific Alteration to, or repair of, the Demised Premises, the Building, or any part of either. Any mechanic's or other lien filed against the Demised Premises or the Building or the Real Property for work claimed to have been done for, or materials claimed to have been furnished to, Tenant or any person claiming through or under Tenant
or based upon any act or omission or alleged act or omission of Tenant or any such person shall be discharged by Tenant, at Tenant's sole cost and expense, within thirty (30) days after the filing of such lien.
Section 3.03. Labor Harmony: Tenant shall not, at any time prior to or during the Demised Term, directly or indirectly employ, or permit the employment of, any contractor, mechanic or laborer in the Demised Premises, whether in connection with any Alteration or otherwise, if such employment will interfere or cause any conflict with other contractors, mechanics, or laborers engaged in the construction, maintenance or operation of the Building by Owner, Tenant or others. In the event of any such interference or conflict, Tenant, upon demand of Owner, shall cause all contractors, mechanics or laborers causing such interference or conflict to leave the Building immediately.
Section 3.04. Compliance with Fire Safety: Without in any way limiting the generality of the provisions of Section 3.01, all Alterations shall be made and performed in full compliance with all standards and practices adopted by Owner for fire safety in the Building. No Alteration shall affect all or any part of any Class E Fire Alarm and Communication system installed in the Demised Premises, except that in connection with any such Alteration Tenant may relocate certain components of such system, provided (i) such relocation shall be performed in a manner first approved by Owner, (ii) the new location of any such component shall be first approved by Owner, (iii) prior to any such relocation Tenant shall submit to Owner detailed plans and specifications therefor which shall be first approved by Owner and (iv) Owner shall have the election of relocating such components either by itself or by its contractors, in which event all expenses incurred by Owner shall be reimbursed by Tenant upon demand of Owner, as additional rent.
Section 3.05. Asbestos or Other Hazardous Material: A. Notwithstanding anything to the contrary contained in this Lease, if any Legal Requirements require that any asbestos or other hazardous material contained in or about the Demised Premises be removed or dealt with in any particular manner, and provided that Tenant is not obligated to so remove or deal with such asbestos or other hazardous material as set forth in Subsection B of this Section 3.05, then it shall be Owner's obligation, at Owner's expense, to remove or so deal with such asbestos or other hazardous material in accordance with such Legal Requirements.
B. Notwithstanding the provisions of subsection A of this Section, in the event that (i) any work performed by Owner in order to remove or otherwise deal with any asbestos or other hazardous materials contained in or about the Demised Premises pursuant to the provisions of subsection A of this Section is disturbed or damaged by Tenant or any person claiming through or under Tenant (other than disruption or damage caused in connection with Alterations to the Demised Premises which have been approved by Owner), or (ii) any asbestos or other hazardous material is installed in the Demised Premises by or on behalf of Tenant, or any person claiming through or under Tenant, then Owner shall have no responsibility in connection therewith and no obligation to perform any work with respect thereto, but it shall be Tenant's obligation, at Tenant's expense, to remove or so deal with such asbestos or other hazardous material in accordance with all applicable Legal Requirements. Any work required to be performed by Tenant pursuant to the provisions of the foregoing sentence is referred to as the "Compliance Work". In the event Tenant is required to perform any Compliance Work then, notwithstanding anything to the contrary contained in this subsection B, Owner, at Owner's election, shall have the option to itself perform any Compliance Work and, in such event, Tenant shall pay to Owner all of Owner's costs in connection therewith within ten (10) days next following the rendition of a written statement thereof by Owner to Tenant.
Section 3.06. Dispute Resolution: Any dispute with respect to the reasonability of any failure or refusal of Owner to grant its consent or approval to any request for such consent or approval pursuant to the provisions of Section 3.01 with respect to which request Owner has agreed, in such Section not unreasonably to withhold such consent or approval, shall be determined by arbitration in accordance with the provisions of Article 36.
Section 3.07. Fire Alarm and Communication System Connection Fees: Tenant acknowledges that on or about the Commencement Date, Tenant shall be required to enter into and maintain a maintenance contract with the fire safety contractor selected by Owner to provide service to and maintain the fire safety systems installed throughout the Building (which, as of the date hereof, is Mutual Alarm), which contract shall cover the fire safety system and equipment which Tenant installs in the Demised Premises. As part of Owner's Initial Work, Owner shall purchase and connect to the Building Class E Fire Alarm and Communication system those fire alarm devices necessary to comply with all applicable Legal Requirements in effect as of the date hereof (such work to be performed by Owner is referred to as "Owner's Class E Work"). Notwithstanding anything contained in this Lease to the contrary, in the event that Tenant, pursuant to the provisions of this Lease, including, but not limited to, the provisions of this Article 3 and Article 6, at Tenant's election or as required by applicable Legal Requirements or otherwise, connects any additional equipment to any Class E Fire Alarm and Communication system installed in the Demised Premises (other than the equipment initially installed by Owner as part of Owner's Class E Work), then Tenant shall bear the full cost and expense of such installation and Owner shall not be obligated to reimburse Tenant for any costs relating thereto, which costs and expense shall include, without limitation, payment to Owner as a one (1) time connection fee the following sums set forth opposite the equipment listed below (which sums shall be subject to increases due to increases in the cost to Owner of operating and maintaining such Class E Fire Alarm and Communication system over such costs on the date of this Lease):
A. Speakers in excess of 4 per floor of the
Demised Premises (or if the Demised Premises
contain less than one (1) floor, in excess $500.00 per device
of four in the Demised Premises)
B. Strobe Lights (single unit) $100.00 per device
C. Combination Speaker/Strobe
light $250.00 per device
D. Duct Detectors (supplementary
air conditioning systems) $500.00 per point
E. Smoke Detectors (multi-purpose) $500.00 per point
F. Preaction Sprinkler System:
waterflow $500.00 per point
tamper $500.00 per point
G. Warden Phone (additional) $1,000.00 per unit
H. Fail Safe Door Release $250.00 per connection
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ARTICLE 4
OWNERSHIP OF IMPROVEMENTS
Section 4.01. General Rights of Owner and Tenant: All appurtenances, fixtures, improvements, additions and other property attached to or installed in the Demised Premises, whether by Owner or Tenant or others, and whether at Owner's expense, or Tenant's expense, or the joint expense of Owner and Tenant, shall be and remain the property of Owner, except that any such fixtures, improvements, additions and other property installed at the sole expense of Tenant with respect to which Tenant has not been granted any credit or allowance by Owner, and which are removable without material damage to the Demised Premises shall be and remain the property of Tenant and are referred to as "Tenant's Personal Property". Any replacements of any property of Owner, whether made at Tenant's expense or otherwise, shall be and remain the property of Owner.
ARTICLE 5
REPAIRS
Section 5.01. Tenant's Repair Obligations: A. Tenant shall take good care
of the Demised Premises (including, but not limited to, any Class E Fire Alarm
and Communication system) and, at Tenant's sole cost and expense, shall make all
repairs and replacements, structural and otherwise, ordinary and extraordinary,
foreseen and unforeseen as and when needed to preserve the Demised Premises
(including, but not limited to, any Class E Fire Alarm and Communication system)
in good and safe working order and in first class repair and condition, except
that Tenant shall not be required to make any structural repairs or structural
replacements to the Demised Premises unless necessitated or occasioned by the
acts, omissions or negligence of Tenant or any person claiming through or under
Tenant or any of their servants, employees, contractors, agents, visitors or
licensees, or by the use or occupancy or manner of use or occupancy of the
Demised Premises by Tenant or any such person. For the purposes of this Article,
any repairs or work involving asbestos or other hazardous materials (except to
the extent the same is the obligation of owner pursuant to Section 3.05) and the
Americans With Disabilities Act and any successor laws of like import shall be
deemed to be non-structural repairs or replacements. Without affecting Tenant's
obligations set forth in the preceding sentence, Tenant, at Tenant's sole cost
and expense, shall also (i) make all repairs and replacements, and perform all
maintenance as and when necessary, to the lamps, tubes, ballasts, and starters
in the lighting fixtures installed in the Demised Premises, (ii) make all
repairs and replacements, as and when necessary, to Tenant's Personal Property
and to any Alterations made or performed by or on behalf of Tenant or any person
claiming through or under Tenant, and (iii) if the Demised Premises shall
include any space on any ground, street, mezzanine or basement floor in the
Building, make all replacements, as and when necessary, to all windows and plate
and other glass in, on or about such space, and obtain and maintain, throughout
the Demised Term, plate glass insurance policies issued by companies, and in
form and amounts, satisfactory to Owner, in which Owner, its agents and any
lessor under any ground or underlying lease shall be named as parties insured,
and (iv) perform all maintenance and make all repairs and replacements, as and
when necessary, to any air conditioning equipment, private elevators,
escalators, conveyors or mechanical systems (other than the Building's standard
equipment and systems) which may be installed in the Demised Premises by Owner,
Tenant or others. However, the provisions of the foregoing sentence shall not be
deemed to give to Tenant any right to install air conditioning equipment,
elevators, escalators, conveyors or mechanical systems. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be made and performed in conformity with, and subject to the
provisions of Article 3 and shall be at least equal in quality and class to the
original work or installation. The necessity for, and adequacy of, repairs and
replacements pursuant to this Article 5 shall be measured by the standard which
is appropriate for first class office buildings of similar construction and
class in Nassau County, State of New York.
B. Notwithstanding anything to the contrary contained in this Lease, the Demised Premises initially leased on the Commencement Date shall contain a sprinkler system. In addition, notwithstanding the terms and conditions of Subsection A above, but subject to the terms and conditions of this Subsection B, with respect to all periods prior to the date, if any, upon which Tenant shall perform Alterations to, or Alterations which shall affect, the sprinkler system in the Demised Premises (the "Pre-Alteration Period"), Owner, at Owner's
expense, shall perform routine maintenance of, and shall repair and replace if necessary, said sprinkler system and Tenant shall not be required to do the same; provided, however, that from and after the date upon which Tenant shall make any Alterations to, or Alterations which shall affect, the sprinkler system in the Demised Premises, the foregoing provisions of this sentence shall no longer be applicable and Tenant shall have all of the obligations set forth in Subsection A above. In the event, however, that during the Pre-Alteration Period, any maintenance, repairs or replacements to the sprinkler system shall be necessitated or occasioned by the acts, omissions or negligence of Tenant or any person claiming through or under Tenant or any of their servants, employees, contractors, agents, visitors or licensees, or by the use or occupancy or manner of use or occupancy of the Demised Premises by Tenant or any such person, then Owner shall perform the same at Tenant's sole cost and expense and Tenant shall reimburse Owner for the costs of the same within thirty (30) days after demand therefor, or, at Owner's election, Tenant shall perform such maintenance, repairs or replacement at Tenant's sole cost and expense. Owner shall also perform inspections of said sprinkler system as and when required by Legal Requirements and Tenant shall give Owner reasonable access to perform such repairs, replacements, maintenance and inspections. Any such sprinkler system, and any replacements thereof, whether made at Tenant's expense or Owner's expense, shall be deemed the property of Owner.
ARTICLE 6
COMPLIANCE WITH LAWS
Section 6.01. General Covenants: Tenant, at Tenant's sole cost and expense,
shall comply with all Legal Requirements (hereinafter defined) which shall
impose any duty upon Owner or Tenant with respect to the Demised Premises or the
use or occupation thereof, including, but not limited to, any requirement that
asbestos or other hazardous material be removed or dealt with in any particular
manner (except to the extent the same is the obligation of owner pursuant to
Section 3.05), except that Tenant shall not be required to make any structural
Alterations in order so to comply unless such Alterations shall be necessitated
or occasioned, in whole or in part, by the acts, omissions, or negligence of
Tenant or any person claiming through or under Tenant, or any of their servants,
employees, contractors, agents, visitors or licensees, or by the use or
occupancy or manner of use or occupancy of the Demised Premises by Tenant or by
any such person. For all purposes of this Lease the term "Legal Requirements"
shall mean all present and future laws, codes, ordinances, statutes,
requirements, orders and regulations, ordinary and extraordinary, foreseen and
unforeseen (including, but not limited to, the New York State Energy
Conservation Construction Code, and the Americans with Disabilities Act, and any
successor laws of like import) of any Governmental Authority (hereinafter
defined) and all directions, requirements, orders and notices of violations
thereof. For all purposes of this Lease, the term "Governmental Authority" shall
mean the United States of America, the State of New York, the County of Nassau,
the Town of Hempstead, the Village of Lynbrook, any political subdivision
thereof and any agency, department, commission, board, bureau or instrumentality
of any of the foregoing, now existing or hereafter created, having jurisdiction
over Owner, Tenant, this Lease or the Real Property or any portion thereof. Any
work or installations made or performed by or on behalf of Tenant or any person
claiming through or under Tenant pursuant to the provisions of this Article
shall be made in conformity with, and subject to the provisions of Article 3.
For the purposes of this Article, any requirement that any asbestos or other
hazardous material be removed or dealt with in any particular manner (except to
the extent the same is the obligation of owner pursuant to Section 3.05) or any
Alterations required to comply with the Americans With Disabilities Act and any
successor laws of like import shall be deemed to be a non-structural Alteration.
Compliance with any requirement regarding asbestos or other hazardous material
shall be made in conformity with the provisions of Section 3.05.
Section 6.02. Tenant's Compliance with Owner's Fire Insurance: Tenant shall not do anything, or permit anything to be done, in or about the Demised Premises which shall (i) invalidate or be in conflict with the provisions of any fire and/or other insurance policies covering the Building or any property located therein, or (ii) result in a refusal by fire insurance companies of good standing to insure the Building or any such property in amounts reasonably satisfactory to Owner, or (iii) subject Owner to any liability or responsibility for injury to any person or property by reason of any business operation being conducted in the Demised Premises, or (iv) cause any increase in the fire insurance rates applicable to the Building or property located therein at the beginning of the Demised Term or at any time thereafter. Tenant, at Tenant's
expense, shall comply with all present and future rules, orders, regulations and/or requirements of the New York Board of Fire Underwriters and the New York Fire Insurance Rating Organization or any similar body and the issuer of any insurance obtained by Owner covering the Building and/or the Real Property, whether ordinary or extraordinary, foreseen or unforeseen, including, but not limited to, the installation and maintenance of a sprinkler system to serve the Demised Premises or any part thereof, any requirement that asbestos or other hazardous material be removed or dealt with in any particular manner and any requirement of the Americans With Disabilities Act or any successor laws of like import.
Section 6.03. Fire Insurance Rates: In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make up" of rates applicable to the Building or property located therein issued by the New York Fire Insurance Rating Organization, or other similar body fixing such fire insurance rates, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to the Building or property located therein.
ARTICLE 7
SUBORDINATION, ATTORNMENT, ETC.
Section 7.01. Lease Subordination: This Lease and all rights of Tenant under this Lease are, and shall remain, unconditionally subject and subordinate in all respects to all ground and underlying leases now or hereafter in effect affecting the Real Property or any portion thereof and to all mortgages which may now or hereafter affect such leases or the Real Property, and to all advances made or hereafter to be made under such mortgages, and to all renewals, modifications, consolidations, correlations, replacements and extensions of, and substitutions for, such leases and mortgages (such leases as above described are referred to herein collectively as the "Superior Lease" and such mortgages as above described are referred to herein collectively as the "Mortgage"). The foregoing provisions of this Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall execute and deliver promptly any certificate or other instrument which Owner, or any lessor under any Superior Lease, or any holder of any Mortgage may request, and in the event Tenant fails to execute and deliver any such certificate or other instrument within fifteen (15) days after Owner's or such lessor's or holder's request therefor, Tenant hereby, irrevocably constitutes and appoints Owner and all such lessors and holders, acting jointly or severally, as Tenant's agent and attorney-in-fact to execute any such certificate or other instrument for or on behalf of Tenant. If, in connection with obtaining financing with respect to the Building, the Real Property, or the interest of the lessee under any Superior Lease, any recognized lending institution shall request reasonable modifications of this Lease as a condition of such financing, Tenant covenants not unreasonably to withhold or delay its agreement to such modifications, provided that such modifications do not materially increase the obligations, or materially and adversely affect the rights, of Tenant under this Lease. No act or failure to act on the part of Owner which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Owner's act or failure to act to the holder or holders of any Mortgage and/or the lessor under any Superior Lease of whom Tenant has been given written notice, specifying the act or failure to act on the part of Owner which could or would give basis to Tenant's rights; and (ii) the holder or holders of such Mortgage and/or the lessors under any Superior Lease, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, but nothing contained in this sentence shall be deemed to impose any obligation on any such holder or lessor to correct or cure any such condition. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the Building if any such holder or lessor elects to do so (provided such holder or lessor institutes proceedings to obtain possession within a reasonable time after notice from Tenant pursuant to the foregoing provisions and conducts such proceedings with reasonable diligence) and a reasonable time after so obtaining possession to correct or cure the condition if such condition is determined to exist (provided such holder or lessor commences said cure within ten (10) days after obtaining possession and prosecutes the work required to cure with reasonable diligence).
Section 7.02. Tenant Attornment: If, at any time prior to the expiration of the Demised Term, any Superior Lease under which Owner then shall be the lessee shall terminate or be terminated for any reason, or the holder of any Mortgage comes into possession of the Real Property or the Building or the estate created by any Superior Lease by a receiver or otherwise, Tenant agrees, at the election and upon demand of any owner of the Real Property, or of the holder of any Mortgage so in possession, or of any lessee under any Superior Lease covering the premises which include the Demised Premises, to attorn, from time to time, to any such owner, holder, or lessee, upon the then executory terms and conditions of this Lease, for the remainder of the term originally demised in this Lease, provided that such owner, holder or lessee, as the case may be, shall then be entitled to possession of the Demised Premises. The provisions of this Section shall inure to the benefit of any such owner, holder, or lessee, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the termination of any Superior Lease, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Tenant, however, upon demand of any such owner, holder, or lessee, agrees to execute, from time to time, instruments in confirmation of the foregoing provisions of this Section, satisfactory to any such owner, holder, or lessee, acknowledging such attornment and setting forth the terms and conditions of its tenancy. Nothing contained in this Section shall be construed to impair any right otherwise exercisable by any such owner, holder, or lessee. Notwithstanding anything to the contrary set forth in this Article no such owner, holder or lessee shall (i) be bound by any payment of any installment of Fixed Rent or increases therein or any additional rent which may have been made more than thirty (30) days before the due date of such installment, (ii) be bound by any amendment or modification to this Lease which is made without its consent, (iii) be required to account for any security deposit other than any security deposit actually delivered to it, (iv) be liable for any previous act or omission of Owner under this Lease, or (v) be subject to any credit or offset, not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Owner.
Section 7.03. Tenant Estoppel Certificate: From time to time, within fifteen (15) days next following Owner's request, Tenant shall deliver to Owner a written statement executed and acknowledged by Tenant, in form reasonably satisfactory to Owner, (i) stating that this Lease is then in full force and effect and has not been modified (or if modified, setting forth the specific nature of all modifications), and (ii) setting forth the date to which the Fixed Rent has been paid, and (iii) stating whether or not, to the best knowledge of Tenant, Owner is in default under this Lease, and, if Owner is in default, setting forth the specific nature of all such defaults and (iv) stating that Tenant has accepted and occupied the Demised Premises and all improvements required to be made by Owner pursuant to the provisions of this Lease, have been made, if such be the case and (v) setting forth any additional information reasonably requested by Owner. Tenant acknowledges that any statement delivered pursuant to this Section may be relied upon by any purchaser or owner of the Building, or of the Real Property, or any part thereof, or of Owner's interest in the Building or the Real Property or any Superior Lease, or by the holder of any Mortgage, or by any assignee of the holder of any Mortgage, or by any lessor under any Superior Lease.
Section 7.04. Owner Assignment of Lease and Rents: If Owner assigns its interest in this Lease, or the rents payable hereunder, to the holder of any Mortgage or the lessor under any Superior Lease, whether the assignment shall be conditional in nature or otherwise, Tenant agrees that (a) the execution thereof by Owner and the acceptance by such holder or lessor shall not be deemed an assumption by such holder or lessor of any of the obligations of the Owner under this Lease unless such holder or lessor shall, by written notice sent to Tenant, specifically otherwise elect; and (b) except as aforesaid, such holder or lessor shall be treated as having assumed Owner's obligations hereunder only upon the foreclosure of such holder's Mortgage or the termination of such lessor's Superior Lease and the taking of possession of the Demised Premises by such holder or lessor, as the case may be.
ARTICLE 8
PROPERTY LOSS, ETC.
Section 8.01. Any Building employee to whom any property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agent with respect to such property and neither Owner nor Owner's agents shall be liable for any loss of or damage to any such property by theft or otherwise. Neither (i) the performance by Owner, Tenant or others of any decorations,
repairs, alterations, additions or improvements in or to the Building or the Demised Premises, nor (ii) the failure of Owner or others to make any such decorations, repairs, alterations, additions or improvements, nor (iii) any damage to the Demised Premises or to the property of Tenant, nor any injury to any persons, caused by other tenants or persons in the Building, or by operations in the construction of any private, public or quasi-public work, or by any other cause, nor (iv) any latent defect in the Building or in the Demised Premises, nor (v) any temporary or permanent closing, darkening or bricking up of any windows of the Demised Premises for any reason whatsoever including, but not limited to, Owner's own acts, nor (vi) any inconvenience or annoyance to Tenant or injury to or interruption of Tenant's business by reason of any of the events or occurrences referred to in the foregoing subdivisions (i) through (v), shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner, or its agents, or any lessor under any Superior Lease, other than such liability as may be imposed upon Owner by law for Owner's negligence or the negligence of Owner's agents, servants or employees in the operation or maintenance of the Building or for the breach by Owner of any express covenant of this Lease on Owner's part to be performed. Tenant's taking possession of the Demised Premises shall be conclusive evidence, as against Tenant, that, at the time such possession was so taken, the Demised Premises and the Building were in good and satisfactory condition.
ARTICLE 9
DESTRUCTION-FIRE OR OTHER CASUALTY
Section 9.01. Owner's Repair Obligations: If the Demised Premises shall be damaged by fire or other casualty and if Tenant shall give prompt notice to Owner of such damage, Owner, at Owner's expense, shall repair such damage. However, Owner shall have no obligation to repair any damage to, or to replace, Tenant's Personal Property or any other property or effects of Tenant. Except as otherwise provided in Section 9.03, if the entire Demised Premises shall be rendered untenantable by reason of any such damage, the Fixed Rent shall abate for the period from the date of such damage to the date when such damage shall have been repaired, and if only a part of the Demised Premises shall be so rendered untenantable, the Fixed Rent shall abate for such period in the proportion which the area of the part of the Demised Premises so rendered untenantable bears to the total area of the Demised Premises. However, if, prior to the date when all of such damage shall have been repaired, any part of the Demised Premises so damaged shall be rendered tenantable and shall be used or occupied by Tenant or any person or persons claiming through or under Tenant, then the amount by which the Fixed Rent shall abate shall be equitably apportioned for the period from the date of any such use or occupancy to the date when all such damage shall have been repaired. Further, should Owner, at its sole option, make available to Tenant, during the period of such repair, other space in the Building which is reasonably suitable for the temporary carrying on of Tenant's business, the Fixed Rent (as equitably adjusted to reflect any difference in the square footage of such space as compared to the Demised Premises) shall be reinstated with respect to such temporarily occupied space and shall be payable by Tenant from the date such space is occupied by Tenant. Tenant hereby expressly waives the provisions of Section 227 of the New York Real Property Law, and of any successor law of like import then in force, and Tenant agrees that the provisions of this Article shall govern and control in lieu thereof. Notwithstanding the foregoing provisions of this Section, if, prior to or during the Demised Term, (i) the Demised Premises shall be totally damaged or rendered wholly untenantable by fire or other casualty, and if Owner shall decide not to restore the Demised Premises, or (ii) the Building shall be so damaged by fire or other casualty that, in Owner's opinion, substantial alteration, demolition, or reconstruction of the Building shall be required (whether or not the Demised Premises shall have been damaged or rendered untenantable), then, in any of such events, Owner, at Owner's option, may give to Tenant, within ninety (90) days after such fire or other casualty, a five (5) days' notice of termination of this Lease and, in the event such notice is given, this Lease and the Demised Term shall come to an end and expire (whether or not said term shall have commenced) upon the expiration of said five (5) days with the same effect as if the date of expiration of said five (5) days were the Expiration Date, the Fixed Rent shall be apportioned as of such date and any prepaid portion of Fixed Rent for any period after such date shall be refunded by Owner to Tenant.
Section 9.02. Owner's Subrogation Waiver Provisions: Owner shall attempt to obtain and maintain, throughout the Demised Term, in Owner's fire insurance policies covering the Building, provisions to the effect that such policies
shall not be invalidated should the insured waive, in writing, prior to a loss,
any or all right of recovery against any party for loss occurring to the
Building. In the event that at any time Owner's fire insurance carriers shall
exact an additional premium for the inclusion of such or similar provisions,
Owner shall give Tenant notice thereof. In such event, if Tenant agrees, in
writing, to reimburse Owner for such additional premium for the remainder of the
Demised Term, Owner shall require the inclusion of such or similar provisions by
Owner's fire insurance carriers. As long as such or similar provisions are
included in Owner's fire insurance policies then in force, Owner hereby waives
(i) any obligation on the part of Tenant to make repairs to the Demised Premises
necessitated or occasioned by fire or other casualty that is an insured risk
under such policies, and (ii) any right of recovery against Tenant, any other
permitted occupant of the Demised Premises, and any of their servants,
employees, agents or contractors, for any loss occasioned by fire or other
casualty which is an insured risk under such policies. In the event that at any
time Owner's fire insurance carriers shall not include such or similar
provisions in Owner's fire insurance policies, the waivers set forth in the
foregoing sentence shall, upon notice given by Owner to Tenant, be deemed of no
further force or effect.
Section 9.03. Tenant Negligence: Except to the extent expressly provided in
Section 9.02, nothing contained in this Lease shall relieve Tenant of any
liability to Owner or to its insurance carriers which Tenant may have under law
or the provisions of this Lease in connection with any damage to the Demised
Premises or the Building caused by fire or other casualty. Notwithstanding the
provisions of Section 9.01, if any such damage, occurring after any date when
the waivers set forth in Section 9.02 are no longer in force and effect, is due
to the fault or neglect of Tenant, any person claiming through or under Tenant,
or any of their servants, employees, agents, contractors, visitors or licensees,
then there shall be no abatement of Fixed Rent by reason of such damage.
Section 9.04. Tenant Subrogation Waiver Provisions: Tenant acknowledges that it has been advised that Owner's insurance policies do not cover Tenant's Personal Property or any other property of Tenant in the Demised Premises; accordingly, it shall be Tenant's obligation to obtain and maintain insurance covering its property in the Demised Premises and loss of profits including, but not limited to, water damage coverage and business interruption insurance. Tenant shall attempt to obtain and maintain, throughout the Demised Term, in Tenant's fire and other insurance policies covering Tenant's Personal Property and other property of Tenant in the Demised Premises, and Tenant's use and occupancy of the Demised Premises, and/or Tenant's profits (and shall cause any other permitted occupants of the Demised Premises to attempt to obtain and maintain, in similar policies), provisions to the effect that such policies shall not be invalidated should the insured waive, in writing, prior to a loss, any or all right of recovery against any party for loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time the fire insurance carriers issuing such policies shall exact an additional premium for the inclusion of such or similar provisions, Tenant shall give Owner notice thereof. In such event, if Owner agrees, in writing, to reimburse Tenant or any person claiming through or under Tenant, as the case may be, for such additional premium for the remainder of the Demised Term, Tenant shall require the inclusion of such or similar provisions by such insurance carriers. As long as such or similar provisions are included in such insurance policies then in force, Tenant hereby waives (and agrees to cause any other permitted occupants of the Demised Premises to execute and deliver to Owner written instruments waiving) any right of recovery against Owner, any lessors under any Superior Leases, the holders of any Mortgage, and all other tenants or occupants of the Building, and any servants, employees, agents or contractors of Owner, or of any such lessor, or holder or any such other tenants or occupants, for any loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time such insurance carriers shall not include such or similar provisions in any such insurance policy, the waiver set forth in the foregoing sentence (or in any written instrument executed by any other permitted occupant of the Demised Premises) shall, upon notice given by Tenant to Owner, be deemed of no further force or effect with respect to any insured risks under such policy from and after the giving of such notice. During any period while any such waiver of right of recovery is in effect, Tenant, or any other permitted occupant of the Demised Premises, as the case may be, shall look solely to the proceeds of such policies to compensate Tenant or such other permitted occupant for any loss occasioned by fire or other casualty which is an insured risk under such policies.
Section 9.05. Tenant's Termination Right: A. Supplementing the provisions of Section 9.01, in the event that (a) the Demised Premises or Building shall be damaged by fire or other casualty and Tenant shall be unable to use all or a
material portion of the Demised Premises as a result of such damage and (b) Owner shall not exercise the right to terminate this Lease in accordance with the provisions of Section 9.01 and shall, accordingly, be obligated to repair any such damage, then, if such damage is not repaired within eighteen (18) months immediately following the date of such fire or other casualty (such eighteen (18) month period, as the same may be extended as provided in Subsection B of this Section 9.05 to reflect the time frame set forth in the Estimate Notice [as hereinafter defined], is referred to as the "Restoration Period"), then Tenant shall have the following options:
(i) to give to Owner within ten (10) days next following the expiration of the Restoration Period a thirty (30) days' notice of termination of this Lease, or
(ii) to extend the Restoration Period for a further period of six (6) months by notice given to Owner within ten (10) days after the expiration of the initial Restoration Period. In the event Tenant shall have given such notice to Owner extending the initial Restoration Period and if such damage is not repaired by Owner within any extended Restoration Period, Tenant shall have the options to (a) further extend the Restoration Period for further successive periods of six (6) months, by notice given to Owner within ten (10) days after the expiration of any extended Restoration Period or (b) to give Owner, within ten (10) days after the expiration of any such extended Restoration Period, a thirty (30) days' notice of termination of this Lease.
B. Notwithstanding anything to the contrary contained in the provisions of
Subsection A of this Section 9.05, in the event (a) the Demised Premises or
Building shall be damaged by fire or other casualty and Tenant shall be unable
to use the Demised Premises as a result of such damage and (b) Owner shall not
exercise the right to terminate this Lease in accordance with the provisions of
Section 9.01, and (c) Owner, in Owner's opinion, shall determine that the repair
of such damage to the Demised Premises or Building will reasonably require a
period longer than eighteen (18) months, Owner may within one hundred twenty
(120) days after the date of such fire or casualty, give a notice to Tenant
extending the initial Casualty Restoration Period to the date upon which Owner
estimates that such repair to the Demised Premises or Building shall be
completed. In the event Owner shall give such a notice under this Subsection B,
then, the initial Casualty Restoration Period set forth in Paragraph A of this
Section 9.05, shall be so extended and (b) Tenant shall have the further option
to give to Owner a five (5) days' notice of termination of this Lease within ten
(10) days next following the giving of such notice under this Subsection B by
Owner to Tenant extending the initial Casualty Restoration Period.
C. In the event that Tenant shall fail to give any such notice of termination within the time periods set forth in this Section 9.05, time being of the essence with respect thereto, Tenant shall be deemed to have given Owner a notice extending the Restoration Period. Any thirty (30) days' notice of termination given by Tenant pursuant to the provisions of this Section 9.05 beyond the applicable period provided herein, time being of the essence, shall be void and of no force and effect.
D. In the event that Tenant shall give to Owner within the applicable time periods set forth in the foregoing provisions of this Section, a thirty (30) days' notice of termination of this Lease, then this Lease and the Demised Term shall come to an end and expire upon the expiration of said thirty (30) days with the same effect as if the date of expiration of said thirty (30) days were the Expiration Date of this Lease, the Fixed Rent and all increases thereof and any additional rent shall be apportioned as of the casualty date, and any prepaid portion of Fixed Rent and all increases thereof and any additional rent for any period after such date shall be refunded by Owner to Tenant.
E. Nothing contained in the foregoing provisions of this Section 9.05 shall be deemed to affect the rights of Owner to give to Tenant a five (5) days' notice of termination of this Lease in accordance with the provisions of Section 9.01.
F. Notwithstanding anything to the contrary contained in this Section 9.05, in the event that the damage caused by any such fire or other casualty shall solely affect the Demised Premises and shall not affect any portion of the
Building outside of the Demised Premises, then, in such case, the Restoration Period shall be reduced to a period equal to nine (9) months next following the date of such fire or other casualty.
ARTICLE 10
EMINENT DOMAIN
Section 10.01. Taking of the Demised Premises: If the whole of the Demised Premises shall be acquired for any public or quasi-public use or purpose, whether by condemnation or by deed in lieu of condemnation, this Lease and the Demised Term shall end as of the date of the vesting of title with the same effect as if said date were the Expiration Date. If only a part of the Demised Premises shall be so acquired or condemned then, except as otherwise provided in this Section, this Lease and the Demised Term shall continue in force and effect but, from and after the date of the vesting of title, the Fixed Rent shall be reduced in the proportion which the area of the part of the Demised Premises so acquired or condemned bears to the total area of the Demised Premises immediately prior to such acquisition or condemnation. If only a part of the Real Property shall be so acquired or condemned, then (i) whether or not the Demised Premises shall be affected thereby, Owner, at Owner's option, may give to Tenant, within sixty (60) days next following the date upon which Owner shall have received notice of vesting of title, a five (5) days' notice of termination of this Lease, and (ii) if the part of the Real Property so acquired or condemned shall contain more than ten (10%) percent of the total area of the Demised Premises immediately prior to such acquisition or condemnation, or if, by reason of such acquisition or condemnation, Tenant no longer has reasonable means of access to the Demised Premises, Tenant, at Tenant's option, may give to Owner, within sixty (60) days next following the date upon which Tenant shall have received notice of vesting of title, a five (5) days' notice of termination of this Lease. In the event any such five (5) days' notice of termination is given, by Owner or Tenant, this Lease and the Demised Term shall come to an end and expire upon the expiration of said five (5) days with the same effect as if the date of expiration of said five (5) days were the Expiration Date. If a part of the Demised Premises shall be so acquired or condemned and this Lease and the Demised Term shall not be terminated pursuant to the foregoing provisions of this Section, Owner, at Owner's expense, shall restore that part of the Demised Premises not so acquired or condemned to a self-contained rental unit. In the event of any termination of this Lease and the Demised Term pursuant to the provisions of this Section, the Fixed Rent shall be apportioned as of the date of such termination and any prepaid portion of Fixed Rent for any period after such date shall be refunded by Owner to Tenant.
Section 10.02. Condemnation Award or Claims: In the event of any such acquisition or condemnation of all or any part of the Real Property, Owner shall be entitled to receive the entire award for any such acquisition or condemnation, Tenant shall have no claim against Owner or the condemning authority for the value of any unexpired portion of the Demised Term and Tenant hereby expressly assigns to Owner all of its right in and to any such award. Nothing contained in this Section shall be deemed to prevent Tenant from making a claim in any condemnation proceedings for the value of any items of Tenant's Personal Property which are compensable, in law, as trade fixtures.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
Section 11.01. General Covenant: Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, covenants that, without the prior consent of Owner in each instance, it shall not (i) assign whether by merger, consolidation or otherwise, mortgage or encumber its interest in this Lease, in whole or in part, or (ii) sublet, or permit the subletting of, the Demised Premises or any part thereof, or (iii) permit the Demised Premises or any part thereof to be occupied, or used for desk space, mailing privileges or otherwise, by any person other than Tenant. The sale, pledge, transfer or other alienation of (a) any of the issued and outstanding capital stock of any corporate Tenant (unless such stock is publicly traded on a recognized security exchange or over-the counter market) or (b) any interest in any partnership, limited liability company or joint venture or other business entity comprising Tenant, however accomplished, directly or indirectly,
and whether in a single transaction or in a series of related and/or unrelated transactions, shall be deemed for the purposes of this Section as an assignment of this Lease which shall require the prior consent of Owner in each instance.
Section 11.02. Owner's Rights Upon Assignment: If Tenant's interest in this Lease is assigned, whether or not in violation of the provisions of this Article, Owner may collect rent from the assignee; if the Demised Premises or any part thereof are sublet to, or occupied by, or used by, any person other than Tenant, whether or not in violation of this Article, Owner, after default by Tenant under this Lease, may collect rent from the subtenant, user or occupant. In either case, Owner shall apply the net amount collected to the rents reserved in this Lease, but neither any such assignment, subletting, occupancy, or use, whether with or without Owner's prior consent, nor any such collection or application, shall be deemed a waiver of any term, covenant or condition of this Lease or the acceptance by Owner of such assignee, subtenant, occupant or user as tenant. The consent by Owner to any assignment, subletting, occupancy or use shall not relieve Tenant from its obligation to obtain the express prior consent of Owner to any further assignment, subletting, occupancy or use. If this Lease is assigned to any person or entity pursuant to any proceeding of the type referred to in Subsections 16.01(c) and 16.01(d), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Owner, shall be and remain the exclusive property of Owner and shall not constitute property of Tenant or of the estate of Tenant within the meaning of any proceeding of the type referred to in Subsections 16.01(c) and 16.01(d). Any and all monies or other considerations constituting Owner's property under the preceding sentence not paid or delivered to Owner shall be held in trust for the benefit of Owner and shall be promptly paid to or turned over to Owner. Any person or entity to which this Lease is assigned pursuant to any proceeding of the type referred to in Subsections 16.01(c) and 16.01(d) shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall execute and deliver to Owner upon demand an instrument confirming such assumption. The listing of any name other than that of Tenant on any door of the Demised Premises or on any directory or in any elevator in the Building, or otherwise, shall not operate to vest in the person so named any right or interest in this Lease or in the Demised Premises, or the Building, or be deemed to constitute, or serve as a substitute for, any prior consent of Owner required under this Article, and it is understood that any such listing shall constitute a privilege extended by Owner which shall be revocable at Owner's will by notice to Tenant. Tenant agrees to pay to Owner reasonable counsel fees incurred by Owner in connection with any proposed assignment of Tenant's interest in this Lease or any proposed subletting of the Demised Premises or any part thereof. Neither any assignment of Tenant's interest in this Lease nor any subletting, occupancy or use of the Demised Premises or any part thereof by any person other than Tenant, nor any collection of rent by Owner from any person other than Tenant as provided in this Section, nor any application of any such rent as provided in this Section shall, in any circumstances, relieve Tenant of its obligation fully to observe and perform the terms, covenants and conditions of this Lease on Tenant's part to be observed or performed.
Section 11.03. Sublet Rights: A. (1) As long as Tenant is not in default
under any of the terms, covenants or conditions of this Lease on Tenant's part
to be observed or performed, Owner agrees not to unreasonably withhold Owner's
prior consent to a subletting by Tenant of the entire Demised Premises to one
(1) subtenant for undivided occupancy by such subtenant, for the use expressly
permitted in this Lease.
(2) Without Owner's prior consent, Tenant shall not (a) negotiate or enter into a proposed subletting with any tenant, subtenant or occupant of any space in the Building or (b) list or otherwise publicly advertise the Demised Premises or any part thereof for subletting at a rental lower than the higher of (i) the Fixed Rent then in effect under this Lease, or (ii) the rental at which the Owner is then offering to rent comparable space in the Building.
(3) At least sixty (60) days prior to any proposed subletting, Tenant shall submit to Owner a statement (the "Proposed Sublet Statement") containing the name and address of the proposed subtenant, the nature of the proposed subtenant's business and its current financial status, if such status is obtained by Tenant, and all of the principal terms and conditions of the proposed subletting including, but not limited to, the proposed commencement and expiration dates of the term thereof.
(4) Owner may arbitrarily withhold consent to a proposed subletting if, (a) in Owner's reasonable judgment, the occupancy of the proposed subtenant will tend to impair the character or dignity of the Building or impose any additional burden upon Owner in the operation of the Building, or (b) the proposed subtenant shall be a person or entity with whom Owner is then negotiating or discussing to lease space in the Building or (c) the proposed sublet rent is less than the fair rental value of the Demised Premises.
(5) In the event of any dispute between Owner and Tenant as to the reasonableness of Owner's failure or refusal to consent to any subletting, such dispute shall be submitted to arbitration in accordance with the provisions of Article 36.
(6) Any Sublease consented to by Owner must conform to the information contained in the Proposed Sublet Statement and shall expressly provide that (a) the subtenant shall obtain the provisions in its insurance policies to the effect that such policies shall not be invalidated should the insured waive, in writing, prior to a loss, any or all right of recovery against any party for loss occasioned by fire or other casualty which is an insured risk under such policies, as set forth in Section 9.04, (b) in the event of the termination, re-entry or dispossess of Tenant by Owner under this Lease, Owner may, at its option, take over all of the right, title and interest of Tenant, as sublessor under the sublease, and such subtenant shall, at Owner's option, attorn to Owner pursuant to the then executory provisions of such sublease, except that Owner shall not (i) be liable for any previous act or omission of Tenant under such sublease, (ii) be subject to any offset which accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease or by any previous prepayment of more than one month's rent unless such modification or prepayment was previously approved by Owner, (iv) be bound by any covenant to undertake or complete any construction of the premises, or any portion thereof, demised by such sublease and (v) be bound by any obligation to make any payment to or on behalf of the subtenant, except for services, repairs, maintenance and restoration provided for under the sublease to be performed after the date of such termination, re-entry or dispossess by Owner under this Lease and to which Owner is expressly required to perform under this Lease with respect to the subleased space at Owner's expense, it being expressly understood, however, that Owner shall not be bound by any obligation to make payment to or on behalf of a subtenant with respect to construction performed by or on behalf of such subtenant in the subleased premises. Tenant shall reimburse Owner on demand for any costs or expense that may be incurred by Owner's review of any Proposed Sublet Statement or in connection with any sublease consented to by Owner, including, without limitation, any reasonable processing fee, reasonable attorneys' fees and disbursements and the reasonable costs of making investigations as to the acceptability of the proposed subtenant.
B. Notwithstanding the foregoing provisions of this Section 11.03, Owner shall have the following rights with respect to each proposed subletting by Tenant:
(1) in the event Tenant proposes to sublet the Demised Premises, whether or not such subletting is for all or substantially all of the remainder of the Demised Term, Owner, at Owner's option, may give to Tenant, within sixty (60) days after the submission by Tenant to Owner of the Proposed Sublet Statement, a notice terminating this Lease on the date (referred to as the "Earlier Termination Date") immediately prior to the proposed commencement date of the term of the proposed subletting, as set forth in the Proposed Sublet Statement, and, in the event such notice is given, this Lease and the Demised Term shall come to an end and expire on the Earlier Termination Date with the same effect as if it were the Expiration Date, the Fixed Rent shall be apportioned as of said Earlier Termination Date and any prepaid portion of Fixed Rent for any period after such date shall be refunded by Owner to Tenant; or
(2) In the event Tenant proposes to sublet the Demised Premises for less than substantially all of the remainder of the Demised Term, Owner, at Owner's option, may give to Tenant, within sixty (60) days after the submission by Tenant to Owner, of the Proposed Sublet Statement required to be submitted in connection with such proposed subletting, a notice electing to recapture the Demised Premises during the period (referred to as the "Recapture Period") commencing on the date (referred to as "Recapture Date") immediately prior to the proposed commencement date of the term of the proposed subletting, as set
forth in the Proposed Sublet Statement, and ending on the proposed expiration date of the term of the proposed subletting, as set forth in the Proposed Sublet Statement, and in the event such notice is given the following shall apply:
(a) The Demised Premises shall be recaptured by Owner during the Recapture Period;
(b) Tenant shall surrender the Demised Premises to Owner on or prior to the Recapture Date in the same manner as if said Date were the Expiration Date;
(c) During the Recapture Period Tenant shall have no rights with respect to the Demised Premises nor any obligations with respect to the Demised Premises, including, but not limited to, any obligations to pay Fixed Rent or any increases therein or any additional rent, and any prepaid portion of Fixed Rent allocable to the Recapture Period shall be refunded by Owner to Tenant;
(d) There shall be an equitable apportionment of any increase in the Fixed Rent pursuant to Article 23 for the Escalation Year and Tax Escalation Year (as defined in Article 23) in which said Recapture Date shall occur;
(e) Upon the expiration of the Recapture Period, the Demised Premises, in its then existing condition, shall be deemed restored to Tenant and Tenant shall have all rights with respect to the Demised Premises which are set forth in this Lease and all obligations with respect to the Demised Premises which are set forth in this Lease, including, but not limited to, the obligations for the payment of Fixed Rent and any increases therein and any additional rent (as they would have been adjusted if Tenant occupied the Demised Premises during the Recapture Period) during the period (referred to as the "Recapture Restoration Period") commencing on the date next following the expiration of the Recapture Period and ending on the Expiration Date, except in the event that Owner is unable to give Tenant possession of the Demised Premises at the expiration of the Recapture Period by reason of the holding over or retention of possession of any tenant or other occupant, in which event (x) the Recapture Restoration Period shall not commence and the Demised Premises shall not be deemed available for Tenant's occupancy and Tenant shall not be required to comply with the obligations of Tenant under this Lease until the date upon which Owner shall give Tenant possession of the Demised Premises free of occupancies, (y) neither the Expiration Date nor the validity of this Lease nor the obligations of Tenant under this Lease shall be affected thereby, and (z) Tenant waives any rights to rescind this Lease and to recover any damages which may result from the failure by Owner to deliver possession of the Demised Premises at the end of the Recapture Period; Owner agrees to institute, within thirty (30) days after the expiration of the Recapture Period, possession proceedings against any tenants and occupants who have not so vacated and surrendered all or any portions of the Demised Premises and agrees to prosecute such proceedings with reasonable diligence; and
(f) There shall be an equitable apportionment of any increase in the Fixed Rent pursuant to Article 23 for the Escalation Year and Tax Escalation Year in which the Recapture Restoration Period shall commence.
At the request of Owner, Tenant shall execute and deliver an instrument or instruments, in form satisfactory to Owner, setting forth any modifications to this Lease contemplated in or resulting from the operation of the foregoing provisions of this Subsection 11.03; however, neither Owner's failure to request any such instrument nor Tenant's failure to execute or deliver any such instrument shall vitiate the effect of the foregoing provisions of this Section. The failure by Owner to exercise any option under this Section 11.03 with respect to any subletting shall not be deemed a waiver of such option with
respect to any extension of such subletting or any subsequent subletting of the
premises affected thereby or any other portion of the Demised Premises. Tenant
shall indemnify Owner from all loss, cost, liability, damage and expense,
including, but not limited to, reasonable counsel fees and disbursements,
arising from any claims against Owner by any broker or other person, for a
brokerage commission or other similar compensation in connection with any such
proposed subletting, in the event (a) Owner shall (i) fail or refuse to consent
to any proposed subletting, or (ii) exercise any of its options under this
Section 11.03, or (b) any proposed subletting shall fail to be consummated for
any reason whatsoever.
C. Tenant agrees that fifty (50%) percent of (1) any increase in the rental value of the Demised Premises over and above the Fixed Rent payable pursuant to the provisions of this Lease, as such Fixed Rent may be increased from time to time pursuant to the provisions of this Lease, and (2) any consideration paid to Tenant or any subtenant or other person claiming through or under Tenant in connection with an assignment of Tenant's interest in this Lease or the interest of any subtenant or other person claiming through or under Tenant under any sublease whether or not such assignment shall be effected with court approval in a proceeding of the types described in Subsection 16.01(c) or (d), or in any similar proceeding, or otherwise, shall accrue to the benefit of Owner and not to the benefit of Tenant, or of any subtenant or other person claiming through or under Tenant, or of the creditors of Tenant or of any such subtenant or other person claiming through or under Tenant. Accordingly, Tenant agrees that if Owner shall fail to exercise its option to sooner terminate this Lease or its option to recapture the Demised Premises in connection with any proposed subletting by Tenant, or if any subtenant or other person claiming through or under Tenant shall sublet all or any portion of the Demised Premises, Tenant shall pay to Owner a sum equal to fifty (50%) percent of any Subletting Profit, as such term is hereinafter defined. All rentals and other sums (including, but not limited to, sums payable for the sale or rental of any fixtures, leasehold improvements, equipment, furniture or other personal property, less, in the case of the sale thereof, the then net unamortized [on a straight-line basis over the term of this Lease or, in the event of a further subletting, over the term of the initial sublease, as the case may be] cost thereof, which were provided and installed in the sublet premises at the sole cost and expense of Tenant or such subtenant or other person claiming through or under Tenant and for which no allowance or other credit has been given by Owner) payable by any subtenant to Tenant or to any subtenant or other person claiming through or under Tenant in connection with any subletting in excess of the Fixed Rent then payable by Tenant to Owner under this Lease are referred to, in the aggregate, as "Subletting Profit"; in computing any Subletting Profit it shall be deemed that the rental reserved under any such subletting shall commence to accrue as of the commencement of the term of such subletting even if such rental actually commences to accrue as of a date subsequent to such commencement and there shall be deducted a reasonable single brokerage commission, if any such commission shall be paid by Tenant or any such subtenant or other person claiming through or under Tenant in connection with such subletting which deduction for such reasonable single brokerage commission shall be amortized on a straight line basis over the entire term of such subletting. Owner and Tenant agree that if Tenant, or any subtenant or other person claiming through or under Tenant, shall assign or have assigned its interest as Tenant under this Lease or its interest as subtenant under any sublease as the case may be, whether or not such assignment shall be effected with court approval in a proceeding of the types described in Subsections 16.01(c) or (d), or in any similar proceeding, or otherwise, Tenant shall pay to Owner a sum equal to any consideration paid to Tenant or any subtenant or other person claiming through or under Tenant for such assignment. All sums payable hereunder to Tenant shall be paid to Owner as additional rent immediately upon such sums becoming payable to Tenant or to any subtenant or other person claiming through or under Tenant and, if requested by Owner, Tenant shall promptly enter into a written agreement with Owner setting forth the amount of such sums to be paid to Owner, however, neither Owner's failure to request the execution of such agreement nor Tenant's failure to execute such agreement shall vitiate the provisions of this Section. For the purposes of this Section, a trustee, receiver or other representative of the Tenant's or any subtenant's estate under any federal or state bankruptcy act shall be deemed a person claiming through or under Tenant.
D. Neither Owner's consent to any subletting nor anything contained in this
Section shall be deemed to grant to any subtenant or other person claiming
through or under Tenant the right to sublet all or any portion of the Demised
Premises or to permit the occupancy of all or any portion of the Demised
Premises by others. Neither any subtenant referred to in this Section nor its
heirs, distributees, executors, administrators, legal representatives,
successors nor assigns, without the prior consent of Owner in each instance,
shall (i) assign, whether by merger, consolidation or otherwise, mortgage or encumber its interest in any sublease, in whole or in part, or (ii) sublet, or permit the subletting of, that part of the Demised Premises affected by such subletting or any portion thereof, or (iii) permit such part of the Demised Premises affected by such subletting or any part thereof to be occupied or used for desk space, mailing privileges or otherwise, by any person other than such subtenant and any sublease shall provide that any violation of the foregoing provisions of this sentence shall be an event of default thereunder. The sale, pledge, transfer or other alienation of (a) any of the issued and outstanding capital stock of any corporate subtenant (unless such stock is publicly traded on any recognized security exchange or over-the-counter market) or (b) any interest in any partnership or joint venture subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed for the purposes of this Section to be an assignment of such sublease which shall require the prior consent of Owner in each instance and any sublease shall so provide.
Section 11.04. Owner's Rights Upon Lease Disaffirmance: A. In the event
that, at any time after Tenant may have assigned Tenant's interest in this
Lease, this Lease shall be disaffirmed or rejected in any proceeding of the
types described in Subsections 16.01(c) and (d), or in any similar proceeding,
or in the event of termination of this Lease by reason of any such proceeding or
by reason of lapse of time following notice of termination given pursuant to
Section 16.01 based upon any of the Events of Default set forth in said
Subsections, Tenant, upon request of Owner given within thirty (30) days next
following any such disaffirmance, rejection or termination (and actual notice
thereof to Owner in the event of a disaffirmance or rejection or in the event of
termination other than by act of Owner), shall (i) pay to Owner all Fixed Rent,
additional rent and other charges due and owing by the assignee to Owner under
this Lease to and including the date of such disaffirmance, rejection or
termination, and (ii) as "tenant", enter into a new lease with Owner of the
Demised Premises for a term commencing on the effective date of such
disaffirmance, rejection or termination and ending on the Expiration Date unless
sooner terminated as in such lease provided, at the same Fixed Rent and then
executory terms, covenants and conditions as are contained in this Lease, except
that (a) Tenant's rights under the new lease shall be subject to the possessory
rights of the assignee under this Lease and the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or of any
order of any court, and (b) such new lease shall require all defaults existing
under this Lease to be cured by Tenant with due diligence, and (c) such new
lease shall require Tenant to pay all increases in the Fixed Rent reserved in
this Lease which, had this Lease not been so disaffirmed, rejected or
terminated, would have accrued under the provisions of Article 23 of this Lease
after the date of such disaffirmance, rejection or termination with respect to
any period prior thereto. In the event Tenant shall default in its obligation to
enter into said new lease for a period of ten (10) days next following Owner's
request therefor, then, in addition to all other rights and remedies by reason
of such default, either at law or in equity, Owner shall have the same rights
and remedies against Tenant as if Tenant had entered into such new lease and
such new lease had thereafter been terminated as at the commencement date
thereof by reason of Tenant's default thereunder. Nothing contained in this
Section shall be deemed to grant to Tenant any right to assign Tenant's interest
in this Lease.
B. If Tenant assumes this Lease in any proceeding of the types described in Subsections 16.01(c) and (d), or in any similar proceeding and proposes to assign the same pursuant to said proceeding to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to the Tenant, then notice of such proposed assignment shall be given to Owner by Tenant no later than twenty (20) days after receipt by Tenant of such offer, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption. Such notice shall set forth (a) the name and address of such person, (b) all of the terms and conditions of such offer, and (c) adequate assurance of future performance by such person under the Lease, including, without limitation, the assurance referred to in Section 365(b)(3) of the United States Bankruptcy Code or any provisions in substitution thereof. Owner shall have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which would otherwise be payable by Tenant out of the consideration to be paid by such person in connection with the assignment of this Lease.
C. The term "adequate assurance of future performance" as used in this Lease shall mean that any proposed assignee shall, among other things, (a) deposit with Owner on the assumption of this Lease the sum of nine (9) months of the then Fixed Rent and increases therein pursuant to Article 23 as security for the faithful performance and observance by such assignee of the terms and obligations of this Lease, (b) furnish Owner with financial statements of such assignee for the prior three (3) fiscal years, as finally determined after an audit and certified as correct by a certified public accountant, which financial statements shall show a net worth of at least six (6) times the Fixed Rent and increases therein pursuant to Article 23 then payable for each of such three (3) years, (c) grant to Owner a security interest in such property of the proposed assigned as Owner shall deem necessary to provide adequate assurance of the performance by such assignee of its obligations under the Lease.
Section 11.05. Tenant's Subsidiaries & Affiliates: A. Supplementing the provisions of Article 11, as long as Tenant is not in default under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed and performed, GTJ Co., Inc., Tenant named herein, shall have the right, without the prior consent of Owner, to assign its interest in this Lease, for the use permitted in this Lease, to any subsidiary or affiliate of Tenant named herein, which is in the same general line of business as Tenant named herein and only for such period as it shall remain such subsidiary or affiliate. For the purposes of this Article: (a) a "subsidiary" of Tenant named herein shall mean any corporation not less than fifty-one (51%) percent of whose outstanding voting stock at the time shall be owned by Tenant named herein, and (b) an "affiliate" of Tenant named herein shall mean any corporation, partnership or other business entity which controls or is controlled by, or is under common control with Tenant. For the purpose of the definition of "affiliate" the word "control" (including, "controlled by" and "under common control with") as used with respect to any corporation, partnership or other business entity, shall mean the possession of the power to direct or cause the direction of the management and policies of such corporation, partnership or other business entity, whether through the ownership of voting securities or contract. No such assignment shall be valid or effective unless, within ten (10) days after the execution thereof, Tenant shall deliver to Owner all of the following: (I) a duplicate original instrument of assignment, in form and substance satisfactory to Owner, duly executed by Tenant, in which Tenant shall (a) waive all notices of default given to the assignee, and all other notices of every kind or description now or hereafter provided in this Lease, by statute or rule of law, and (b) acknowledge that Tenant's obligations with respect to this Lease shall not be discharged, released or impaired by (i) such assignment, (ii) any amendment or modification of this Lease, whether or not the obligations of Tenant are increased thereby, (iii) any further assignment or transfer of Tenant's interest in this Lease, (iv) any exercise, non-exercise or waiver by Owner of any right, remedy, power or privilege under or with respect to this Lease, (v) any waiver, consent, extension, indulgence or other act or omission with respect to any other obligations of Tenant under this Lease, (vi) any act or thing which, but for the provisions of such assignment, might be deemed a legal or equitable discharge of a surety or assignor, to all of which Tenant shall consent in advance, and (c) expressly waive and surrender any then existing defense to its liability hereunder it being the purpose and intent of Owner and Tenant that the obligations of Tenant hereunder as assignor shall be absolute and unconditional under any and all circumstances, and (II) an instrument, in form and substance reasonably satisfactory to Owner, duly executed by the assignee, in which such assignee shall assume the observance and performance of, and agree to be personally bound by, all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed. The provisions of Section 11.03 relating to Owner's option to terminate this Lease and the provisions of Section 11.03 C. relating to profits payable to Owner upon an assignment of this Lease shall not be applicable to any proposed assignment of this Lease to any such subsidiary or affiliate of Tenant pursuant to the provisions of this Section.
B. Further supplementing the provisions of Article 11, as long as Tenant is not in default under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed and performed, GTJ Co., Inc., Tenant named herein, shall have the right without the prior consent of Owner, to sublet to, or permit the use or occupancy of, all or any part of the Demised Premises by any subsidiary or affiliate (as said terms are defined in Section 11.05 A.) of Tenant named herein for the use permitted in this Lease provided that such subsidiary or affiliate is in the same general line of business as the Tenant named herein and only for such period as it shall remain such subsidiary or affiliate and in the same general line of business as the Tenant named herein. However, no such subletting shall be valid unless, prior to the execution thereof, Tenant shall give notice to Owner of the proposed subletting, and within ten (10) days prior the commencement of said subletting, Tenant shall deliver to Owner an agreement, in form and substance satisfactory to Owner, duly
executed by Tenant and said subtenant, in which said subtenant shall assume
performance of and agree to be personally bound by, all of the terms, covenants
and conditions of this Lease which are applicable to said subtenant and such
subletting. Tenant shall give prompt notice to Owner of any such use or
occupancy of all or any part of the Demised Premises and such use or occupancy
shall be subject and subordinate to all of the terms, covenants and conditions
of this Lease. No such use or occupancy shall operate to vest in the user or
occupant any right or interest in this Lease or the Demised Premises. For the
purposes of determining the number of subtenants or occupants in the Demised
Premises, the occupancy of any such permitted subsidiary or affiliate of Tenant
shall be deemed the occupancy of Tenant and such subsidiary or affiliate shall
not be counted as a subtenant or occupant for the purposes of Section 11.03 and
the provisions of Section 11.03 relating to Owner's option to terminate this
Lease or recapture such portion of the Demised Premises and the provisions of
Section 11.03 C. relating to Subletting Profits shall not be applicable to any
proposed subletting to any such subsidiary or affiliate of Tenant pursuant to
the provisions of this Section.
Section 11.06. Permitted Occupants: Supplementing the provisions of this Article 11 and notwithstanding anything contained herein to the contrary, Tenant shall have the right, without prior consent of Owner to permit undivided occupancy of a portion of the Demised Premises by The Transit Alliance (the "Permitted Occupant"). The occupancy by the Permitted Occupant shall be conditioned upon the agreement that such arrangement will terminate automatically upon the termination of this Lease. No such use or occupancy by any such persons shall operate to give any such persons any right or interest in this Lease or the Demised Premises other than the right to occupy such portion of the Demised Premises during the Demised Term, and such use or occupancy shall be subject and subordinate to all of the terms, covenants and condition of this Lease. Upon Owner's request, Tenant shall provide Owner with a copy of any executed license or use agreement with the Permitted Occupant with respect to the Demised Premises.
Section 11.07. Supplementing the provisions of Section 11.02, (i) so long as Owner shall maintain a directory in the lobby of the Building, Owner shall make available to Tenant space for the listing of Tenant's name and the names of any of the officers or employees of Tenant and any permitted occupants of the Demised Premises provided that the names so listed shall not require more than Tenant's Proportionate Share of the space of said directory.
ARTICLE 12
EXISTING CONDITIONS/OWNER'S INITIAL WORK
Section 12.01. "As Is" but for Owner's Initial Work: Tenant acknowledges that Owner has made no representations to Tenant with respect to the condition of the Demised Premises and Tenant agrees to accept possession of the Demised Premises in the condition which shall exist on the Commencement Date "as is" and further agrees that Owner shall have no obligation to perform any work or make any installations in order to prepare the Demised Premises for Tenant's occupancy except as otherwise provided on Exhibit B annexed hereto and made a part hereof (such work and installations are referred to as "Owner's Initial Work"). The terms, covenants and conditions of Exhibit B are incorporated in this Lease by reference and shall be deemed a part of this Lease as through fully set forth in the body of this Lease.
ARTICLE 13
ACCESS TO DEMISED PREMISES
Section 13.01. Owner's Right to Enter: Owner and its agents shall have the following rights in and about the Demised Premises: (i) to enter the Demised Premises at all times to examine the Demised Premises or for any of the purposes set forth in this Article or for the purpose of performing any obligation of Owner under this Lease or exercising any right or remedy reserved to Owner in this Lease, or complying with any Legal Requirement which Owner is obligated to comply with hereunder, and if Tenant, its officers, partners, agents or employees shall not be personally present or shall not open and permit an entry into the Demised Premises at any time when such entry shall be necessary or
permissible, to use a master key or to forcibly enter the Demised Premises; (ii) to erect, install, use and maintain pipes, ducts and conduits in and through the Demised Premises; (iii) to exhibit the Demised Premises to others; (iv) to make such decorations, repairs, alterations, improvements or additions, or to perform such maintenance, including, but not limited to, the maintenance of all heating, air conditioning, ventilating, elevator, plumbing, electrical, telecommunication and other mechanical facilities, as Owner may deem necessary or desirable; (v) to take all materials into and upon the Demised Premises that may be required in connection with any such decorations, repairs, alterations, improvements, additions or maintenance; and (vi) to alter, renovate and decorate the Demised Premises at any time during the Demised Term if Tenant shall have removed all or substantially all of Tenant's property from the Demised Premises. The lessors under any Superior Lease and the holders of any Mortgage shall have the right to enter the Demised Premises from time to time through their respective employees, agents, representatives and architects to inspect the same or to cure any default of Owner or Tenant relating thereto. Owner shall have the right, from time to time, to change the name, number or designation by which the Building is commonly known which right shall include, without limitation, the right to name the Building after any tenant of the Building.
Section 13.02. Owner's Reservation of Rights to Portions of the Building:
All parts (except surfaces facing the interior of the Demised Premises) of all
walls, windows and doors bounding the Demised Premises (including exterior
Building walls, core corridor walls, doors and entrances), all balconies,
terraces and roofs adjacent to the Demised Premises, all space in or adjacent to
the Demised Premises used for shafts, stacks, stairways, chutes, pipes,
conduits, ducts, fan rooms, heating, air conditioning, ventilating, plumbing,
electrical, telecommunication and other mechanical facilities, closets, service
closets and other Building facilities, and the use thereof, as well as access
thereto through the Demised Premises for the purposes of operation, maintenance,
alteration and repair, are hereby reserved to Owner. Owner also reserves the
right at any time to change the arrangement or location of entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets and other
public parts of the Building, provided any such change does not permanently and
unreasonably obstruct Tenant's access to the Demised Premises. Nothing contained
in this Article shall impose any obligation upon Owner with respect to the
operation, maintenance, alteration or repair of the Demised Premises or the
Building.
Section 13.03. Access to Third Parties: Owner and its agents shall have the right to permit access to the Demised Premises, whether or not Tenant shall be present, to any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or reasonably purporting to be entitled to, such access for the purpose of taking possession of, or removing, any property of Tenant or any other occupant of the Demised Premises, or for any other lawful purpose, or by any representative of the fire, police, building, sanitation or other department of the Town, County, Village, State or Federal Governments. Neither anything contained in this Section, nor any action taken by Owner under this Section, shall be deemed to constitute recognition by Owner that any person other than Tenant has any right or interest in this Lease or the Demised Premises.
Section 13.04. No Actual or Constructive Eviction: The exercise by Owner or its agents or by the lessor under any Superior Lease or by the holder of any Mortgage of any right reserved to Owner in this Article shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner, or its agents, or upon any lessor under any Superior Lease or upon the holder of any such Mortgage, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
Section 13.05. Security: Owner shall be the sole determinant of the type and amount of security services to be provided in the Building. In all events and notwithstanding any provision of this Lease to the contrary, Owner and Owner's Indemnitees (as defined in Article 19)shall not be liable to Tenant and Tenant hereby waives any claim against Owner and Owner's Indemnitees for (a) any unauthorized or criminal entry of third parties into the Demised Premises or the Building, or (b) any damage to persons or property in or about the Demised Premises or the Building by or from any unauthorized or criminal acts of third parties, regardless of any action, inaction, failure, breakdown, malfunction of the security services provided or any negligence on the part of Landlord or Owner's Indemnitees.
Section 13.06. Owner's Reasonable Notice and Times of Entry: Supplementing the provisions of Sections 13.01 and 13.02, Owner agrees that, except in cases of emergency, any entry upon the Demised Premises pursuant to the provisions of said Sections shall be made at reasonable times, and only after reasonable advance notice to Tenant (which may be mailed, delivered or left at the Demised Premises, notwithstanding any contrary provisions of Article 27). Any work performed or installations made pursuant to said Sections shall be made with reasonable diligence and any such entry, work or installations shall be made in a manner designed to minimize interference with Tenant's normal business operations (however, nothing contained in this Section shall be deemed to impose upon Owner any obligation to employ contractors or labor at so-called overtime or other premium pay rates).
ARTICLE 14
VAULT SPACE
Section 14.01. The Demised Premises do not contain any vaults, vault space or other space outside the boundaries of the Real Property, notwithstanding anything contained in this Lease or indicated on any sketch, blueprint or plan. Owner makes no representation as to the location of the boundaries of the Real Property. All vaults and vault space and all other space outside the boundaries of the Real Property which Tenant may be permitted to use or occupy are to be used or occupied under a revocable license, and if any such license shall be revoked, or if the amount of such space shall be diminished or required by any Federal, State or Municipal Authority or by any public utility company, such revocation, diminution or requisition shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner. Any fee, tax or charge imposed by any governmental authority for any such vault, vault space or other space shall be paid by Tenant.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
Section 15.01. Tenant will not at any time use or occupy, or permit the use or occupancy of, the Demised Premises in violation of any Certificate(s) of Occupancy covering the Demised Premises.
ARTICLE 16
DEFAULT
Section 16.01. Events of Default: Upon the occurrence, at any time prior to or during the Demised Term, of any one or more of the following events (referred to herein, singly, as an "Event of Default" and collectively as "Events of Default"):
(a) if Tenant shall default in the payment when due of any installment
of Fixed Rent or any increase in the Fixed Rent or in the payment when due
of any additional rent and such default shall continue for a period of five
(5) days after notice by Owner to Tenant of such default; or
(b) if Tenant shall default in the observance or performance of any term, covenant or condition of this Lease on Tenant's part to be observed or performed (other than the covenants for the payment of Fixed Rent, any increase in the Fixed Rent and additional rent) and Tenant shall fail to remedy such default within thirty (30) days after notice by Owner to Tenant of such default, or if such default is of such a nature that it cannot be completely remedied within said period of thirty (30) days and Tenant shall not commence, promptly after receipt of such notice, or shall not thereafter diligently prosecute to completion, all steps necessary to remedy such default; or
(c) if Tenant shall file a voluntary petition in bankruptcy or insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, or shall make an assignment for the benefit of creditors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any part of Tenant's property; or
(d) if, within thirty (30) days after the commencement of any proceeding against Tenant, whether by the filing of a petition or otherwise, seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, such proceeding shall not have been dismissed, or if, within thirty (30) days after the appointment of any trustee, receiver or liquidator of Tenant, or of all or any part of Tenant's property, without the consent or acquiescence of Tenant, such appointment shall not have been vacated or otherwise discharged, or if any execution or attachment shall be issued against Tenant or any of Tenant's property pursuant to which the Demised Premises shall be taken or occupied or attempted to be taken or occupied; or
(e) if Tenant shall default in the observance or performance of any term, covenant or condition on Tenant's part to be observed or performed under any other lease with Owner of space in the Building and such default shall continue beyond any grace period set forth in such other lease for the remedying of such default; or
(f) if the Demised Premises shall become vacant, deserted or abandoned or if Tenant shall fail to take occupancy of the Demised Premises and commence the operation of its business within the Demised Premises within three (3) months of the Commencement Date; or
(g) if (i) Tenant's interest in this Lease shall devolve upon or pass
to any person, whether by operation of law or otherwise, or (ii) there
shall be any sale, pledge, transfer or other alienation described in
Section 11.01 of this Lease which is deemed an assignment of this Lease for
purposes of said Section 11.01, except as expressly permitted under Article
11;
then, during such time as such Event(s) of Default is/are continuing, Owner may at any time, at Owner's option, give to Tenant a five (5) days' notice of termination of this Lease and, in the event such notice is given, this Lease and the Demised Term shall come to an end and expire (whether or not said term shall have commenced) upon the expiration of said five (5) days with the same effect as if the date of expiration of said five (5) days were the Expiration Date, but Tenant shall remain liable for damages and all other sums payable pursuant to the provisions of Article 18.
Section 16.02. "Tenant"/Moneys Received: If, at any time (i) Tenant shall be comprised of two (2) or more persons, or (ii) Tenant's obligations under this Lease shall have been guaranteed by any person other than Tenant, or (iii) Tenant's interest in this Lease shall have been assigned, the word "Tenant", as used in Subsections (c) and (d) of Section 16.01, shall be deemed to mean any one or more of the persons primarily or secondarily liable for Tenant's obligations under this Lease. Any monies received by Owner from or on behalf of Tenant during the pendency of any proceeding of the types referred to in said Subsections (c) and (d) shall be deemed paid as compensation for the use and occupation of the Demised Premises and the acceptance of any such compensation by Owner shall not be deemed an acceptance of rent or a waiver on the part of Owner of any rights under Section 16.01.
ARTICLE 17
REMEDIES
Section 17.01. Owner's Right of Re-Entry and Right to Relet: If Tenant shall default in the payment when due of any installment of Fixed Rent or in the payment when due of any increase in the Fixed Rent or any additional rent, or if this Lease and the Demised Term shall expire and come to an end as provided in Article 16:
(a) Owner and its agents and servants may immediately, or at any time after such default or after the date upon which this Lease and the Demised Term shall expire and come to an end, re-enter the Demised Premises or any part thereof, without notice, either by summary proceedings or by any other applicable action or proceeding, or by force or otherwise (without being liable to indictment, prosecution or damages therefor), and may repossess the Demised Premises and dispossess Tenant and any other persons from the Demised Premises and remove any and all of their property and effects from the Demised Premises; and
(b) Owner, at Owner's option, may relet the whole or any part or parts of the Demised Premises, from time to time, either in the name of Owner or otherwise, to such tenant or tenants, for such term or terms ending before, on or after the Expiration Date, at such rental or rentals and upon such other conditions, which may include concessions and free rent periods, as Owner, in its sole discretion, may determine. Owner shall have no obligation to relet the Demised Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Demised Premises or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Tenant of any liability under this Lease or otherwise to affect any such liability; Owner, at Owner's option, may make such repairs, replacements, alterations, additions, improvements, decorations and other physical changes in and to the Demised Premises as Owner, in its sole discretion, considers advisable or necessary in connection with any such reletting or proposed reletting, without relieving Tenant of any liability under this Lease or otherwise affecting any such liability.
Section 17.02. Waiver of Right to Redeem, etc.: Tenant hereby waives the
service of any notice of intention to re-enter or to institute legal proceedings
to that end which may otherwise be required to be given under any present or
future law. Tenant, on its own behalf and on behalf of all persons claiming
through or under Tenant, including all creditors, does further hereby waive any
and all rights which Tenant and all such persons might otherwise have under any
present or future law to redeem the Demised Premises, or to re-enter or
repossess the Demised Premises, or to restore the operation of this Lease, after
(i) Tenant shall have been dispossessed by a judgment or by warrant of any court
or judge, or (ii) any re-entry by Owner, or (iii) any expiration or termination
of this Lease and the Demised Term, whether such dispossess, re-entry,
expiration or termination shall be by operation of law or pursuant to the
provisions of this Lease. The words "re-enter", "re-entry" and "re-entered" as
used in this Lease shall not be deemed to be restricted to their technical legal
meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed, Owner shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth in this Lease is cumulative and shall not
preclude Owner from invoking any other remedy allowed by law or in equity.
ARTICLE 18
DAMAGES
Section 18.01. Amount of Owner's Damages: If this Lease and the Demised Term shall expire and come to an end as provided in Article 16, or by or under any summary proceeding or any other action or proceeding, or if Owner shall re-enter the Demised Premises as provided in Article 17, or by or under any
summary proceeding or any other action or proceeding, then, in any of said events:
(a) Tenant shall pay to Owner all Fixed Rent, additional rent and other charges payable under this Lease by Tenant to Owner to the date upon which this Lease and the Demised Term shall have expired and come to an end or to the date of re-entry upon the Demised Premises by Owner, as the case may be; and
(b) Tenant shall also be liable for and shall pay to Owner, as damages, any deficiency (referred to as a "Deficiency") between the Fixed Rent reserved in this Lease for the period which otherwise would have constituted the unexpired portion of the Demised Term and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of Section 17.01 for any part of such period (first deducting from the rents collected under any such reletting all of Owner's expenses in connection with the termination of this Lease or Owner's re-entry upon the Demised Premises and with such reletting including, but not limited to, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, alteration costs and other expenses of preparing the Demised Premises for such reletting). Any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of Fixed Rent, Owner shall be entitled to recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Owner's right to collect the Deficiency for any subsequent month by a similar proceeding. Solely for the purposes of this Subsection (b), the term "Fixed Rent" shall mean the Fixed Rent in effect immediately prior to the date upon which this Lease and the Demised Term shall have expired and come to an end, or the date of re-entry upon the Demised Premises by Owner, as the case may be, adjusted, from time to time, to reflect any increases which would have been payable pursuant to any of the provisions of this Lease including, but not limited to, the provisions of Article 23 of this Lease if the term hereof had not been terminated; and
(c) At any time after the Demised Term shall have expired and come to an end or Owner shall have re-entered upon the Demised Premises, as the case may be, whether or not Owner shall have collected any monthly Deficiencies as aforesaid, Owner shall be entitled to recover from Tenant, and Tenant shall pay to Owner, on demand, as and for liquidated and agreed final damages, a sum equal to the amount by which the Fixed Rent reserved in this Lease for the period which otherwise would have constituted the unexpired portion of the Demised Term exceeds the then fair and reasonable rental value of the Demised Premises for the same period, both discounted to present worth at the rate of four (4%) percent per annum. If, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Demised Premises, or any part thereof, shall have been relet by Owner for the period which otherwise would have constituted the unexpired portion of the Demised Term, or any part thereof, the amount of rent reserved upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Demised Premises so relet during the term of the reletting. Solely for the purposes of this Subsection (c), the term "Fixed Rent" shall mean the Fixed Rent in effect immediately prior to the date upon which this Lease and the Demised Term shall have expired and come to an end, or the date of re-entry upon the Demised Premises by Owner, as the case may be, adjusted to reflect any increases pursuant to the provisions of Article 23 for the Escalation Year and Tax Escalation Year immediately preceding such event.
Section 18.02. Rents Under Reletting: If the Demised Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of this Article 18. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents shall exceed the Fixed Rent reserved in this Lease. Nothing contained in Articles 16, 17 or this Article shall be deemed to limit or preclude the recovery by Owner from Tenant of the maximum amount allowed to be obtained as damages by any statute or rule of law, or of any sums
or damages to which Owner may be entitled in addition to the damages set forth in Section 18.01.
ARTICLE 19
FEES AND EXPENSES; INDEMNITY
Section 19.01. Owner's Right to Cure Tenant's Default: If Tenant shall default in the observance or performance of any term, covenant or condition of this Lease on Tenant's part to be observed or performed, Owner, at any time thereafter and without notice in cases of emergency, and in other cases, after the expiration of any applicable notice and cure period set forth in this Lease, may remedy such default for Tenant's account and at Tenant's expense, without thereby waiving any other rights or remedies of Owner with respect to such default.
Section 19.02. Tenant's Indemnity and Liability Insurance Obligations: A.
Except to the extent caused by the gross negligence or willful misconduct of
Owner or Owner's Indemnitees (as hereinafter defined), Tenant agrees to
indemnify and save Owner and Owner's Indemnitees harmless of and from all loss,
cost, liability, damage and expense including, but not limited to, reasonable
counsel fees, penalties and fines, incurred in connection with or arising from
(i) any default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, or (ii) the breach or failure of any representation or warranty made
by Tenant in this Lease, or (iii) the use or occupancy or manner of use or
occupancy of the Demised Premises by Tenant or any person claiming through or
under Tenant, or (iv) any acts, omissions or negligence of Tenant or any such
person, or the contractors, agents, servants, employees, visitors or licensees
of Tenant or any such person, in or about the Demised Premises or the Building
either prior to, during, or after the expiration of, the Demised Term,
including, but not limited to, any acts omissions or negligence in the making or
performing of any Alterations. Tenant further agrees to indemnify and save
harmless Owner and Owner's Indemnitees of and from all loss, cost, liability,
damage and expense, including, but not limited to, reasonable counsel fees and
disbursements, incurred in connection with or arising from any claims by any
persons by reason of injury to persons or damage to property occasioned by any
use, occupancy, act, omission or negligence referred to in the preceding
sentence. "Owner's Indemnitees" shall mean the Owner, the shareholders or the
partners comprising Owner and its and their partners and shareholders, officers,
directors, employees, agents (including without limitation, any leasing and
managing agents) and contractors together with the lessor under any Superior
Lease and the holder of any Mortgage. If any action or proceeding shall be
brought against Owner or Owner's Indemnitees based upon any such claim and if
Tenant, upon notice from Owner, shall cause such action or proceeding to be
defended at Tenant's expense by counsel acting for Tenant's insurance carriers
in connection with such defense or by other counsel reasonably satisfactory to
Owner, without any disclaimer of liability by Tenant or such insurance carriers
in connection with such claim, Tenant shall not be required to indemnify Owner
and Owner's Indemnitees for counsel fees in connection with such action or
proceeding.
B. Throughout the Demised Term Tenant shall maintain commercial general liability insurance against any claims by reason of personal injury, death and property damage occurring in or about the Demised Premises covering, without limitation, the operation of any private air conditioning equipment and any private elevators, escalators or conveyors in or serving the Demised Premises or any part thereof, whether installed by Owner, Tenant or others, and shall furnish to Owner duplicate original policies of such insurance or certificates evidencing the same at least ten (10) days prior to the Commencement Date and at least ten (10) days prior to the expiration of the term of any such policy previously furnished by Tenant, in which policies or certificates Owner, and Owner's Indemnitees shall be named as parties insured, which policies or certificates shall be issued by companies, and shall be in form and amounts, satisfactory to Owner. The minimum limits of liability shall be a combined single limit with respect to each occurrence in an amount of not less than $5,000,000 for injury (or death) and damage to property or such greater amount as Owner may, from time to time, reasonably require.
Section 19.03. Payments: Tenant shall pay to Owner, within five (5) days next following rendition by Owner to Tenant of bills or statements therefor: (i) sums equal to all expenditures made and monetary obligations incurred by Owner
including, but not limited to, expenditures made and obligations incurred for reasonable counsel fees and disbursements, in connection with the remedying by Owner, for Tenant's account pursuant to the provisions of Section 19.01, of any default of Tenant, and (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Section 19.02, and (iii) sums equal to all expenditures made and monetary obligations incurred by Owner including, but not limited to, expenditures made and obligations incurred for reasonable counsel fees and disbursements, in collecting or attempting to collect the Fixed Rent, any additional rent or any other sum of money accruing under this Lease or in enforcing or attempting to enforce any rights of Owner under this Lease or pursuant to law, whether by the institution and prosecution of summary proceedings or otherwise; and (iv) all other sums of money (other than Fixed Rent) accruing from Tenant to Owner under the provisions of this Lease. Any sum of money (other than Fixed Rent) accruing from Tenant to Owner pursuant to any provision of this Lease, whether prior to or after the Commencement Date, may, at Owner's option, be deemed additional rent, and Owner shall have the same remedies for Tenant's failure to pay any item of additional rent when due as for Tenant's failure to pay any installment of Fixed Rent when due. Tenant's obligations under this Article shall survive the expiration or sooner termination of the Demised Term.
Section 19.04. Tenant's Late Payments - Late Charges: If Tenant shall fail to make payment of any installment of Fixed Rent or any increase in the Fixed Rent or any additional rent within ten (10) days after the date when such payment is due, Tenant shall pay to Owner, in addition to such installment of Fixed Rent or such increase in the Fixed Rent or such additional rent, as the case may be, as a late charge and as additional rent, a sum equal to seven (7%) percent per annum above the then current prime rate (as the term "prime rate" is defined in Section 31.03) charged by JPMorgan Chase Bank or its successor of the amount unpaid computed from the date such payment was due to and including the date of payment.
ARTICLE 20
ENTIRE AGREEMENT
Section 20.01. Entire Agreement: This Lease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Lease. Neither Owner nor Owner's agents have made any representations or warranties with respect to the Demised Premises, the Building, the Real Property or this Lease except as expressly set forth in this Lease and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth in this Lease. This Lease may not be changed, modified or discharged, in whole or in part, orally and no executory agreement shall be effective to change, modify or discharge, in whole or in part, this Lease or any provisions of this Lease, unless such agreement is set forth in a written instrument executed by the party against whom enforcement of the change, modification or discharge is sought. All references in this Lease to the consent or approval of Owner shall be deemed to mean the written consent of Owner, or the written approval of Owner, as the case may be, and no consent or approval of Owner shall be effective for any purpose unless such consent or approval is set forth in a written instrument executed by Owner.
ARTICLE 21
END OF TERM
Section 21.01. End of Term: On the date upon which the Demised Term shall expire and come to an end, whether pursuant to any of the provisions of this Lease or by operation of law, and whether on or prior to the Expiration Date, Tenant, at Tenant's sole cost and expense, (i) shall quit and surrender the Demised Premises to Owner, broom clean and in good order and condition, ordinary wear excepted, and (ii) shall remove all of Tenant's Personal Property and all other property and effects of Tenant and all persons claiming through or under Tenant from the Demised Premises and the Building, and (iii) shall repair all damage to the Demised Premises occasioned by such removal and (iv) shall, at Owner's election, exercisable within six (6) months following the expiration or earlier termination of the Demised Term, remove any private interior staircases in the Demised Premises or connecting the Demised Premises or any part thereof with any other space (referred to herein as the "Other Space") in the Building occupied by Tenant, and restore those portions of the Demised Premises, the Other Space and the Building affected by any such staircases (including, but not
limited to, the slabbing over of any openings) to the condition of each which
existed prior to the installation of any such staircases, and repair any damage
to the Demised Premises, Other Space and the Building occasioned by such
removal. Notwithstanding the provisions of subdivision (iv) of the foregoing
sentence, in the event Owner does not elect to have removed any such staircase
referred to therein, any such staircase shall be and remain the property of
Owner at no cost or expense to Owner. Owner shall have the right to retain any
property and effects which shall remain in the Demised Premises after the
expiration or sooner termination of the Demised Term, and any net proceeds from
the sale thereof, without waiving Owner's rights with respect to any default by
Tenant under the foregoing provisions of this Section. Tenant expressly waives,
for itself and for any person claiming through or under Tenant, any rights which
Tenant or any such person may have under the provisions of Section 2201 of the
New York Civil Practice Law and Rules and of any successor law of like import
then in force, in connection with any holdover summary proceedings which Owner
may institute to enforce the foregoing provisions of this Article. If said date
upon which the Demised Term shall expire and come to an end shall fall on a
Sunday or holiday, then Tenant's obligations under the first sentence of this
Section shall be performed on or prior to the Saturday or business day
immediately preceding such Sunday or holiday. There shall be no holding over by
Tenant after the expiration or earlier termination of this Lease and the failure
by Tenant to deliver possession of the Demised Premises to Owner shall be an
unlawful holdover. During any period in which Tenant so holds over, at Owner's
option, the rental value of the Demised Premises, payable from the date
immediately following the date on which Tenant was to deliver the Demised
Premises to Owner, through and including the last day of the calendar month in
which Tenant so delivers the Demised Premises, shall be deemed to be equal to
the greater of 150% of (a) the Fixed Rent payable immediately preceding the
expiration or earlier termination of this Lease, or (b) the then fair market
rental value of the Demised Premises. Tenant's obligations under this Section
shall survive the expiration or sooner termination of the Demised Term.
ARTICLE 22
QUIET ENJOYMENT
Section 22.01. Quiet Enjoyment: Owner covenants and agrees with Tenant that upon Tenant paying the Fixed Rent and additional rent reserved in this Lease and observing and performing all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises during the Demised Term, subject, however, to the terms, covenants and conditions of this Lease including, but not limited to, the provisions of Section 37.01, and subject to the Superior Lease and the Mortgage referred to in Section 7.01.
ARTICLE 23
ESCALATION
Section 23.01. Definitions: In the determination of any increase in the Fixed Rent under the provisions of this Article, Owner and Tenant agree that the following terms shall have the following meanings:
A. The term "Tax Escalation Year" shall mean each fiscal year commencing January 1st and ending on the following December 31st which shall include any part of the Demised Term. With respect to any Taxes (as defined in Section 23.01(C)) which are payable based on a period other than a Tax Escalation Year of January 1st through December 31st, the portion of such Taxes which will be included in any Tax Escalation Year shall be the portion thereof allocable and attributable to such Tax Escalation Year (e.g. with respect to the levying of school taxes for the period commencing on July 1, 2003 and ending on June 30, 2004 and for the period commencing on July 1, 2004 and ending on June 30, 2005, such school taxes levied against the Building for such periods shall be included in and allocable to the Tax Escalation Year commencing on January 1, 2004 and ending on December 31, 2005 as follows: one-half (1/2) of the total amount of such school tax levied for the school tax year commencing on July 1, 2003 and ending on June 30, 2004 and one-half (1/2) of the total amount of such school tax levied for the school tax year commencing on July 1, 2004 and ending on June 30, 2005).
B. Intentionally Deleted.
C. The term "Taxes" shall be deemed to mean a sum equal to all real estate taxes and assessments, special or otherwise (including without limitation General, School, State County, Village or Town Tax), upon or with respect to the Real Property imposed by the Town of Hempstead, County of Nassau or any other taxing authority to create a source of revenue through taxation of real estate as such. If, due to any change in the method of taxation, any franchise, income, profit, sales, rental, use and occupancy or other tax or payments in lieu of any such taxes shall be substituted for, or levied against Owner or any owner of the Building or the Real Property, in lieu of any real estate taxes or assessments upon or with respect to the Real Property, such tax or payments in lieu of any such taxes shall be included in the term Taxes for the purposes of this Article. The amounts required to be paid by Owner or any tenant or occupant of the Building or the Real Property pursuant to any Payment in Lieu of Tax Agreement entered into with a taxing authority having jurisdiction over the Real Property shall be included in the term Taxes for the purposes of this Article.
D. The term "Owner's Basic Tax Liability" shall mean a sum equal to General Taxes payable for calendar year 2005 and School Taxes payable for the tax year commencing on July 1, 2005 and ending on June 30, 2006.
E. The term "Demised Premises Area" shall mean 3,367 rentable square feet.
F. The term "Building Area" shall mean 103,528 rentable square feet.
G. The term "Tenant's Proportionate Share" shall mean the fraction, the denominator of which is the Building Area and the numerator of which is the Demised Premises Area (3.2523%).
H. The term "Owner's Tax Statement" shall mean an instrument containing a
computation of any increase in the Fixed Rent pursuant to the provisions of
Section 23.02A of this Article.
Section 23.02. Taxes: A. If Taxes payable in any Tax Escalation Year shall be in such amount as shall constitute an increase above Owner's Basic Tax Liability, the Fixed Rent for such Tax Escalation Year shall be increased by a sum equal to Tenant's Proportionate Share of any such increase in Taxes.
B. Unless the Commencement Date shall occur on a January 1st, any increase in the Fixed Rent pursuant to the provisions of Subsection A of this Section 23.02 for the Tax Escalation Year in which the Commencement Date shall occur shall be apportioned in that percentage which the number of days in the period from the Commencement Date to December 31st of such Tax Escalation Year, both inclusive, bears to the total number of days in such Tax Escalation Year. Unless the Demised Term shall expire on a December 31st, any increase in the Fixed Rent pursuant to the provisions of said Subsection A for the Tax Escalation Year in which the date of the expiration of the Demised Term shall occur shall be apportioned in that percentage which the number of days in the period from January 1st of such Tax Escalation Year to such date of expiration, both inclusive, bears to the total number of days in such Tax Escalation Year.
Section 23.03. Calculation and Payment of Taxes: A. Owner shall render to
Tenant, either in accordance with the provisions of Article 27 or by personal
delivery at the Demised Premises or by regular mail to the same address as Fixed
Rent bills are sent by Owner, an Owner's Tax Statement with respect to each Tax
Escalation Year, either prior to or during such Tax Escalation Year. Owner's
failure to render an Owner's Tax Statement with respect to any Tax Escalation
Year shall not prejudice Owner's right to recover any sums due to Owner
hereunder with respect to such Tax Escalation Year, nor shall it deprive Tenant
of any credit to which it otherwise might be entitled with respect to such Tax
Escalation Year pursuant to the provisions of Subsection B of this Section
23.03. The obligations of Owner and Tenant under the provisions of Section 23.02
and this Section 23.03 with respect to any increase in the Fixed Rent or any
credit to which Tenant may be entitled shall survive the expiration or any
sooner termination of the Demised Term. Within ten (10) days next following
rendition of the first Owner's Tax Statement which shows an increase in the
Fixed Rent for any Tax Escalation Year, Tenant shall pay to Owner a sum equal to
one-twelfth (1/12th) of the amount of the increase shown upon such Owner's Tax
Statement for such Tax Escalation Year (before any apportionment pursuant to the
provisions of Subsection B of Section 23.02). If any such Owner's Tax Statement
shall be rendered after the commencement of any Tax Escalation Year, Tenant
shall pay to Owner on the first day of the calendar month next following the
rendition of such Owner's Tax Statement (in addition to the payment required by
the immediately preceding sentence) a sum equal to one-twelfth (1/12) of the
increase in the Fixed Rent payable pursuant to the provisions of Subsection A of
Section 23.02 for such Tax Escalation Year shown on such statement (before any
apportionment pursuant to the provisions of Subsection B of Section 23.02)
multiplied by the number of months which may have elapsed between January 1st of
such Tax Escalation Year and the month in which such payment is made.
B. If, as a result of any application or proceeding brought by or on behalf of Owner, Owner's Basic Tax Liability shall be decreased, Owner's Tax Statement next following such decrease shall include any adjustment of the Fixed Rent for all prior Tax Escalation Years reflecting a debit to Tenant equal to the amount by which (a) the aggregate Fixed Rent payable with respect to all such prior Tax Escalation Years (as increased pursuant to the operation of the provisions of Subsection A of Section 23.02) based upon such reduction of Owner's Basic Tax Liability shall exceed (b) the aggregate Fixed Rent actually paid by Tenant with respect to all such prior Tax Escalation Years. If, as a result of any application or proceeding brought by or on behalf of Owner for reduction of the assessed valuation of the Real Property for any fiscal tax year subsequent to the fiscal tax year commencing January 1st, 2005, and expiring December 31st, 2005 with respect to General and Village Taxes, or the tax year commencing July 1, 2005 and expiring June 30, 2006 with respect to School Taxes, there shall be a decrease in Taxes for any Tax Escalation Year with respect to which Owner shall have previously rendered an Owner's Tax Statement, Owner's Tax Statement next following such decrease shall include an adjustment of the Fixed Rent for such Tax Escalation Year reflecting a credit to Tenant equal to the amount by which (i) the Fixed Rent actually paid by Tenant with respect to such Tax Escalation Year (as increased pursuant to the operation of the provisions of Subsection A of Section 23.02), shall exceed (ii) the Fixed Rent payable with respect to such Tax Escalation Year (as increased pursuant to the operation of the provisions of Subsection A of Section 23.02) based upon such reduction of the assessed valuation. Tenant shall not bring or cause to be brought any application or proceeding for reduction of the assessed valuation of the Real Property. Tenant shall pay to Owner within thirty (30) days after demand, as additional rent under this Lease, a sum equal to Tenant's Proportionate Share of all costs and expenses, including, without limitation, counsel fees, paid or incurred by Owner in connection with any application or proceeding brought for reduction of the assessed valuation of the Real Property or any other contest of Taxes upon the Real Property for any Tax Escalation Year, whether or not such application, proceeding or other contest was commenced and/or settled and/or determined prior to the Tax Escalation Year in question.
Section 23.04. Collection of Increases in Fixed Rent: The obligations of Owner and Tenant under the provisions of this Article 23 with respect to any increase in the Fixed Rent, or any credit to which Tenant may be entitled shall survive the expiration or sooner termination of the Demised Term. All sums payable by Tenant to Owner pursuant to the provisions of this Article 23 shall be collectible by Owner in the same manner as Fixed Rent.
ARTICLE 24
NO WAIVER
Section 24.01. Owner's Termination Not Prevented: Neither any option granted to Tenant in this Lease or in any collateral instrument to renew or extend the Demised Term, nor the exercise of any such option by Tenant, shall prevent Owner from exercising any option or right granted or reserved to Owner in this Lease or in any collateral instrument or which Owner may have by virtue of any law, to terminate this Lease and the Demised Term or any renewal or extension of the Demised Term either during the original Demised Term or during the renewed or extended term. Any termination of this Lease and the Demised Term shall serve to terminate any such renewal or extension of the Demised Term and
any right of Tenant to any such renewal or extension, whether or not Tenant shall have exercised any such option to renew or extend the Demised Term. Any such option or right on the part of Owner to terminate this Lease shall continue during any extension or renewal of the Demised Term. No option granted to Tenant to renew or extend the Demised Term shall be deemed to give Tenant any further option to renew or extend.
Section 24.02. No Termination by Tenant/No Waiver: No act or thing done by Owner or Owner's agents during the Demised Term shall constitute a valid acceptance of a surrender of the Demised Premises or any remaining portion of the Demised Term except a written instrument accepting such surrender, executed by Owner. No employee of Owner or of Owner's agents shall have any authority to accept the keys of the Demised Premises prior to the termination of this Lease and the Demised Term, and the delivery of such keys to any such employee shall not operate as a termination of this Lease or a surrender of the Demised Premises; however, if Tenant desires to have Owner sublet the Demised Premises for Tenant's account, Owner or Owner's agents are authorized to receive said keys for such purposes without releasing Tenant from any of its obligations under this Lease, and Tenant hereby relieves Owner of any liability for loss of, or damage to, any of Tenant's property or other effects in connection with such subletting. The failure by Owner to seek redress for breach or violation of, or to insist upon the strict performance of, any term, covenant or condition of this Lease on Tenant's part to be observed or performed, shall not prevent a subsequent act or omission which would have originally constituted a breach or violation of any such term, covenant or condition from having all the force and effect of an original breach or violation. The receipt by Owner of rent with knowledge of the breach or violation by Tenant of any term, covenant or condition of this Lease on Tenant's part to be observed or performed shall not be deemed a waiver of such breach or violation. Owner's failure to enforce any Building Rule against Tenant or against any other tenant or occupant of the Building shall not be deemed a waiver of any such Building Rule. No provision of this Lease shall be deemed to have been waived by Owner unless such waiver shall be set forth in a written instrument executed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the aggregate of all Fixed Rent and additional rent then due under this Lease shall be deemed to be other than on account of the first accruing of all such items of Fixed Rent and additional rent then due, no endorsement or statement on any check and no letter accompanying any check or other rent payment in any such lesser amount and no acceptance of any such check or other such payment by Owner shall constitute an accord and satisfaction, and Owner may accept any such check or payment without prejudice to Owner's right to recover the balance of such rent or to pursue any other legal remedy.
ARTICLE 25
MUTUAL WAIVER OF TRIAL BY JURY
Section 25.01. A. Owner and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by Owner or Tenant against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of landlord and tenant, the use or occupancy of the Demised Premises by Tenant or any person claiming through or under Tenant, any claim of injury or damage, and any emergency or other statutory remedy; however, the foregoing waiver shall not apply to any action for personal injury or property damage. The provisions of the foregoing sentence shall survive the expiration or any sooner termination of the Demised Term. If Owner commences any summary proceeding, or any other proceeding of like import, Tenant agrees: (i) not to interpose any counterclaim of whatever nature or description in any such summary proceeding, or any other proceeding of like import, unless failure to interpose such counterclaim would preclude Tenant from asserting such claim in a separate action or proceeding; and (ii) not to seek to remove to another court or jurisdiction or consolidate any such summary proceeding, or other proceeding of like import, with any action or proceeding which may have been, or will be, brought by Tenant. In the event that Tenant shall breach any of its obligations set forth in the immediately preceding sentence, Tenant agrees (a) to pay all of Owner's attorneys' fees and disbursements in connection with Owner's enforcement of such obligations of Tenant and (b) in all events, to pay all accrued, present and future Fixed Rent and increases therein and additional rent payable pursuant to the provisions of this Lease.
B. All judicial actions, suits or proceedings brought against Owner or Tenant with respect to its respective obligations, liabilities or any other matter under or arising out of or in connection with this Lease or for recognition or enforcement of any judgment rendered in any such proceedings may be brought in any state or federal court of competent jurisdiction in Nassau County. By execution and delivery of this Lease, Owner and Tenant each accept, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts and irrevocably agree to be bound by any final judgment rendered thereby in connection with this Lease from which no appeal has been taken or is available. Owner and Tenant each hereby irrevocably waives any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Nothing herein shall limit the right of Owner or Tenant to bring any action, suit or proceeding against the other party in any other court of competent jurisdiction. Owner and Tenant acknowledge that final judgment against it in any action, suit or proceeding referred to in this Article shall be conclusive and may be enforced in any other jurisdiction, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any such judgment against such party.
ARTICLE 26
INABILITY TO PERFORM
Section 26.01. If, by reason of strikes or other labor disputes, fire or other casualty (or reasonable delays in adjustment of insurance), accidents, any Legal Requirements, any orders of any Governmental Authority or any other cause beyond Owner's reasonable control, whether or not such other cause shall be similar in nature to those hereinbefore enumerated (any of the aforementioned events, a "Force Majeure Event"), Owner is unable to furnish or is delayed in furnishing any utility or service required to be furnished by Owner under the provisions of Article 29 or any other Article of this Lease or any collateral instrument, or is unable to perform or make or is delayed in performing or making any installations, decorations, repairs, alterations, additions or improvements, whether or not required to be performed or made under this Lease or under any collateral instrument, or is unable to fulfill or is delayed in fulfilling any of Owner's other obligations under this Lease or any collateral instrument, no such inability or delay shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent (except as expressly set forth in Section 29.10), or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 27
NOTICES
Section 27.01. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by a nationally recognized courier service or by registered or certified mail (return receipt requested optional), addressed as follows:
(a) To Tenant (i) at Tenant's address set forth in this Lease if mailed prior to Tenant's taking possession of the Demised Premises, or (ii) at the Building if mailed subsequent to Tenant's taking possession of the Demised Premises, or (iii) at any place where Tenant or any agent or employee of Tenant may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or surrendering the Demised Premises, or
(b) To Owner at Owner's address set forth in this Lease, with a copy to Goldfarb & Fleece, 345 Park Avenue, New York, New York 10154, Attention: Marc J. Becker, Esq., or
(c) addressed to such other address as either Owner or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Section. Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given on the date when it shall have been mailed as provided in this Section.
Nothing contained in this Section 27.01 shall preclude, limit or modify Owner's service of any notice, statement, demand or other communication in the manner required by law, including, but not limited to, any demand for rent under Article 7 of the New York Real Property Actions and Proceedings Law or any successor laws of like import.
ARTICLE 28
PARTNERSHIP TENANT
Section 28.01. If Tenant is a partnership or professional corporation or limited liability company (or is comprised of two (2) or more persons, individually and as co-partners of a partnership or shareholders of a professional corporation or members of a limited liability company) or if Tenant's interest in this Lease shall be assigned to a partnership or professional corporation or limited liability company (or to two (2) or more persons, individually and as co-partners of a partnership or shareholders of a professional corporation or members of a limited liability company) pursuant to Article 11 (any such partnership, professional corporation, limited liability company and such persons are referred to in this Section as "Partnership Tenant"), the following provisions of this Section shall apply to such Partnership Tenant: (i) each of the persons comprising Partnership Tenant, whether or not such person shall be one of the persons comprising Tenant at the time in question, hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed, changing, modifying or discharging this Lease, in whole or in part, or surrendering all or any part of the Demised Premises to Owner, and by any notices, demands, requests or other communications which may hereafter be given by Partnership Tenant or by any of the persons comprising Partnership Tenant, and (ii) any bills, statements, notices, demands, requests or other communications given or rendered to Partnership Tenant or to any of the persons comprising Partnership Tenant shall be deemed given or rendered to Partnership Tenant and to all such persons and shall be binding upon Partnership Tenant and all such persons.
ARTICLE 29
UTILITIES AND SERVICES
Section 29.01. Elevators: As long as Tenant is not in default under any of
the terms, covenants or conditions of this Lease on Tenant's part to be observed
or performed, Owner, at Owner's expense, shall furnish necessary passenger
elevator facilities on business days (as defined in Section 31.01) from 8:00
A.M. to 6:00 P.M. and shall have a passenger elevator subject to call at all
other times. Tenant shall be entitled to the non-exclusive use of the freight
elevator in common with other tenants and occupants of the Building from 8:00
A.M. to 6:00 P.M. on business days, subject to such reasonable rules as Owner
may adopt for the use of the freight elevator. At any time or times all or any
of the elevators in the Building may, at Owner's option, be automatic elevators,
and Owner shall not be required to furnish any operator service for automatic
elevators. If Owner shall, at any time, elect to furnish operator service for
any automatic elevators, Owner shall have the right to discontinue furnishing
such service with the same effect as if Owner had never elected to furnish such
service.
Section 29.02. Heat: A. Owner, at Owner's expense, shall furnish and distribute to the Demised Premises through the Building heating system, when required for the comfortable occupancy of the Premises, heated air, at reasonable temperatures, pressures and degrees of humidity and in reasonable volumes and velocities on a year-round basis, on business days from 8:00 A.M. to 6:00 P.M.
B. Air Conditioning: On or about the Commencement Date, Owner shall install an air conditioning unit and related equipment (collectively, the "Dedicated AC Unit"), as more particularly described on Exhibit B, to provide conditioned air
to the Demised Premises, the operation of which shall be controlled by Tenant. Tenant shall be responsible for the payment of the entire cost of electricity required to operate the Dedicated AC Unit charged by the corporation(s) and/or other entity(ies) selected by Owner to furnish electricity to the Building, which electric consumption shall be measured a submeter installed by Owner. In addition to the payment required to be made by Tenant to Owner for the electricity required to operate the Dedicated Unit as aforesaid, Tenant shall also pay to Owner as an administrative fee a sum equal to seven (7%) percent of such actual cost to Owner of purchasing electricity for the operation of the Dedicated AC Unit. In the event that Tenant requires additional utilities in order to operate the Dedicated AC Unit (for example, steam or condenser water), Tenant shall be responsible for the payment of the entire cost of such utilities and in the event Owner shall be required to install a meter to measure Tenant's consumption of any such additional utilities, Tenant shall pay, as an administrative fee, a sum equal to seven (7%) percent of such actual cost to Owner of purchasing such utility for the operation of the Dedicated AC Unit. Owner shall, at Owner's sole cost and expense, maintain the Dedicated AC Unit and make all repairs and replacements to the Dedicated AC Unit and any replacements thereof as and when needed during the Demised Term except that Owner, at Tenant's sole cost and expense, shall make any and all repairs to such Dedicated AC Unit occasioned by any acts, omissions or negligence of Tenant or any person claiming through or under Tenant. The Dedicated AC Unit and any replacements thereof shall be and remain Owner's property.
C. HVAC Rules and Regulations: Tenant shall cooperate fully with Owner at all times and abide by all regulations and requirements which Owner may reasonably prescribe for the proper functioning and protection of the Building heating system and the Dedicated AC Unit. In addition to any and all other rights and remedies which Owner may invoke for a violation or breach of any of the foregoing provisions of this Section 29.02, Owner may discontinue furnishing services under this Section during the period of such violation or breach, and such discontinuance shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner, or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
Section 29.03. Cleaning: A. As long as Tenant is not in default under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, and provided Tenant shall keep the Demised Premises in order, Owner, at Owner's expense, shall cause the office areas of the Demised Premises to be cleaned substantially in accordance with the standards set forth in Schedule B, all of the terms, covenants and conditions of which are incorporated in this Lease by reference and shall be deemed a part of this Lease, as though fully set forth in the body of this Lease and shall cause Tenant's ordinary office waste paper refuse to be removed. Tenant shall cooperate with any waste and garbage recycling program of the Building and shall comply with all reasonable rules and regulations of Owner with respect thereto. Tenant acknowledges that Owner's obligation to cause the office areas of the Demised Premises to be cleaned excludes any portion of the Demised Premises not used as office areas (e.g., storage, mail and computer areas, private lavatories and areas used for the storage, preparation, service or consumption of food or beverages). Tenant shall pay Owner at Building standard rates or, if there are no such rates, at reasonable rates, for the removal of any of Tenant's refuse or rubbish, other than ordinary office waste paper refuse, from the Building, and Tenant, at Tenant's expense, shall cause all portions of the Demised Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner satisfactory to Owner, and to be exterminated against infestation by vermin, roaches or rodents regularly and, in addition, whenever there shall be evidence of any infestation.
B. Tenant acknowledges and is aware that the cleaning services required to be furnished by Owner pursuant to this Section may be furnished by a contractor or contractors employed by Owner and agrees that Owner shall not be deemed in default of any of its obligations under this Section 29.03 unless such default shall continue for an unreasonable period of time after notice from Tenant to Owner setting forth the specific nature of such default.
C. Notwithstanding the provisions of Subsection A of this Section, Tenant shall have the option to contract independently for the removal of such other refuse and rubbish and for office cleaning services in addition to those furnished by Owner. In the event Tenant exercises such option, the removal of
such other refuse and rubbish and the furnishing of office cleaning services to Tenant by persons other than Owner and its contractors shall be performed in accordance with such regulations and requirements as, in Owner's judgment, are necessary for the proper operation of the Building, and Tenant agrees that Tenant will not permit any person to enter the Demised Premises or the Building for such purposes, or for the purpose of providing extermination services required to be performed by Tenant pursuant to Subsection A of this Section, other than persons first approved by Owner, such approval not unreasonably to be withheld.
Section 29.04. Electricity: A. As long as Tenant is not in default under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, Owner shall redistribute or furnish electrical energy to or for the use of Tenant in the Demised Premises for the operation of the lighting fixtures and the electrical receptacles installed in the Demised Premises on the Commencement Date. If either the quantity or character of electrical service is changed by the corporation(s) and/or other entity(ies) selected by Owner to supply electrical service to the Building or is no longer available or suitable for Tenant's requirements, no such change, unavailability or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner, or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business or otherwise.
B. Owner represents that the electrical feeder or riser capacity serving the Demised Premises on the Commencement Date shall be adequate to serve the lighting fixtures and electrical receptacles installed in the Demised Premises on the Commencement Date. Any additional feeders or risers to supply Tenant's additional electrical requirements, and all other equipment proper and necessary in connection with such feeders or risers shall be installed by Owner or, at Owner's election, by Tenant upon Tenant's request, at the sole cost and expense of Tenant, provided, that, in Owner's judgment, such additional feeders or risers are necessary and are permissible under applicable laws and insurance regulations and the installation of such feeders or riders will not cause permanent damage or injury to the Building or the Demised Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations or repairs to or interfere with or disturb other tenants or occupants of the Building. Tenant covenants that at no time shall the use of electrical energy in the Demised Premises exceed the capacity of the existing feeders or risers or wiring installations then serving the Demised Premises.
C. Prior to the Commencement Date Owner, at Owner's expense, shall have installed a submeter or submeters in the Demised Premises to measure Tenant's actual consumption of electricity in the entire Demised Premises. Tenant shall pay to Owner, from time to time, upon demand, for the electricity consumed in the Demised Premises, as determined by such submeter or submeters, the actual cost to Owner of purchasing electricity for the Demised Premises (as such actual cost is hereinafter defined) plus all applicable taxes thereon. In addition to the payment required to be made by Tenant to Owner for the electricity consumed in the Demised Premises as aforesaid, Tenant shall also pay to Owner as an administrative fee a sum equal to seven (7%) percent of such actual cost to Owner of purchasing electricity for the Demised Premises. Owner's actual cost for Tenant's KW and KWH shall be determined by the application of the Building's electric rate schedule per month from the corporation(s) and/or other entity(ies) selected by Owner to supply electrical service to the Building to Tenant's usage. With respect to any period when any such submeter is not in good working order, Tenant shall pay Owner for electricity consumed in the portion of the Demised Premises served by such submeter at the rate paid by Tenant to Owner during the most recent comparable period when such submeter was in good working order plus such seven (7%) percent administrative fee. Tenant shall take good care of any such submeter and all submetering installation equipment, at Tenant's sole cost and expense, and make all repairs thereto occasioned by any acts, omissions or negligence of Tenant or any person claiming through or under Tenant as and when necessary to insure that any such submeter is, at all times during the Demised Term, in good working order. With respect to the period (referred to as the "Interim Period"), if any, from the Commencement Date through the date immediately prior to the date upon which the submeter or submeters shall be operable, Tenant shall pay to Owner monthly on demand of Owner, for the electricity consumed in the Demised Premises, a sum equal to one-twelfth (1/12th) of the product of (x) $2.75 multiplied by (y) the Demised Premises Area. With respect to any period during the Interim Period constituting
less than a full calendar month, the monthly payment referred to in the preceding sentence shall be appropriately prorated.
D. Owner may, at any time, elect to discontinue the redistribution or
furnishing of electrical energy. In the event of any such election by Owner, (i)
Owner agrees to give reasonable advance notice of any such discontinuance to
Tenant, (ii) Owner agrees to permit Tenant to receive electrical service
directly from the corporation(s) and/or other entity(ies) Owner selects to
supply electrical service to the Building and to permit the existing feeders,
risers, wiring and other electrical facilities serving the Demised Premises to
be used by Tenant for such purpose to the extent they are suitable and safely
capable, (iii) Owner agrees to pay such charges and costs, if any, as such
corporation(s) and/or other entity(ies) may impose in connection with the
installation of Tenant's meters, (iv) the provisions of Subsection C of this
Section 29.04 shall be deemed deleted from this Lease, and (v) this Lease shall
remain in full force and effect and such discontinuance shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
E. Notwithstanding anything to the contrary set forth in this Lease, any sums payable or granted in any way by the corporation(s) and/or other entity(ies) Owner has selected to supply electricity to the Building resulting from the installation in the Demised Premises of energy efficient lighting fixtures, lamps, special supplemental heating, ventilation and air conditioning systems or any other Alterations, which sums are paid or given by way of rebate, direct payment, credit or otherwise, shall be and remain the property of Owner, and Tenant shall not be entitled to any portion thereof, unless such lighting fixtures, lamps, supplemental heating, ventilation and air conditioning systems or other Alterations were installed by Tenant, solely at Tenant's expense, without any contribution, credit or allowance by Owner, in accordance with all of the provisions of this Lease. Nothing contained in the foregoing sentence, however, shall be deemed to obligate Owner to supply or install in the Demised Premises any such lighting fixtures, lamps, supplemental heating, ventilation and air conditioning systems or other Alterations.
Section 29.05. Water: If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory and drinking purposes, Owner may install a hot water meter and a cold water meter and thereby measure Tenant's consumption of water for all purposes. Tenant shall pay to Owner the cost of any such meters and their installation, and Tenant shall keep any such meters and any such installation equipment in good working order and repair, at Tenant's cost and expense. Tenant agrees to pay for water consumed as shown on said meters, and sewer charges, taxes and any other governmental charges thereon, as and when bills are rendered. For the purposes of determining the amount of any sums required to be paid by Tenant under this Section, all hot and cold water consumed during any period when said meters are not in good working order shall be deemed to have been consumed at the rate of consumption of such water during the most comparable period when such meters were in good working order.
Section 29.06. Overtime Periods: The Fixed Rent does not reflect or include any charge to Tenant for the furnishing or distributing of any necessary elevator facilities, heat, conditioned air or mechanical ventilation to the Demised Premises during periods (referred to as "Overtime Periods") other than the hours and days set forth above in this Article for the furnishing and distributing of such services. Accordingly, if Owner shall furnish any such elevator facilities, heat, conditioned air or mechanical ventilation to the Demised Premises at the request of Tenant during Overtime Periods, Tenant shall pay Owner for such services at the standard rates then fixed by Owner for the Building or, if no such rates are then fixed, at reasonable rates. Owner shall not be required to furnish any such services during Overtime Periods, unless Owner has received reasonable advance notice from Tenant requesting such services. If Tenant fails to give Owner reasonable advance notice requesting such services during any Overtime Periods, then, whether or not the Demised Premises are habitable during such Overtime Periods, failure by Owner to furnish or distribute any such services during such Overtime Periods shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business or otherwise.
Section 29.07. Owner's Right to Stop Service: Owner reserves the right to stop the service of the heating, air conditioning, ventilating, elevator, plumbing, electrical or other mechanical systems or facilities in the Building when necessary by reason of accident or emergency, or for repairs, alterations, replacements or improvements, which, in the judgment of Owner are desirable or necessary, until said repairs, alterations, replacements or improvements shall have been completed. The exercise of such right by Owner shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise. Owner agrees to use reasonable efforts to restore any interrupted services, without any obligation, however, to employ labor at overtime or other premium pay rates, except that Owner shall employ labor at such overtime or other premium pay rates in cases where the health or safety of any occupants of the Demised Premises is adversely affected. If practicable, Owner shall attempt to advise Tenant as to the estimated length of time of any such interruption of services.
Section 29.08. Parking: Tenant shall be entitled to the exclusive use of ten (10) parking spaces in the parking lot adjoining the Building (the "Parking Lot"), which spaces shall be designated, and reserved on behalf of Tenant, by Owner. Otherwise, Tenant shall be permitted to use (non-exclusively) the unreserved spaces in the Parking Lot in common with other tenants and occupants of the Building and their business visitors. Owner shall have the right to reconfigure the Parking Lot and add additional buildings in the Parking Lot and may increase or reduce the number of spaces in the Parking Lot, provided that Tenant shall continue to be entitled to the exclusive use of ten (10) parking spaces in the Parking Lot. No such reconfiguration, additional buildings or reduction in the number of spaces in the Parking Lot for any reason, including, but not limited to, the construction of additional buildings therein or any acquisition or condemnation set forth in Article 10, shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent or relieve Tenant from any of its obligations under this Lease or impose any liability upon Owner, or its agents, or upon any Senior holder of any mortgage or superior interest. Tenant shall have no rights in and to the Parking Lot other than the exclusive use of the parking spaces designated by Owner and the nonexclusive use of the unreserved spaces in the remainder of the Parking Lot in common with other tenants and occupants and their business visitors as set forth herein. Tenant, its employees and business visitors shall not at any time park any trucks or delivery vehicles in the Parking Lot. All parking spaces used by Tenant, its employees and business visitors will be at their own risk, and Owner shall not be liable for any injury to person or property, or for loss or damage to any automobile or its contents, resulting from theft, collision, vandalism or any other cause whatsoever. There shall be no overnight parking, and Tenant shall, and shall cause its employees and business visitors to, remove their automobiles from the Parking Lot at the end of the working day. If any automobiles owned by Tenant or by its employees or business visitors remains in the Parking Lot overnight and the same interferes with the cleaning or maintenance of the Parking Lot (snow or otherwise), any costs or liabilities incurred by Owner in removing said automobile to effectuate cleaning or maintenance, or any damages resulting to said automobile or to Owner's equipment or equipment owned by others by reason of the presence of or removal of said automobile during such cleaning or maintenance shall be paid by Tenant to Owner upon demand of Owner, as additional rent.
Section 29.09. Maintenance and Operation of the Building: Throughout the Demised Term, Owner shall maintain and operate the Building in a manner which is appropriate for first class office buildings of similar construction, size and class on the south shore of Nassau County, State of New York.
Section 29.10. Rent Abatement for Interruption of Services: If, for any reason whatsoever other than (w) the result of an act or omission by Tenant, its officers, employees, agents and invitees, (x) a fire or other casualty (for which the provisions of Article 9 shall govern), (y) a taking or an eminent domain (for which the provisions of Article 10 shall govern) or (z) because of any Force Majeure Event (as defined in Section 26.01), (i) all or part of the Demised Premises are rendered untenantable by reason of the fact that the elevator, plumbing, electrical, air conditioning and heating and ventilation services which Owner is obligated to provide to the Demised Premises pursuant to the terms of this Lease are unavailable or inoperative, (ii) Tenant shall give to Owner notice of the fact that such services are unavailable or inoperative
and of such resulting untenantability, (iii) Owner shall fail within the Applicable Period (as defined herein) from the date Owner receives Tenant's notice of such failure of the aforesaid services and resulting untenantably to cause such matter to be resolved or cured or perform such maintenance or repair to the extent necessary to again render tenantable the Demised Premises or a portion thereof so previously rendered untenantable as hereinabove provided and such failure is not due to a Force Majuere Event, and (iv) the Demised Premises or the applicable portion thereof shall continue to be untenantable for the purposes for which the Demised Premises are leased by reason of such services being unavailable or inoperative, and (v) Tenant shall have vacated and shall not then using or occupying all or such portion of the Demised Premises so rendered untenantable, then, upon the occurrence of all the aforesaid events, as Tenant's sole remedy therefor, commencing on the day after the expiration of such Applicable Period, the Fixed Rent under Article 1 and increases thereof under Article 23 shall abate until the Demised Premises, or such portion thereof so previously rendered untenantable are rendered tenantable; with it understood that if less than substantially all of the Demised Premises are untenantable, then Tenant shall continue to pay Fixed Rent under Article 1 and increases thereof under Article 23 with respect to the tenantable portion of the Demised Premises based on the proportion that the rentable square feet of the tenantable portion of the Demised Premises bears to the total rentable square feet of the Demised Premises. The term "Applicable Period" as used in this Section 29.10 shall mean sixty (60) consecutive business days.
ARTICLE 30
TABLE OF CONTENTS, ETC.
Section 30.01. Table of Contents/Captions: The Table of Contents and the captions following the Articles and Sections of this Lease have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision of this Lease.
ARTICLE 31
MISCELLANEOUS DEFINITIONS, SEVERABILITY AND INTERPRETATION PROVISIONS
Section 31.01. The term "business days" as used in this Lease shall exclude Saturdays, Sundays and holidays, the term "Saturdays" as used in this Lease shall exclude holidays and the term "holidays" as used in this Lease shall mean all days observed as legal holidays by either the New York State Government or the Federal Government.
Section 31.02. The terms "Person" and "persons" as used in this Lease shall be deemed to include natural persons, firms, corporations, associations and any other private or public entities, whether any of the foregoing are acting on their own behalf or in a representative capacity.
Section 31.03. The term "prime rate" shall mean the rate of interest announced publicly by JPMorgan Chase Bank, or its successor, from time to time, as JPMorgan Chase Bank or such successor's base rate, or if there is no such base rate, then the rate of interest charged by JPMorgan Chase Bank or its successor to its most credit worthy customers on commercial loans having a ninety (90) day duration.
Section 31.04. If any term, covenant or condition of this Lease or any application thereof shall be invalid or unenforceable, the remainder of this Lease and any other application of such term, covenant or condition shall not be affected thereby.
Section 31.05. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. In the event of any action, suit, dispute or proceeding affecting the terms of this Lease, no weight shall be given to any deletions or striking out of any of the terms of this Lease contained in any draft of this Lease and no such deletion or strike out shall be entered into evidence in any such action, suit or dispute or proceeding given any weight therein.
ARTICLE 32
ADJACENT EXCAVATION
Section 32.01. If an excavation shall be made upon land adjacent to the Real Property, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation license to enter upon the Demised Premises for the purpose of doing such work as said person shall deem necessary to preserve the walls and other portions of the Building from injury or damage and to support the same by proper foundations and no such entry shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or said person.
ARTICLE 33
BUILDING RULES
Section 33.01. Tenant shall observe faithfully, and comply strictly with, and shall not permit the violation of, the Building Rules set forth in Schedule A annexed to and made a part of this Lease and such additional reasonable Building Rules as Owner may, from time to time, adopt. All of the terms, covenants and conditions of Schedule A are incorporated in this Lease by reference and shall be deemed part of this Lease as though fully set forth in the body of this Lease. The term "Building Rules" as used in this Lease shall include those set forth in Schedule A and those hereafter made or adopted as provided in this Section. In case Tenant disputes the reasonableness of any additional Building Rule hereafter adopted by Owner, the parties hereto agree to submit the question of the reasonableness of such Building Rule for decision to the Chairman of the Board of Directors of the Management Division of the Real Estate Board of New York, Inc., or its successor (the "Chairman"), or to such impartial person or persons as the Chairman may designate, whose determination shall be final and conclusive upon Owner and Tenant. Tenant's right to dispute the reasonableness of any additional Building Rule shall be deemed waived unless asserted by service of a notice upon Owner within ten (10) days after the date upon which Owner shall give notice to Tenant of the adoption of any such additional Building Rule. Owner shall have no duty or obligation to enforce any Building Rule, or any term, covenant or condition of any other lease, against any other tenant or occupant of the Building, and Owner's failure or refusal to enforce any Building Rule or any term, covenant or condition of any other lease against any other tenant or occupant of the Building shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 34
BROKER
Section 34.01. Tenant represents and warrants to Owner that Lighthouse Real Estate Management, LLC is the sole broker with whom Tenant has negotiated or otherwise dealt with in connection with the Demised Premises or in bringing about this Lease. Tenant shall indemnify Owner from all loss, cost, liability, damage and expenses, including, but not limited to, reasonable counsel fees and disbursements, arising from any breach of the foregoing representation and warranty.
ARTICLE 35
INTENTIONALLY OMITTED
ARTICLE 36
ARBITRATION, ETC.
Section 36.01. Any dispute with respect to the reasonability of any failure or refusal of Owner to grant its consent or approval to any request for such consent or approval pursuant to the provisions of Sections 3.01 or 11.03 with respect to which request Owner has agreed, in such Sections, not unreasonably to withhold such consent or approval, which is submitted to arbitration shall be finally determined by arbitration in the County of Nassau in accordance with the rules and regulations then obtaining of the American Arbitration Association or its successor. Any such determination shall be final and binding upon the parties, whether or not a judgment shall be entered in any court. In making their determination, the arbitrators shall not subtract from, add to, or otherwise modify any of the provisions of this Lease. Owner and Tenant may, at their own expense, be represented by counsel and employ expert witnesses in any such arbitration. Any dispute with respect to the reasonability of any failure or refusal of Owner to grant its consent or approval to any request for such consent or approval pursuant to any of the provisions of this Lease (other than Sections 3.01 and 11.03) with respect to which Owner has covenanted not unreasonably to withhold such consent or approval, and any dispute arising with respect to the increases in Fixed Rent due to the provisions of Section 23.02 shall be determined by applicable legal proceedings. If the determination of any such legal proceedings, or of any arbitration held pursuant to the provisions of this Section with respect to disputes arising under Sections 3.01 and 11.03, shall be adverse to Owner, Owner shall be deemed to have granted the requested consent or approval, or be bound by any determination as to Taxes and Labor Rates and the increases in Fixed Rent relating thereto, but that shall be Tenant's sole remedy in such event and Owner shall not be liable to Tenant for a breach of Owner's covenant not unreasonably to withhold such consent or approval, or otherwise. Each party shall pay its own counsel and expert witness fees and expenses, if any, in connection with any arbitration held pursuant to the provisions of this Section and the parties will share all other expenses and fees of any such arbitration.
ARTICLE 37
PARTIES BOUND
Section 37.01. The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Owner and Tenant and, except as otherwise provided in this Lease, their respective heirs, distributees, executors, administrators, successors and assigns. However, the obligations of Owner under this Lease shall no longer be binding upon Owner named herein after the sale, assignment or transfer by Owner named herein (or upon any subsequent Owner after the sale, assignment or transfer by such subsequent Owner) of its interest in the Building as owner or lessee, and in the event of any such sale, assignment or transfer, such obligations shall thereafter be binding upon the grantee, assignee or other transferee of such interest, and any such grantee, assignee or transferee, by accepting such interest, shall be deemed to have assumed such obligations. A lease of the entire Building shall be deemed a transfer within the meaning of the foregoing sentence. Neither the partners (direct or indirect) comprising Owner, nor the shareholders (nor any of the partners comprising same), partners, directors or officers of any of the foregoing (collectively, the "Owner's Parties") shall be liable for the performance of Owner's obligations under this Lease. Tenant shall look solely to Owner to enforce Owner's obligations hereunder and shall not seek any damages against any of the Owner's Parties. Notwithstanding anything contained in this Lease to the contrary, Tenant shall look solely to the estate and interest of Owner, its successors and assigns, in the Real Property and Building for the collection or satisfaction of any judgment recovered against Owner based upon the breach by Owner of any of the terms, conditions or covenants of this Lease on the part of Owner to be performed, and no other property or assets of Owner or any of Owner's Parties shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to either this Lease, the relationship of landlord and tenant hereunder, or Tenant's use and occupancy of the Demised Premises.
ARTICLE 38
SUBSTITUTE SPACE
Section 38.01. Tenant agrees that Owner may elect, at any time, by notice
(referred to as "Owner's Notice") to Tenant to substitute for all or any portion
of the original Demised Premises any other portion of the Building which shall
have approximately the same number of rentable square feet of space as the
portion of the original Demised Premises being substituted (measured by Owner in
the same manner as Owner has measured the original Demised Premises) and in the
event of such election by Owner, Owner's Notice shall contain such number of
rentable square feet and shall be accompanied by a floor plan delineating the
additional portion of the Building so substituted. Said additional portion of
the Building so substituted shall be usable for storage in the event the portion
of the Demised Premises being substituted is the Storage Space and as general
offices if the remainder of the Demised Premises is being substituted. Owner's
Notice shall contain a date (referred to as the "Surrender Date") upon which
Tenant shall be required to vacate and surrender to Owner the portion of the
original Demised Premises being substituted which Surrender Date shall be at
least sixty (60) days next following the date of the giving of Owner's Notice.
Upon the giving of Owner's Notice, Tenant shall vacate and surrender to Owner
the portion of the original Demised Premises in question on or prior to the
Surrender Date in accordance with the provisions of Article 21 and relocate into
such substituted space (which, together with all appurtenances, fixtures,
improvements, additions and other property attached thereto or installed therein
is referred to as the "Substituted Space") as of the earlier of the following
two (2) dates [referred to as the "Substituted Space Commencement Date"]: (i)
the date Tenant shall relocate therein; or (ii) the date next following the
Surrender Date, or at any time thereafter, other than Tenant's Personal
Property. Tenant agrees to accept possession of the Substituted Space in the
condition existing as of the Substituted Space Commencement Date provided it is
usable for storage or as general offices, as the case may be, and further
provided that Owner shall build-out and paint and/or finish the Substituted
Space in a manner substantially similar to the original Demised Premises. Owner
agrees, at Owner's sole cost and expense on or prior to the Surrender Date, to
(i) build-out and finish the Substituted Space as provided in the immediately
preceding sentence, (ii) move all of Tenant's Personal Property from the Demised
Premises to the Substituted Space and (iii) run all telecommunications cabling
and electric wiring servicing the Original Demised Premises to the Substituted
Space so that Tenant shall be able to obtain services substantially similar to
those services used by Tenant in the original Demised Premises, all of which
items (i), (ii) and (iii) shall be performed in a manner so as to insure the
continuous operation of Tenant's business. As of the Substituted Space
Commencement Date, the Substituted Space shall hereby be deemed to be included
in the Demised Premises for all purposes of this Lease as though the Substituted
Space were initially leased by Owner to Tenant without in any way affecting any
of the terms, covenants or conditions of this Lease unless the Substituted Space
contains more or less rentable square feet than the portion of the original
Demised Premises for which such space was substituted, in which event this Lease
shall be modified as provided in Section 38.02.
Section 38.02. Owner and Tenant agrees that the rentable square footage of the Storage Space is 2,300 square feet and the rentable square footage of the remainder of the Demised Premises is 3,367 square feet. In the event the Substituted Space contains more or less rentable square feet than the portion of the original Demised Premises for which such space was substituted (the difference in square footage from the original Demised Premises is referred to as the "Square Footage Differential"), then, on the Substituted Space Commencement Date:
A. The Fixed Rent shall be increased or decreased, as the case may be, by a sum equal to the product of (i) the Fixed Rent per rentable square foot as of the Substituted Space Commencement Date multiplied by (ii) the Square Footage Differential, and the monthly installments of the Fixed Rent shall be adjusted accordingly to conform with the foregoing. In the event that the Substituted Space Commencement Date shall be other than the first (1st) day of any calendar month, the monthly installment of Fixed Rent for the calendar month during which the Substituted Space Commencement Date shall occur shall be adjusted pro-rata to reflect such adjustment in the Fixed Rent.
B. The Demised Premises Area set forth in Section 23.01 shall be increased or decreased, as the case may be, by the Square Footage Differential.
Section 38.03. Upon demand of Owner, Tenant will execute, acknowledge and deliver to Owner an instrument, in form reasonably satisfactory to Owner, setting forth the modifications to this Lease resulting from any Square Footage Differential. However, neither the failure of Owner to demand the execution and
delivery of such instrument nor the failure of Tenant to execute and deliver such instrument shall vitiate the provisions of this Article.
ARTICLE 39
TENANT'S TERMINATION OPTION
Section 39.01. Definitions: For the purposes of this Article, (i) the term
"Owner's Repayment Expenses" shall be deemed to be a sum equal to the aggregate
of (a) any brokerage commissions paid or payable by Owner in connection with
this Lease plus (b) the total cost expended by Owner in the performance of
Owner's Initial Work, plus (c) the total amount of Fixed Rent excused during the
Rent Holiday Period, (ii) the term "Termination Percentage" shall mean the
percentage obtained by dividing the total number of months which would have
remained in the Demised Term from and after the Earlier Termination Date (as
hereinafter defined) if the termination option set forth in this Article were
not exercised by one hundred twenty-one (121) months and (iii) the term
"Termination Consideration" shall be deemed to be a sum equal to the product of
(x) Owner's Repayment Expenses, multiplied by (y) the Termination Percentage.
Section 39.02. Exercise of Termination Option: Provided (i) this Lease has not been terminated previously pursuant to the provisions of this Lease or pursuant to law; and (ii) Tenant is not then in default (x) under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed (other than the covenant to pay Fixed Rent) beyond the applicable notice and cure periods set forth in this Lease or (y) of the covenant to pay Fixed Rent, Tenant shall have the right to terminate this Lease and the Demised Term as of the last day of any calendar month (which day is referred to as the "Earlier Termination Date") by notice to Owner exercising such right at least sixty (60) days prior to the Earlier Termination Date, together with a certified or bank check to the order of Owner in a sum equal to the Termination Consideration, which sum shall be in addition to the Fixed Rent and additional rent payable by Tenant under the provisions of this Lease through the Earlier Termination Date. Time is of the essence with respect to the giving of such notice and any notice given after the Termination Option Notice Date purporting to exercise such option shall be void and of no force or effect. Such notice of termination shall be given in accordance with the provisions of Article 27. In the event Tenant shall give any such notice of termination pursuant to the provisions of this Section and shall otherwise comply with the conditions of the exercise of Tenant's right to terminate this Lease, including, but not limited to, the payment of the Termination Consideration, this Lease and the Demised Term shall come to an end and expire on the Tenant's Earlier Termination Date with the same force and effect as though said date were the Expiration Date, unless sooner terminated pursuant to any other term, covenant or condition of this Lease or pursuant to law.
Section 39.03. Instrument Confirming Exercise of Termination Option: Upon request of Owner, from time to time, Tenant will execute and deliver to Owner an instrument, in form reasonably satisfactory to Owner, stating whether or not Tenant has exercised the right of termination contained in Section 39.01. Failure of Owner to request the execution and delivery of such instrument or failure of Tenant to execute such instrument, however, shall not vitiate the foregoing provisions of this Article.
ARTICLE 40
TENANT'S RIGHT OF FIRST OFFER FOR ADDITIONAL SPACE
Section 40.01. Tenant's First Offer Right: Provided that (a) Tenant is not
then in default under any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed and (b) Tenant, in contradistinction
to any subtenants or other occupants, shall then be in occupancy of the entire
Demised Premises (for the purposes of this Article 40 any space leased to Tenant
under this Lease which has been eliminated from the Demised Premises pursuant to
Section 11.03 shall be deemed space leased to Tenant under this Lease) then
Tenant shall have the right (sometimes referred to herein as "Tenant's First
Offer Right"), subject to the provisions of this Article, exercisable in
accordance with the provisions of Section 40.02, to lease and add to the Demised
Premises any space in the Building on the third (3rd) floor which space is
contiguous to the portions of the Demised Premises located on the third (3rd)
floor of the Building (each such space is referred to herein as an "Additional Space"), if after the initial leasing by Owner of such Additional Space after the date hereof] it becomes "available for leasing" during the Demised Term. Tenant acknowledges that Owner may initially lease any Additional Space which is vacant as of the date hereof for whatever term, and upon all other terms, covenants and conditions, and to whomever it desires in Owner's sole judgment. No Additional Space shall be deemed "available for leasing" if (a) the then tenant of the Additional Space or any assignee, successor, subtenant or other occupant holding through or under such tenant, shall enter into (i) any agreement with Owner extending the letting agreement affecting the Additional Space or (ii) any new lease with Owner affecting the Additional Space, or (b) any other tenant in the Building or any assignee or successor of such other tenant shall exercise any contractual option or right which it or has to lease the Additional Space (whether the Additional Space in question is specifically referred to in any such contractual option or right or Owner must utilize such Additional Space in question in order to satisfy such contractual option or right). Notwithstanding the foregoing provisions of this Section 40.01, Tenant shall not have the right to lease and add to the Demised Premises the Additional Space pursuant to Tenant's First Offer Right which becomes available for leasing if, at the time of the exercise of such Tenant's First Offer Right by Tenant, there are less than two (2) years remaining of the Demised Term of this Lease, unless Tenant has unconditionally exercised the applicable Tenant's renewal option set forth in Article 41 so as to extend the Demised Term for more than two (2) years.
Section 40.02. Notice of Availability and Tenant's Exercise of Option.
A. In the event that the Additional Space shall become or about to become available for leasing in accordance with the provisions of Section 40.01, Owner shall give notice thereof to Tenant (any such notice is referred to as an "Owner's Availability Notice"), which Owner's Availability Notice shall contain the date such Additional Space is expected to be vacant or available for leasing and which Notice shall be accompanied by a floor plan of the Additional Space unless it is a full floor. Owner's Availability Notice may be given not more than twenty-four (24) months prior to the date set forth in such Notice upon which such Additional Space is expected to become vacant and available for leasing (the date set forth in Owner's Availability Notice on which such Additional Space is expected to become available for leasing is sometimes referred to as an "Expected Vacancy Date"). Upon Owner giving Tenant an Owner's Availability Notice, Tenant may exercise Tenant's First Offer Right only by notice given to Owner within ten (10) days next following the date of the giving of such Owner's Availability Notice, and by giving such notice Tenant shall thereby lease and add such Additional Space to the Demised Premises for a term to begin, subject to Section 40.03, on the Expected Vacancy Date; any notice given by Tenant to Owner exercising such Tenant's First Offer Right is referred to as "Tenant's First Offer Notice".
B. It is understood and agreed that "time is of the essence" with respect to Tenant's exercise of its Tenant's First Offer Right pursuant to this Article and that if Tenant does not exercise such Tenant's First Offer Right within the ten (10) day time limitation set forth in Subsection A above, any notice purporting to exercise such Tenant's First Offer Right given after the expiration of such time limitation shall be void and of no force and effect and Tenant shall have no further right to lease and add any Additional Space to the Demised Premises.
C. If Tenant exercises Tenant's First Offer Right in accordance with the
provisions of this Article 40, then the Additional Space shall be leased by
Tenant and added to the Demised Premises upon all of the then executory terms,
covenants and conditions as are contained in this Lease, except as otherwise set
forth herein, adjusted to reflect (x) the number of rentable square feet
contained in the applicable Additional Space, and (y) that the term applicable
to the Additional Space in question shall, commence on the Expected Vacancy
Date, as the same may be accelerated or delayed pursuant to the provisions of
Section 40.03.
Section 40.03. A. Acceleration of First Offer Vacancy Date: In the event
that the Additional Space shall become available for leasing sooner than the
Expected Vacancy Date because of the termination of the term of the lease or
occupancy affecting such Additional Space, Owner shall have the right to
accelerate the Expected Vacancy Date to such sooner date upon not less than ten
(10) days notice to Tenant.
B. Holdover Occupant: Owner and Tenant acknowledge the possibility that all or any of the tenants or occupants of the Additional Space may not have vacated and surrendered the Additional Space to Owner by the Expected Vacancy Date. Accordingly, notwithstanding anything to the contrary contained in Sections 40.01 or 40.02 or in any Owner's Availability Notice, if such tenants or occupants shall not have vacated and surrendered the Additional Space to Owner by the Expected Vacancy Date, then (a) the term applicable to the Additional Space shall commence (i) on the Expected Vacancy Date with respect to those portions, if any, of the Additional Space which are vacant on the applicable Expected Vacancy Date, and (ii) with respect to those portions, if any, of the Additional Space which are not vacant on the Expected Vacancy Date, on the respective later date or dates upon which such portions of the Additional Space become vacant and Owner gives notice to Tenant of such vacancy, and (b) the increases in Fixed Rent, the Demised Premises Area and all other modifications of this Lease resulting from the application of the provisions of this Article 40 shall be equitably adjusted to reflect the fact that all or any portions of the Additional Space have not been leased and added to the Demised Premises on the Expected Vacancy Date but are leased and added to the Demised Premises on a date or dates after the Expected Vacancy Date.
C. Lease Not Affected: In the event that the provisions of this Section 40.03 shall apply, then, the parties agree that (a) the Expiration Date shall not be affected by operation of the provisions of this Section 40.03; (b) except as expressly set forth in this Section 40.03, neither the validity of this Lease nor the obligations of Tenant under this Article 40 shall be affected by operation of the provisions of this Section 40.03; (c) Tenant waives any rights under Section 223-a of the Real Property Law of New York or any successor statute of similar import to rescind this Lease or such Tenant's exercise of Tenant's First Offer Right and further waives the right to recover any damages against Owner which may result from the failure of Owner to deliver possession of the Additional Space on the Expected Vacancy Date; and (d) Owner shall institute, within thirty (30) days after the Expected Vacancy Date set forth in Owner's Availability Notice, appropriate proceedings against any such Additional Space tenants or occupants who have not vacated and surrendered all or any portion of the Additional Space in order to obtain possession thereof, and shall prosecute such proceedings to completion with reasonable diligence.
Section 40.04. Modification of Lease - Inclusion of the Additional Space:
In the event that Tenant shall timely exercise Tenant's First Offer Right in
accordance with the provisions of this Article then, on the effective
commencement date of the term applicable to the Additional Space, this Lease
shall be deemed modified as follows:
A. The Demised Premises shall include the Additional Space (together with all appurtenances, fixtures, improvements, additions and other property attached thereto or installed therein at the commencement of the term applicable to the Additional Space or at any time during said term, other than Tenant's Personal Property) for all purposes of this Lease;
B. The Fixed Rent reserved in this Lease shall be increased by the fair market annual rental value of the Additional Space as of the commencement date of the demised term applicable thereto, as determined by agreement between Owner and Tenant or by arbitration as provided in Section 40.06, but in no event shall such increase in the Fixed Rent per rentable square foot, from time to time, be less than the Fixed Rent per rentable square foot in effect from time to time applicable to the original portion of the Demised Premises (before giving effect to any abatement or apportionment of such Fixed Rent), and the monthly installments of the Fixed Rent shall each be increased accordingly to conform with the foregoing. In the event that the term applicable to the Additional Space shall commence on a date other than the first day of any month, the monthly installment of the Fixed Rent for the month during which the term applicable to the Additional Space shall occur shall be increased pro rata to reflect such increase in the Fixed Rent; and
C. The Demised Premises Area set forth in Section 23.01 shall be increased by the number of rentable square feet contained in the Additional Space, determined in the same manner as the original Demised Premises
Section 40.05. Condition of Additional Space: Tenant agrees to accept the Additional Space in the condition which shall exist on the commencement date of the term applicable thereto "as is" and further agrees that Owner shall have no obligation to perform any work or make any installations in order to prepare the Additional Space for Tenant's occupancy.
Section 40.06. Determination of Fair Market Rental Value: In the event Owner and Tenant are unable to agree as to the fair market annual rental value of the Additional Space, then, upon the demand of either Owner or Tenant, such fair market annual rental value shall be determined by arbitration as follows:
(a) Owner and Tenant shall each appoint an arbitrator within thirty (30) days after notice by either party requesting arbitration of the issue. If either Owner or Tenant shall have failed to appoint an arbitrator within such period of time, then such arbitrator shall be appointed by the American Arbitration Association, or its successor, or if at such time such association is not in existence and has no successor, then by the presiding Justice of the Appellate Division, Second Department, of the Supreme Court of the State of New York, or any successor court, upon request of either Owner or Tenant, as the case may be.
(b) The two arbitrators appointed, as above provided, shall select a third arbitrator and if they fail to do so within thirty (30) days after their appointment, such third arbitrator shall be appointed as above provided for the appointment of an arbitrator in the event either party fails to do so.
(c) All of such arbitrators shall be real estate appraisers or brokers having at least fifteen (15) years of experience in such field in the County of Nassau, State of New York.
(d) The three arbitrators, selected as aforesaid, forthwith shall convene and render their decision as promptly as practicable after the appointment of the third arbitrator. The decision of such arbitrators shall be in writing and the vote of the majority of them (or, if there be no majority decision, then the decision of the last appointed arbitrator) shall be the decision of all and binding upon Owner and Tenant whether or not a judgment shall be entered in any court. Duplicate original counterparts of such decision shall be sent by the arbitrators to both Owner and Tenant.
(e) The arbitrators, in arriving at their decision, shall be entitled to consider all testimony and documentary evidence which may be presented at any hearing as well as facts and data which the arbitrators may discover by investigation and inquiry outside of such hearings. The arbitrators shall be bound by the provisions of this Lease, and shall not add to, subtract from, or otherwise modify such provisions. The cost and expense of such arbitration shall be borne equally by Owner and Tenant, except that each party shall pay its own counsel fees and expenses.
(f) Notwithstanding any findings of the arbitrators, as to such fair market annual rental rate per rentable square foot, the Fixed Rent applicable to the Additional Space from time to time per rentable square foot shall not be less than the Fixed Rent per rentable square foot in effect from time to time applicable to the original Demised Premises (before giving effect to any abatement or apportionment of Fixed Rent).
(g) If the determination of the Fixed Rent payable with respect to the Additional Space has not been made by the commencement of the term applicable to the Additional Space, Tenant, until such determination, shall continue to pay for the Additional Space as the same scheduled Fixed Rent per square foot then allocable to the original portion of the Demised Premises (as the same may have been escalated pursuant to the provisions of this Lease) before any abatement or apportionment thereof, and following such determination Tenant shall pay to Owner, upon demand, any additional sums due to Owner as a result of such determination.
Section 40.07. Confirmation of Tenant's Exercise of Option: Upon demand of Owner, Tenant will execute and deliver to Owner an instrument in form satisfactory to Owner stating whether or not Tenant has exercised any option contained in this Article and if Tenant has exercised such option setting forth the effective commencement date of the term applicable to the Additional Space in question and the Fixed Rent applicable to the Additional Space in question.
However, neither the failure of Owner to demand the execution and delivery of such instrument nor the failure of Tenant to execute and deliver such instrument shall vitiate the provisions of this Article.
ARTICLE 41
RENEWAL OPTIONS
Section 41.01. Tenant's Renewal Options: A. Provided (i) Tenant is not then in default under any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed; and (ii) Tenant, in contradistinction to any subtenants or occupants, shall then be in occupancy of the entire Demised Premises (with it understood that any space leased under this Lease which has been removed or eliminated from the Demised Premises pursuant to the provisions of Section 11.03 shall be deemed leased to Tenant under this Lease for the purposes of this Section 41.01), Tenant shall have the option to renew this Lease and the Demised Term for the first renewal term (referred to as the "First Renewal Term") of five (5) years commencing on the date immediately following the Expiration Date (such date, the "First Renewal Commencement Date") and ending, unless sooner terminated pursuant to the terms, covenants and conditions of this Lease or pursuant to law, on the last day of the calendar month in which the day immediately preceding the fifth (5th) anniversary of the first day of the First Renewal Term shall occur (such last day, the "First Extended Expiration Date"). If Tenant exercises such option in accordance with the provisions and limitations of this Article, this Lease and the Demised Term shall be renewed for the First Renewal Term upon the same then executory terms, covenants and conditions as the original Demised Term, including the definitions of Owner's Basic Tax Liability set forth in Section 23.01D, except that the Fixed Rent due and payable during the First Renewal Term shall be:
1. One Hundred Forty-Three Thousand Four Hundred Thirty-One and 76/100 ($143,431.76) Dollars per annum ($11,952.65 per month) for the period from the First Renewal Commencement Date to and including the last day of the calendar month in which the day immediately preceding the first (1st) anniversary of the First Renewal Commencement Date shall occur;
2. One Hundred Forty-Seven Thousand Seven Hundred Thirty-Four and 72/100 ($147,734.72) Dollars per annum ($12,311.23 per month) for the next year of the First Renewal Term;
3. One Hundred Fifty-Two Thousand One Hundred Sixty-Six and 76/100 ($152,166.76) Dollars per annum ($12,680.56 per month) for the next year of the First Renewal Term;
4. One Hundred Fifty-Six Thousand Seven Hundred Thirty-One and 76/100 ($156,731.76) Dollars per annum ($13,060.98 per month) for the next year of the First Renewal Term; and
5. One Hundred Sixty-One Thousand Four Hundred Thirty-Three and 71/100 ($161,433.71) Dollars per annum ($13,452.81 per month) for the remainder of the First Renewal Term.
The parties acknowledge that during the First Renewal Term, the Fixed Rent allocable to the Storage Space is as follows:
a. Thirty-Nine Thousand Nine Hundred Ninety-Four and 95/100 ($39,994.95) Dollars per annum for the period from the First Renewal Commencement Date to and including the last day of the calendar month in which the day immediately preceding the first (1st) anniversary of the First Renewal Commencement Date
shall occur;
b. Forty-One Thousand One Hundred Ninety-Four and 80/100 ($41,194.80)
Dollars per annum for the next year of the First Renewal Term;
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c. Forty-Two Thousand Four Hundred Thirty and 64/100 ($42,430.64) Dollars
per annum for the next year of the First Renewal Term;
d. Forty-Three Thousand Seven Hundred Three and 56/100 ($43,703.56) Dollars per annum for the next year of the First Renewal Term; and
e. Forty-Five Thousand Fourteen and 67/100 ($45,014.67) Dollars per annum for the remainder of the First Renewal Term.
B. Provided (i) Tenant is not then in default under any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, (ii) Tenant, in contradistinction to any subtenants or occupants,
shall then be in occupancy of the entire Demised Premises (with it understood
that any space leased under this Lease which has been removed or eliminated from
the Demised Premises pursuant to the provisions of Section 11.03 shall be deemed
leased to Tenant under this Lease for the purposes of this Section 41.01), and
(iii) Tenant shall have exercised the option to lease the Demised Premises
during the First Renewal Term pursuant to the provisions of Subsection A of this
Section 41.01, Tenant shall have the option to renew this Lease and the Demised
Term for a second and final renewal term (referred to as the "Final Renewal
Term") of five (5) years commencing on the date immediately following the First
Extended Expiration Date (referred to as the "Final Renewal Commencement Date")
and ending, unless sooner terminated pursuant to the terms, covenants and
conditions of this Lease or pursuant to law, on the last day of the calendar
month in which the day immediately preceding the fifth (5th) anniversary of the
first day of the Final Renewal Term shall occur. If Tenant exercises such option
in accordance with the provisions and limitations of this Article, this Lease
and the Demised Term shall be renewed for the Final Renewal Term upon the same
then executory terms, covenants and conditions as the First Renewal Term,
including the definitions of Owner's Basic Tax Liability set forth in Section
23.01D, except that the Fixed Rent due and payable during the Final Renewal Term
shall be:
1. One Hundred Sixty-Six Thousand Two Hundred Seventy-Six and 73/100 ($166,276.73) Dollars per annum ($13,856.39 per month) for the period from the Final Renewal Commencement Date to and including the last day of the calendar month in which the day immediately preceding the first (1st) anniversary of the Final Renewal Commencement Date shall occur;
2. One Hundred Seventy-One Thousand Two Hundred Sixty-Five and 03/100 ($171,265.03) Dollars per annum ($14,272.09 per month) for the next year of the Final Renewal Term;
3. One Hundred Seventy-Six Thousand Four Hundred Two and 98/100 ($176,402.98) Dollars per annum ($14,700.25 per month) for the next year of the Final Renewal Term;
4. One Hundred Eighty-One Thousand Six Hundred Ninety-Five and 07/100 ($181,695.07) Dollars per annum ($15,141.26 per month) for the next year of the Final Renewal Term; and
5. One Hundred Eighty-Seven Thousand One Hundred Forty-Five and 92/100 ($187,145.92) Dollars per annum ($15,595.49 per month) for the remainder of the Final Renewal Term.
The parties acknowledge that during the Final Renewal Term, the Fixed Rent allocable to the Storage Space shall be as follows:
a. Forty-Six Thousand Three Hundred Sixty-Five and 11/100 ($46,365.11) Dollars per annum for the period from the Final Renewal Commencement Date to and including the last day of the calendar month in which the day immediately preceding the first (1st) anniversary of the Final Renewal Commencement Date shall occur;
b. Forty-Seven Thousand Seven Hundred Fifty-Six and 06/100 ($47,756.06) Dollars per annum for the next year of the Final Renewal Term;
c. Forty-Nine Thousand One Hundred Eighty-Eight and 69/100 ($49,188.69)
Dollars per annum for the next year of the Final Renewal Term;
d. Fifty Thousand Six Hundred Sixty-Four and 35/100 ($50,664.35) Dollars
per annum for the next year of the Final Renewal Term; and
e. Fifty-Two Thousand One Hundred Eighty-Four and 28/100 ($52,184.28)
Dollars per annum for the remainder of the Final Renewal Term.
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The First Renewal Term and the Final Renewal Term are each individually referred to as a "Renewal Term."
Section 41.02. Tenant's Exercise of Option: Each of the options set forth in Section 41.01 may only be exercised by notice given by Tenant to Owner on or prior to the date which is twelve (12) months immediately preceding the commencement date of the applicable Renewal Term in question. Time is of the essence with respect to the exercise of each option. Tenant shall not have the right to give any such notice after the date which is twelve (12) months immediately preceding the commencement date of the applicable Renewal Term, and any notice given after said applicable date purporting to exercise such option shall be void and of no force or effect.
Section 41.03. Confirmation of Exercise of Tenant's Renewal Right: Tenant, upon request of Owner, from time to time, will execute and deliver to Owner an instrument in form reasonably satisfactory to Owner stating whether or not Tenant has exercised any right to renew pursuant to the provisions of Section 41.01 and, if Tenant has exercised any such right, setting forth the Fixed Rent for the applicable Renewal Term. However, failure of Owner to request the execution and delivery of any such instrument or failure of Tenant to execute and deliver such instrument shall not vitiate the foregoing provisions of this Article.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this Lease as of the day and year first above written.
OWNER:
LIGHTHOUSE 444 LIMITED PARTNERSHIP,
By: LIGHTHOUSE 444 OPERATING, LLC, its managing member
By: /s/ Louis Sheinker
-----------------------------------------------
Name: Louis Sheinker
Title: Member
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TENANT:
GTJ CO., INC.
By: /s Jerome Cooper
----------------------------------------------------
Name: Jerome Cooper
Title: President
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UNIFORM FORM CERTIFICATE OF ACKNOWLEDGMENT
(Within New York State)
State of New York )
:ss.:
County of Nassau )
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On the 21 day of April, in the year 2005, before me, the undersigned, personally appeared Jerome Cooper, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument.
/s/ Suzanne Mikos David
---------------------------------------------------------
(Signature and Office of individual taking acknowledgment)
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UNIFORM FORM CERTIFICATE OF ACKNOWLEDGMENT
(Outside of New York State)
State, District of Columbia, Territory,
Possession or Foreign Country
___________________):ss.:
On the ___day of _________in the year ____, before me, the undersigned, personally appeared ___________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned in the __________. (Insert the city or other political subdivision and the state or country or other place the acknowledgment was taken.)
EXHIBIT A-1
This floor plan of a portion of the third (3rd) floor in the building known as 444 Merrick Road, Lynbrook, New York, is annexed to this Agreement of Lease and made a part hereof solely to delineate by outlining and diagonal markings that portion of the third (3rd) floor demised to Tenant under this Agreement of Lease. All areas, dimensions, conditions and locations are approximate.
EXHIBIT B
OWNER'S INITIAL WORK
I. Owner agrees to supply and install in the Demised Premises all of the items set forth on Owner's Work Plans referred to in Paragraph IV of this Exhibit B, as it may be modified to reflect any Change Work (as defined in Paragraph IV), unless prevented by job conditions or other circumstances beyond the reasonable control of Owner or unless variations thereto are necessary to comply with Legal Requirements (such work and installations are referred to herein as "Owner's Initial Work").
II. Owner's Initial Work shall be equal to standards adopted by Owner for the Building. Owner's Initial Work shall constitute a single non-recurring obligation on the part of Owner. In the event the Lease is renewed or extended for a further term by agreement or operation of law, Owner's obligation to perform Owner's Initial Work shall not apply to any such renewal or extension.
III. Subject to the provisions of Paragraphs IV(4) and VI of this Exhibit B, Owner's Initial Work shall be substantially completed prior to the Commencement Date. At any time after such substantial completion, Owner may enter the Demised Premises to complete unfinished details of Owner's Initial Work and entry by Owner, its agents, servants, employees or contractors for such purpose shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
IV. (1) Owner shall submit to Tenant a complete set of plans and specifications (referred to herein as "Owner's Work Plans") for those Alterations to the Demised Premises comprising Owner's Initial Work. In the event that Tenant shall have any comments or concerns with respect to Owner's Work Plans (or any revisions thereof), Tenant shall deliver a notice to Owner, within five (5) days immediately following Tenant's receipt of Owner's Work Plans (or any revisions thereof), setting forth such comments or concerns. Time is of the essence with respect to the delivery of any such notice from Tenant to Owner. Any notice setting forth comments or concerns with respect to Owner's Work Plans delivered to Owner after such five (5) day period shall be of no force or effect. In the event that Tenant delivers any such notice to Owner after said five (5) day period or if Tenant fails to deliver any such notice to Owner, then in such event, Owner's Work Plans (and any revisions thereof) shall be deemed approved.
(2) A. Owner shall deliver to Tenant, along with the complete set of Owner's Work Plans pursuant to subdivision (1) above, a notice identifying which items contained in Owner's Work Plans, if any, will or might be subject to certain delays in delivery and which might affect the date of substantial completion of Owner's Initial Work. Tenant may, within five (5) days after such notice from Owner, designate, subject to the limitations (i) through (vi) set forth in subparagraph (4)(A) of Paragraph IV, other available items which will not be subject to delays in delivery. If Tenant fails to timely make such designations, Owner will have no obligation to supply or install the items set forth in such Owner's notice or, at Owner's election, Owner shall have the right to perform the work relating to such items and for the purpose of determining whether or not Owner's Initial Work shall have been substantially completed and for the purpose of fixing the Commencement Date pursuant to Section 1.02 of this Lease, said items set forth in such notice and all other related work and installations shall be deemed unfinished details of Owner's Initial Work which may be performed by Owner after the substantial completion of Owner's Initial Work in accordance with the provisions of Paragraph III of this Exhibit B and, accordingly, shall not affect the Commencement Date.
B. As part of Owner's Initial Work and pursuant to the provisions of
Section 29.02 of the Lease, Owner shall install the Dedicated AC Unit to provide
conditioned air to the Demised Premises. Owner has advised Tenant that the air
conditioning unit to be installed by Owner as part of the Dedicated AC Unit
(which air-conditioning unit shall be installed on the rooftop of the Building)
is a so-called "long lead item" and that the delivery of such air-conditioning
unit may be subject to certain delays in delivery which may affect the date of
the substantial completion of Owner's Initial Work. However, notwithstanding any
delay in the delivery of said air-conditioning unit, Owner shall install all
piping, conduits and related equipment in and to the Demised Premises which
shall be necessary to operate the Dedicated AC Unit and run (as necessary) such
piping, conduit and related equipment to the rooftop of the Building, such that,
upon the completion of the installation of such equipment, Owner shall be able
to connect the air-conditioning unit to such equipment at the roof top access
points. Accordingly, the parties hereby agree that, for the purpose of
determining whether or not Owner's Initial Work shall have been substantially
completed and for the purpose of fixing the Commencement Date pursuant to
Section 1.02 of this Lease, provided Owner has so installed the piping, conduit
and related equipment described above, the installation of said air-conditioning
unit shall be deemed an unfinished detail of Owner's Initial Work which may be
performed by Owner after the substantial completion of Owner's Initial Work in
accordance with the provisions of Paragraph III of this Exhibit B and,
accordingly, shall not affect the Commencement Date.
(3) In the event substantial completion of Owner's Initial Work shall be delayed by reason of Tenant's delays in submitting any plans or specifications, or in supplying information, or in approving plans or specifications or estimates, or in giving authorizations or by reason of any Change Work (as hereinafter defined) or by reason of any other similar acts or omissions of Tenant, then, in such event, Tenant agrees to pay to Owner, as agreed liquidated damages for such delays occasioned by Tenant's acts or omissions, as the case may be, sums equal to one (1) day's Fixed Rent for each day that such failure or delay shall continue. Tenant shall also pay to Owner a sum equal to any additional cost to Owner in completing Owner's Initial Work resulting from any of the foregoing failures, acts or omissions of Tenant. Any such sums may be collected by Owner, from time to time, upon demand, whether or not the Demised Term shall have commenced.
(4) A. Tenant, after the submission of Owner's Work Plans, may designate,
subject to Owner's approval, substitute or additional work, materials or
installations (referred to collectively as "Change Work") to be supplied and
installed by Owner in replacement of, or in addition to, the work, materials and
installations set forth on Owner's Work Plans, provided that such Change Work:
(i) is in compliance with the provisions of this Lease, including without
limitation Articles 3 and 6 hereof; (ii) is practical and consistent with the
physical conditions in the Building and with the plans for the Building filed
with the appropriate governmental authorities and agencies; (iii) will not
impair Owner's ability to perform any of Owner's obligations under the
provisions of this Lease; (iv) will not affect any portions of the Building
other than the Demised Premises; (v) shall (a) be in Auto-CAD format and be
signed, sealed and certified by a registered architect and, if applicable,
engineer duly licensed in the State of New York and (b) comply with all
applicable Legal Requirements so that Owner's Work Plans may, without further
amendment or change, be used for engineering drawings and specifications and
filed with and approved by the appropriate governmental authorities and
agencies; and (vi) will not tend to delay completion of Owner's Initial Work.
If, at or about the time of the submission by Tenant to Owner of any Change
Work, it appears to Owner that any item of Change Work designated by Tenant will
tend to delay completion of Owner's Initial Work, or, notwithstanding Owner's
approval of any Change Work, if it subsequently appears to Owner that any item
of Change Work designated by Tenant will tend to delay completion of Owner's
Initial Work, Owner in each case shall notify Tenant in writing to that effect
and Tenant, within five (5) days after the giving of such notice (as determined
in accordance with Article 27 of this Lease), will designate, subject to the
foregoing limitations (i) through (vi), other available items of Change Work
which will not so tend to delay completion. If Tenant fails to make such
designations within five (5) days after the giving of said notice, Owner will
have no obligation to supply or install the items set forth in such Owner's
notice or, at Owner's election, Owner shall have the right to perform such items
of Change Work in accordance with the provisions of this Exhibit B, except that,
solely for the purpose of determining whether or not Owner's Initial Work has
been substantially completed and for the purpose of fixing the Commencement Date
pursuant to Section 1.02 of this Lease, such items of Change Work and all other
related work and installations shall be deemed unfinished details of Owner's
Initial Work which may be performed after the Commencement Date in accordance
with the provisions of Paragraph III of this Exhibit B and, accordingly, shall
not affect the Commencement Date.
B. Tenant shall pay to Owner a sum equal to the amount by which the aggregate of (a) the actual cost and expense to Owner of supplying and installing all Change Work designated by Tenant (including, but not limited to, the cost to Owner of a field superintendent, operating engineer, laborers,
freight elevator costs, rubbish removal, temporary sprinkler and lighting, electric and heat, protection, insurance, filing and expediting building permits and other governmental approvals, blueprint costs and every other item which customarily would be considered a general condition and, if applicable, any construction management or other fees paid to the general contractor or construction manager who is performing Owner's Initial Work [such aggregate actual cost and expense is referred to as "Owner's Additional Construction Cost"] plus (b) if there is no general contractor or construction manager who is performing Owner's Initial Work, ten (10%) percent of Owner's Additional Construction Cost for office overhead and as a construction management fee, shall exceed (c) the following credits: a sum equal to the actual cost and expense to Owner (including, but not limited to, the cost to Owner of a field superintendent, operating engineer, laborers, freight elevator costs, rubbish removal, temporary sprinkler and lighting, electric and heat, protection, insurance, Building Department, filing and expediting building permits and other governmental approvals, blueprint costs and every other item which customarily would be considered a general condition) of all items required to be supplied and installed by Owner pursuant to paragraph I of this Exhibit B for which Change Work is substituted by Tenant (however, if the actual cost and expense to Owner of any item of Change Work designated by Tenant as a substitution shall be less than the actual cost and expense to Owner of the item set forth in paragraph I of this Exhibit B for which such substitution is made, the credit to which Tenant shall be entitled for such substitution shall be limited to the actual cost and expense to Owner of the item of Change Work so designated by Tenant; nor shall Tenant be entitled to any credit for the substitution of any partitioning of less than floor-to-ceiling height). Any such excess shall be payable by Tenant to Owner, whether or not the Demised Term shall have commenced, within five (5) days next following the rendition of a written statement by Owner to Tenant.
C. The term "substitute" or "substitution" as used in paragraph (IV)(4)(B) above shall be expressly limited to an item of Change Work designated by Tenant in replacement of an item required to be supplied or installed by Owner pursuant to paragraph I of this Exhibit B which item of Change Work so designated by Tenant serves the same function as the item so replaced, e.g., a lighting fixture in replacement of a lighting fixture designated on Owner's Work Plans. Any Change Work for which Tenant shall have received any credit or other allowance shall not be deemed Tenant's personal property but shall be and remain Owner's property.
V. During the performance of Owner's Initial Work, Tenant shall not be permitted to perform any Alterations in the Demised Premises prior to the Commencement Date, except to the extent such Alterations and the performance thereof during Owner's Initial Work are expressly approved by Owner. In the event Tenant is so permitted to perform Alterations while Owner is performing Owner's Initial Work, then each of the parties shall cause its contractors to cooperate with the other and the other's contractors so that Owner's Initial Work and Tenant's Alterations may be completed efficiently and economically, such cooperation to relate to including, without limitation, the storage of tools and materials.
VI. Any dispute between the parties as to whether or not Owner's Initial Work is "substantially complete" shall be submitted to arbitration in accordance with the provisions of Article 36 of this Lease.
SCHEDULE A
BUILDING RULES
1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls of the Building shall not be obstructed or encumbered by any of the tenants, their agents, clerks, servants or visitors or used for any purpose other than ingress and egress to and from the Demised Premises. Any tenant whose premises are situate on the ground floor of the Building shall, at said tenant's own expense, keep the sidewalks and curb directly in front of said premises clean and free from ice and snow. Nothing shall be swept or thrown by the tenants or by their agents clerks, servants or visitors into the corridors, halls, stairways, elevators or light shafts, or upon any skylights of the Building, or into any heating or ventilating registers, or plumbing apparatus in the Building, or upon the adjoining building on the street.
2. No awnings or other projections, including air conditioner units, shall be attached to the outside walls or windows of the Building without the prior consent of Owner. No curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of the Demised Premises without the prior consent of Owner. Such awnings, projections, curtains, blinds, shades, screens or other fixtures must be of a quality, type, design and color, and attached in a manner, approved by Owner.
3. No sign, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed on any part of the outside or inside of the Demised Premises without the prior consent of Owner. Interior signs on doors and directory tablets, if any, shall be of a size, color and style approved by Owner.
4. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed, nor shall any bottles, parcels, or other articles be placed on any window sills.
5. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the halls, corridors, vestibules or other public parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, ashes, chemicals, refuse from electric batteries or other substances shall be thrown therein. All damages resulting from any misuse of the plumbing fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. No tenant shall bring or keep, or permit to be brought or kept, any inflammable, combustible or explosive fluid, material, chemical or substance in or about the Demised Premises.
7. No tenant or occupant shall mark, paint, drill into, or in any way deface, damage or mutilate any part of the Building or the Demised Premises. No boring, cutting or stringing of wires shall be permitted, except with the prior consent of Owner, and as Owner may direct. No tenant or occupant shall install any resilient tile, linoleum or similar floor covering in the Demised Premises except in a manner approved by Owner.
8. No bicycles, vehicles or animals of any kind, other than seeing eye dogs, shall be brought into or kept in or about the Demised Premises. No cooking shall be done or permitted in the Building by any tenant without the approval of Owner. No tenant shall cause or permit any unusual or objectionable odors to emanate from the Demised Premises.
9. Without the prior consent of Owner, no tenant shall use or occupy, or permit any portion of the Demised Premises to be used or occupied for the storage of merchandise (except for the storage of sample products to be displayed in such tenant's showroom), or for the sale of merchandise, goods or property of any kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with other tenants or occupants of the Building or neighboring buildings or premises whether by the use of any musical instrument, radio, television set or other audio device, unmusical noise, whistling, singing, or in any other way. Nothing shall be thrown out of any doors or windows. No tenant shall do anything or permit anything to be done, in its Demised Premises, or bring or keep anything therein or in the Building, that will in any way obstruct or interfere with the rights of other tenants, or in any way injure or annoy them, or those having business with them.
11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows, nor shall any changes be made in existing locks or the mechanism thereof. Each tenant must, upon the termination of its tenancy, restore to Owner all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant.
12. Owner reserves the right to restrict and regulate the use of the aforementioned public areas of the Building by the tenants, their employees, guests, contractors and customers and by persons making deliveries to tenants, including but not limited to the right to allocate certain elevators for delivery service and the right to designate which Building entrances shall be used by persons making deliveries in the Building. All removals from the Building, or the carrying in or out of the Building or the Demised Premises demised to any tenant, of any safes, freight, furniture or bulky matter of any description must take place at such time and in such manner as Owner or its agents may determine, from time to time, which may involve overtime work for Owner's employees, agents or contractors. Tenant shall reimburse Owner for such costs incurred by Owner, including the cost of such overtime work. The moving of safes shall occur at such times as Owner shall designate upon previous notice to Owner or Owner's agent; and the persons employed to move the safes in and out of the Demised Premises must be acceptable to Owner in its sole discretion. No tenant shall use the passenger elevators for the hauling and removal of materials or debris and the same shall be done only after Business Hours and only via the designated freight elevator. Owner reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of the Building Rules or the provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the Demised Premises to be used or occupied, as an office for a public stenographer or typist, or as a barber or manicure shop, or as an employment bureau. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building, nor advertise for laborers, giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food, beverage, lighting maintenance, cleaning, towels, or other like service, from any company or persons not approved by Owner, such approval not unreasonably to be withheld. No tenant shall install or permit the installation or use of any machine dispensing goods for sale, including without limitation, foods, beverages, cigarettes or cigars; permit the delivery of any food or beverage to the Demised Premises. No food or beverage shall be carried in the public halls and elevators of the Building except in closed containers.
15. Owner shall have the right to prohibit any advertising by any tenant or occupant which, in Owner's opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon notice from Owner, such tenant or occupant shall refrain from or discontinue such advertising.
16. Owner reserves the right to exclude from the Building, between the hours of 6 P.M. and 8 A.M. on business days and at all hours on Saturdays, Sundays and holidays, all persons who do not present a pass to the Building signed by Owner. Owner will furnish passes to persons for whom any tenant requests such passes. Each tenant shall be responsible for all persons for whom it requests such passes and shall be liable to Owner for all acts of such persons. Owner may require all such persons to sign a register on entering or leaving the Building.
17. Each tenant, before closing and leaving the Demised Premises at any time, shall see that all entrance doors are locked and all windows closed.
18. Each tenant shall, at its expense, provide artificial light in the Demised Premises for Owner's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in the Demised Premises.
19. The Demised Premises shall not be used, or permitted to be used, for lodging or sleeping or for any immoral or illegal purpose.
20. The requirements of tenants will be attended to only upon application at the office of Owner. Building employees shall not be required to perform, and shall not be requested by any tenant or occupant to perform, any work outside of their regular duties, unless under specific instructions from the office of Owner. Owner shall not be responsible to Tenant for the non-observance or violation of these rules and regulations by any other tenant or occupant.
21. Canvassing, soliciting and peddling in the Building are prohibited and each tenant and occupant shall cooperate in seeking their prevention.
22. There shall not be used in the Building, either by any tenant or occupant or by their agents or contractors, in the delivery or receipt of merchandise, freight or other matter, any hand trucks or other means of conveyance except those equipped with rubber tires, rubber side guards and such other safeguards as Owner may require.
23. If the Demised Premises become infested with vermin, such tenant, at its sole cost and expense, shall cause its Demised Premises to be exterminated, from time to time, to the satisfaction of Owner, and shall employ such exterminators therefor as shall be approved by Owner.
24. The Demised Premises shall not be used, or permitted to be used, at any time, without the prior approval of Owner, for the sale, at retail, whether directly, by mail order or otherwise, of goods, wares or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which predominantly involves direct patronage of the general public in the Demised Premises or for manufacturing or for other similar purposes.
25. No tenant shall clean, or permit to be cleaned, any window of the Building from the outside in violation of Section 202 of the New York Labor Law or any successor law or statute, or of the rules of the Board of Standards and Appeals or of any board or body having or asserting jurisdiction.
26. No tenant shall move, or permit to be moved, into or out of the Building or the Demised Premises, any heavy or bulky matter, without the specific approval of Owner. If any such matter requires special handling, only a person holding a Master Rigger's license shall be employed to perform such special handling. No tenant shall place, or permit to be placed, on any part of the floor or floors of the Demised Premises, a load exceeding the floor load per square foot which such floor was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of safes and other heavy matter, which must be placed so as to distribute the weight.
27. No borrowed lights (display windows) in the partitioning separating the Demised Premises from the Building's public corridors shall be obstructed in any manner by the tenant.
28. Telegraph, telephone and other wires and instruments shall not be introduced by Tenant without previous notice to Owner and with its reasonable approval.
29. Owner may from time to time adopt additional systems and procedures to improve the security or safety of the Building, any persons occupying,
using or entering the same, or any equipment, finishing or contents thereof, and Tenant shall comply with Owner's reasonable requirements relative thereto.
30. Owner reserves the right to rescind, alter, waive or add, as to one or more or all tenants, any rule or regulation at any time prescribed for the Building when, in the reasonable judgment of Owner, Owner deems it necessary or desirable for the reputation, safety, character, security, care, appearance or interests of the Building, or the preservation of good order therein, or the operation or maintenance of the Building, or the equipment thereof, or the comfort of tenants or others in the Building. No rescission, alteration, waiver or addition of any rule or regulation in respect of one tenant shall operate as a rescission, alteration or waiver in respect of any other tenant.
31. Business machines and mechanical equipment used in the Demised Premises that cause vibrations or noise that may be transmitted to any other space in the Building to such a degree as to be reasonably objectionable to Owner or to any tenants or occupants of the Building shall be placed and maintained by Tenant, at its expense, in settings of cork, rubber or spring-type vibration eliminators sufficient, in Owner's judgment, to eliminate such vibrations or noise.
32. Tenant shall neither contract for, nor employ, any labor in connection with the maintenance or cleaning of, or providing of any other services to, the Demised Premises (but excluding Tenant's Property) without the prior written consent of Owner in its sole discretion (Owner may withhold any such consent on the ground that use of such service provider would disturb labor harmony in the Building.)
SCHEDULE B
Owner's Cleaning Services
I. Office Space--Tenant Area: (nightly unless otherwise noted)
A. Empty all waste receptacles
B. Sweep all hard surface floors
C. Vacuum high traffic, main corridor areas
D. Wipe all areas within hand high reach including windowsills, wall
ledges, chairs, tables, baseboards and all manner of office furniture
E. Wipe clean all desktops and glasswork surfaces, if clear of work
papers and file folders.
F. Vacuum all carpeted areas weekly
II. Lavatories: (nightly unless otherwise noted)
A. Clean and disinfect all bowls, seats, urinals and sinks
B. Clean all mirrors
C. Empty all trash receptacles and sanitary napkin disposal receptacles
and remove to a designated area
D. Wipe dry all metal
E. Refill all soap, paper towel, toilet tissue and seat cover dispensers
F. Sweep and damp mop tile floors with disinfectant
G. Wipe clean the exterior of all waste cans and dispensing units
H. Spot clean and disinfect all walls and partitions
I. Scrub flooring as necessary
J. Remove smudges from doors, doorframes and light switches
III. Hallways and Corridors: (nightly unless otherwise noted)
A. Spot clean all glass
B. Clean all drinking fountains
C. Vacuum all carpeted areas, as necessary
IV. Rubbish Removal Service:
Remove all ordinary office dry rubbish and paper from waste paper receptacles nightly, Monday through Friday, holidays excepted.
V. Window Cleaning Service:
Clean all exterior window, inside and out, periodically during the year as Owner deems necessary.
SPACE SUBSTITUTION AGREEMENT
This SPACE SUBSTITUTION AGREEMENT (this "Agreement") is made as of the 2nd day of January, 2008 between LIGHTHOUSE 444 LIMITED PARTNERSHIP, having an address c/o Lighthouse Real Estate Ventures, Inc., 60 Hempstead Avenue, West Hempstead, New York 11552 ("Landlord"), and SHELTER EXPRESS CORP., a New York corporation having an address at 444 Merrick Road, Lynbrook, New York 11563 ("Tenant").
W I T N E S S E T H:
WHEREAS, under date of April 27, 2005, Landlord entered into a lease with GTJ Co., Inc., predecessor in interest to Tenant, affecting a portion of the third (3rd) floor, designated as Suite 370, and a portion of the basement, all of which space is located in the building known as 444 Merrick Road, Lynbrook, New York (referred to herein as the "Building"), for a term to expire on August 31, 2010, unless sooner terminated pursuant to any of the terms, covenants and conditions of said lease or pursuant to law (said lease, as same may have been modified by various written agreements, if any, is referred to as the "Lease"; the premises demised therein together with all appurtenances, fixtures, improvements, additions and other property attached thereto or installed therein, other than Tenant's Property, as defined in the Lease, are referred to herein, collectively, as the "Demised Premises"); and
WHEREAS, Tenant now desires to surrender to Landlord that portion of the Demised Premises located in the basement of the Building (such space together with all the appurtenances, fixtures, improvements, additions and other property attached thereto or installed therein other than Tenant's Property, is referred to as the "Surrender Space") and lease an additional portion of the third (3rd) floor of the Building, designated as Suite 360 and indicated by outlining and cross-hatching on the floor plan initialed by the parties annexed hereto and made a part hereof as Exhibit A (such space together with all the appurtenances, fixtures, improvements, additions and other property attached thereto or installed therein other than Tenant's Property, is referred to as the "Substitute Space").
WHEREAS, Landlord and Tenant have reached certain agreements with respect to the foregoing and desire to record their understandings herein as follows:
NOW, THEREFORE, in consideration of the mutual covenants herein contained, Landlord and Tenant hereby agree as follows:
1. (a) On or before the date on which Landlord substantially completes Landlord's Substitute Space Work (as hereinafter defined), Landlord shall deliver a notice to Tenant setting forth the date on which Tenant shall be required to vacate and surrender to Landlord the Surrender Space (such date referred to herein as the "Surrender Date"), which Surrender Date shall be at least five (5) days next following the date of the giving of such notice. On or prior to the Surrender Date, Tenant shall vacate and surrender the Surrender
Space to Landlord in accordance with the provisions of Article 21 of the Lease and may take possession of the Substitute Space. The "Substitute Space Commencement Date" shall be deemed to occur as of the earlier of the following two (2) dates: (i) the date Tenant shall take possession of the Substitute Space; or (ii) the date next following the Surrender Date.
(b) Notwithstanding anything in Subsection (a) of this Paragraph 1 to the contrary, if, on or prior to the Surrender Date, Landlord shall have failed substantially to complete Landlord's Substitute Space Work, then: (i) the Surrender Date shall not be deemed to be the date set forth in the notice delivered by Landlord to Tenant pursuant to said Subsection (a) but shall, instead, shall be deemed to be a date, fixed by Landlord in a notice to Tenant, not sooner than five (5) days next following the date of the giving of such notice, and (ii) neither the validity of this Agreement nor the Lease nor the obligations of Tenant under this Agreement or the Lease shall be affected thereby.
2. Except as expressly set forth in this Agreement, Tenant agrees to accept possession of the Substitute Space in the condition existing as of the Substitute Space Commencement Date, and further agrees that Landlord shall have no obligation to prepare the Substitute Space for Tenant's use and occupancy. As of the Substitute Space Commencement Date, the Substitute Space shall hereby be deemed to be a part of the Demised Premises for all purposes of the Lease as though the Substitute Space were initially leased by Landlord to Tenant without in any way affecting any of the terms, covenants or conditions of the Lease, except as expressly set forth herein.
3. As of the Substitute Space Commencement Date, the Lease shall be deemed amended as follows:
(a) All references to the Demised Premises shall be deemed to exclude the Surrender Space and include the Substitute Space.
(b) Notwithstanding the provisions of Section 1.03 of the Lease, the Fixed Rent payable with respect to the entire Demised Premises for the remainder of the Demised Term shall be as follows:
i $200,548.33 for the remainder of the Third Rent Period, payable in equal monthly installments of $16,712.36;
ii $206,564.78 for the Fourth Rent Period, payable in equal monthly installments of $17,213.73; and
iii $212,761.73 for the Fifth Rent Period, payable in equal monthly installments of $17,730.14.
Tenant agrees and acknowledges that it shall not be entitled to any rent credit or free rent with respect to the Substitute Space.
(c) The term "Demised Premises Area" as defined in Section 23.01E of the Lease shall be deemed to mean 3,545 rentable square feet with respect to the Substitute Space (6,912 rentable square feet with respect to the entire Demised Premises) in a building of 103,528 rentable square feet. Accordingly, the reference to "3.2523%" in the definition of "Tenant's Proportionate Share" in Section 23.01G shall be amended to read "6.676%."
(d) GTJ REIT, Inc., Tenant's parent company, shall be deemed to be a
Permitted Occupant in addition to The Transit Alliance for purposes of
Section 11.06 of the Lease.
(e) Each reference to "ten (10) parking spaces" in Section 29.08 of the Lease shall be amended to read "thirteen (13) parking spaces."
(f) The phrase "the rentable square footage of the Storage Space is 2,300 square feet" shall be deleted from Section 38.02 of the Lease and the phrase "the rentable square footage of the remainder of the Demised Premises is 3,367 square feet" shall be amended to read "the rentable square footage of the Demised Premises is 6,912 square feet".
(g) The provisions of Section 41.01(A) of the Lease shall be amended such that the Fixed Rent due and payable for the First Renewal Term shall be restated as follows:
1. $219,144.58 per annum ($18,262.05 per month) for the period
from the First Renewal Commencement Date to and including the last day
of the calendar month in which the day immediately preceding the first
(1st) anniversary of the First Renewal Commencement Date shall occur;
2. $225,718.92 per annum ($18,809.91 per month) for the next year of the First Renewal Term;
3. $232,490.48 per annum ($19,374.21 per month) for the next year of the First Renewal Term;
4. $239,465.20 per annum ($19,955.43 per month) for the next year of the First Renewal Term; and
5. $246,649.15 per annum ($20,554.10 per month) for the remainder of the First Renewal Term.
Furthermore, Tenant acknowledges that the allocation of Fixed Rent to the Storage Space (as contemplated in clauses a-e of Section 41.01(A)) shall be deemed of no further force or effect.
(h) The provisions of Section 41.01(B) of the Lease shall be amended such that the Fixed Rent due and payable for the Final Renewal Term shall be restated as follows:
1. $254,048.63 per annum ($21,170.72 per month) for the period
from the Final Renewal Commencement Date to and including the last day
of the calendar month in which the day immediately preceding the first
(1st) anniversary of the Final Renewal Commencement Date shall occur;
2. $261,670.09 per annum ($21,805.84 per month) for the next year of the Final Renewal Term;
3. $269,520.19 per annum ($22,460.02 per month) for the next year of the Final Renewal Term;
4. $277,605.80 per annum ($23,133.82 per month) for the next year of the Final Renewal Term; and
5. $285,933.97 per annum ($23,827.83 per month) for the remainder of the Final Renewal Term.
Furthermore, Tenant acknowledges that the allocation of Fixed Rent to the Storage Space (as contemplated in clauses a-e of Section 41.01(B)) shall be deemed of no further force or effect.
(i) Section 1.03E, Section 1.06, Article 39 and Exhibits A-2 and B of the Lease shall be deemed deleted therefrom and shall be of no further force and effect.
4. Tenant acknowledges that it is fully familiar and satisfied with the Substitute Space and the condition thereof, and agrees to accept the Substitute Space in its "As Is" condition as of the Substitute Space Commencement Date, subject, however, to substantial completion of Landlord's Substitute Space Work (as defined in Exhibit B of this Agreement). The taking of possession of the Substitute Space shall be conclusive evidence of satisfactory delivery of the same by Landlord. Landlord shall not be obligated to perform any alterations, improvements or repairs to the Substitute Space to ready the same for Tenant's occupancy thereof, except that Landlord shall, within a reasonable period of time after the date of this Agreement, using Building standard materials and finishes, cause the Substitute Space to be built out in accordance with the provisions of Exhibit B annexed hereto and made a part hereof. Landlord's Substitute Space Work shall be deemed substantially complete when Tenant is able to occupy and utilize the Substitute Space for the uses set forth in Section 2.01 of the Lease despite there being minor items that remain to be completed. Upon delivery of the Substitute Space, Tenant will execute a letter agreement memorializing the Substitute Space Commencement Date (but the execution of said letter shall not be a condition precedent to the occurrence of the Substitute Space Commencement Date).
5. As of the date hereof, the address for notices, demands, requests or other communications set forth in Section 27.01(b) of the Lease with respect to the Landlord shall be deemed to be: c/o Lighthouse Real Estate Ventures, Inc., 60 Hempstead Avenue, West Hempstead, New York 11552, with a copy in all instances to Goldfarb & Fleece, 345 Park Avenue, New York, New York 10154, Attention: Marc J. Becker, Esq.
6. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
7. The covenants, conditions, provisions and agreements contained in this Agreement shall bind and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns, except as otherwise provided in the Lease.
8. Landlord and Tenant each represents that it has not dealt with any person or broker in connection with this transaction and agrees to defend, indemnify and hold harmless the other party from and against any and all liability (statutory or otherwise), claims, actions, suits, demands, damages, judgments, costs, interest and expenses of any kind or nature of anyone whomsoever (including, but not limited to, counsel fees and disbursements), to which such other party may be subject or which such other party may suffer by reason of any breach of this representation. Landlord represents to Tenant that Lighthouse Real Estate Management was not involved in this transaction as a broker.
9. It is specifically understood and agreed, that the submission of this Agreement to Tenant shall not be construed as an offer, nor shall Tenant have any rights with respect thereto unless and until Landlord shall execute a copy of this Agreement and deliver the same to Tenant.
10. Any capitalized terms used, but not defined, herein shall have the meanings ascribed to them in the Lease.
IN WITNESS WHEREOF, the parties hereto have respectively executed this Agreement as of the day and year first above written.
LANDLORD:
LIGHTHOUSE 444 LIMITED PARTNERSHIP
By: Lighthouse 444 Operating, LLC
By: /s/ Louis Sheinker
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Name: Louis Sheinker
Title: Member
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TENANT:
SHELTER EXPRESS CORP.
EXHIBIT A
Floor Plan for Substitute Space
EXHIBIT B
LANDLORD'S SUBSTITUTE SPACE WORK
I. Landlord agrees to supply and install in the Substitute Space all of the items set forth on Landlord's Substitute Space Work Plans referred to in Paragraph IV of this Exhibit B, as it may be modified to reflect any Change Work (as defined in Paragraph IV), unless prevented by job conditions or other circumstances beyond the reasonable control of Landlord or unless variations thereto are necessary to comply with Legal Requirements (such work and installations are referred to herein as "Landlord's Substitute Space Work").
II. Landlord's Substitute Space Work shall be equal to standards adopted by Landlord for the Building. Landlord's Substitute Space Work shall constitute a single non-recurring obligation on the part of Landlord. In the event the Lease is renewed or extended for a further term by agreement or operation of law, Landlord's obligation to perform Landlord's Substitute Space Work shall not apply to any such renewal or extension.
III. Subject to the provisions of Paragraphs IV(4) and VI of this Exhibit B, Landlord's Substitute Space Work shall be substantially completed prior to the Substitute Space Commencement Date. At any time after such substantial completion, Landlord may enter the Demised Premises to complete unfinished details of Landlord's Substitute Space Work and entry by Landlord, its agents, servants, employees or contractors for such purpose shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise.
IV. (1) Landlord shall submit to Tenant a complete set of plans and specifications (referred to herein as "Landlord's Substitute Space Work Plans") for those Alterations to the Demised Premises comprising Landlord's Substitute Space Work. In the event that Tenant shall have any comments or concerns with respect to Landlord's Substitute Space Work Plans (or any revisions thereof), Tenant shall deliver a notice to Landlord, within five (5) days immediately following Tenant's receipt of Landlord's Substitute Space Work Plans (or any revisions thereof), setting forth such comments or concerns. Time is of the essence with respect to the delivery of any such notice from Tenant to Landlord. Any notice setting forth comments or concerns with respect to Landlord's Substitute Space Work Plans delivered to Landlord after such five (5) day period shall be of no force or effect. In the event that Tenant delivers any such notice to Landlord after said five (5) day period or if Tenant fails to deliver any such notice to Landlord, then in such event, Landlord's Substitute Space Work Plans (and any revisions thereof) shall be deemed approved.
(2) Landlord shall deliver to Tenant, along with the complete set of
Landlord's Substitute Space Work Plans pursuant to subdivision (1) above, a
notice identifying which items contained in Landlord's Substitute Space Work
Plans, if any, will or might be subject to certain delays in delivery and which
might affect the date of substantial completion of Landlord's Substitute Space
Work. Tenant may, within five (5) days after such notice from Landlord,
designate, subject to the limitations (i) through (vi) set forth in subparagraph
(4)(A) of Paragraph IV, other available items which will not be subject to
delays in delivery. If Tenant fails to timely make such designations, Landlord
will have no obligation to supply or install the items set forth in such
Landlord's notice or, at Landlord's election, Landlord shall have the right to
perform the work relating to such items and for the purpose of determining
whether or not Landlord's Substitute Space Work shall have been substantially
completed and for the purpose of fixing the Substitute Space Commencement Date,
said items set forth in such notice and all other related work and installations
shall be deemed unfinished details of Landlord's Substitute Space Work which may
be performed by Landlord after the substantial completion of Landlord's
Substitute Space Work in accordance with the provisions of Paragraph III of this
Exhibit B and, accordingly, shall not affect the Substitute Space Commencement
Date.
(3) In the event substantial completion of Landlord's Substitute Space Work shall be delayed solely by reason of Tenant's delays in submitting any plans or specifications, or in supplying information, or in approving plans or specifications or estimates, or in giving authorizations or by reason of any Change Work (as hereinafter defined) or by reason of any other similar acts or omissions of Tenant, then, in such event, Tenant agrees to pay to Landlord, as agreed liquidated damages for such delays occasioned by Tenant's acts or omissions, as the case may be, sums equal to one (1) day's Fixed Rent attributable to the Substitute Space for each day that such failure or delay shall continue. Tenant shall also pay to Landlord a sum equal to any reasonable, actual, out-of-pocket additional cost to Landlord in completing Landlord's Substitute Space Work resulting from any of the foregoing failures, acts or omissions of Tenant. Any such sums may be collected by Landlord, from time to time, upon demand, whether or not the term with respect to Tenant's leasing of the Substitute Space shall have commenced.
(4) A. Tenant, after the submission of Landlord's Substitute Space Work Plans, may designate, subject to Landlord's approval, substitute or additional work, materials or installations (referred to collectively as "Change Work") to be supplied and installed by Landlord in replacement of, or in addition to, the work, materials and installations set forth on Landlord's Substitute Space Work Plans, provided that such Change Work: (i) is in compliance with the provisions of this Lease, including without limitation Articles 3 and 6 hereof; (ii) is practical and consistent with the physical conditions in the Building and with the plans for the Building filed with the appropriate governmental authorities and agencies; (iii) will not impair Landlord's ability to perform any of Landlord's obligations under the provisions of this Lease; (iv) will not affect any portions of the Building other than the Demised Premises; (v) shall (a) be in Auto-CAD format and be signed, sealed and certified by a registered architect and, if applicable, engineer duly licensed in the State of New York and (b) comply with all applicable Legal Requirements so that Landlord's Substitute Space Work Plans may, without further amendment or change, be used for
engineering drawings and specifications and filed with and approved by the appropriate governmental authorities and agencies; and (vi) will not tend to delay completion of Landlord's Substitute Space Work. If, at or about the time of the submission by Tenant to Landlord of any Change Work, it appears to Landlord that any item of Change Work designated by Tenant will tend to delay completion of Landlord's Substitute Space Work, or, notwithstanding Landlord's approval of any Change Work, if it subsequently appears to Landlord that any item of Change Work designated by Tenant will tend to delay completion of Landlord's Substitute Space Work, Landlord in each case shall notify Tenant in writing to that effect and Tenant, within five (5) days after the giving of such notice (as determined in accordance with Article 27 of this Lease), may designate, subject to the foregoing limitations (i) through (vi), other available items which will not so tend to delay completion of Landlord's Substitute Space Work in lieu of the item(s) of Change Work tending to cause a delay. If Tenant fails to make such designations within five (5) days after the giving of said notice, Landlord will have no obligation to supply or install the items set forth in such Landlord's notice or, at Landlord's election, Landlord shall have the right to perform such items of Change Work in accordance with the provisions of this Exhibit B, except that, solely for the purpose of determining whether or not Landlord's Substitute Space Work has been substantially completed and for the purpose of fixing the Substitute Space Commencement Date, such items of Change Work and all other related work and installations shall be deemed unfinished details of Landlord's Substitute Space Work which may be performed after the Substitute Space Commencement Date in accordance with the provisions of Paragraph III of this Exhibit B and, accordingly, shall not affect the Substitute Space Commencement Date.
B. Tenant shall pay to Landlord a sum equal to the amount by which the aggregate of (a) the reasonable, actual, out of pocket cost and expense to Landlord of supplying and installing all Change Work designated by Tenant (including, but not limited to, the cost to Landlord of any necessary field superintendent, operating engineer, laborers, freight elevator costs, rubbish removal, temporary sprinkler and lighting, electric and heat, protection, insurance, filing and expediting building permits and other governmental approvals, blueprint costs and every other item which customarily would be considered a general condition and, if applicable, any construction management or other fees paid to the general contractor or construction manager who is performing Landlord's Substitute Space Work [such aggregate actual cost and expense is referred to as "Landlord's Additional Substitute Space Construction Cost"] plus (b) if there is no general contractor or construction manager who is performing Landlord's Substitute Space Work, ten (10%) percent of Landlord's Additional Substitute Space Construction Cost for office overhead and as a construction management fee, shall exceed (c) the following credits: a sum equal to the reasonable, actual, out of pocket cost and expense to Landlord (including, but not limited to, the cost to Landlord of any necessary field superintendent, operating engineer, laborers, freight elevator costs, rubbish removal, temporary sprinkler and lighting, electric and heat, protection, insurance, Building Department, filing and expediting building permits and other governmental approvals, blueprint costs and every other item which customarily would be considered a general condition) of all items required to be supplied and installed by Landlord pursuant to paragraph I of this Exhibit B for which
Change Work is substituted by Tenant (however, if the reasonable, actual, out of pocket cost and expense to Landlord of any item of Change Work designated by Tenant as a substitution shall be less than the reasonable, actual, out of pocket cost and expense to Landlord of the item set forth in paragraph I of this Exhibit B for which such substitution is made, the credit to which Tenant shall be entitled for such substitution shall be limited to the reasonable, actual, out of pocket cost and expense to Landlord of the item of Change Work so designated by Tenant; nor shall Tenant be entitled to any credit for the substitution of any partitioning of less than floor-to-ceiling height). Any such excess shall be payable by Tenant to Landlord, whether or not the Demised Term shall have commenced, within five (5) days next following the rendition of a written statement by Landlord to Tenant.
C. The term "substitute" or "substitution" as used in paragraph (IV)(4)(B) above shall be expressly limited to an item of Change Work designated by Tenant in replacement of an item required to be supplied or installed by Landlord pursuant to paragraph I of this Exhibit B which item of Change Work so designated by Tenant serves the same function as the item so replaced, e.g., a lighting fixture in replacement of a lighting fixture designated on Landlord's Substitute Space Work Plans. Any Change Work for which Tenant shall have received any credit or other allowance shall not be deemed Tenant's personal property but shall be and remain Landlord's property.
V. During the performance of Landlord's Substitute Space Work, Tenant shall not be permitted to perform any Alterations in the Demised Premises prior to the Substitute Space Commencement Date, except to the extent such Alterations and the performance thereof during Landlord's Substitute Space Work are expressly approved by Landlord. In the event Tenant is so permitted to perform Alterations while Landlord is performing Landlord's Substitute Space Work, then each of the parties shall cause its contractors to cooperate with the other and the other's contractors so that Landlord's Substitute Space Work and Tenant's Alterations may be completed efficiently and economically, such cooperation to relate to including, without limitation, the storage of tools and materials.
VI. Any dispute between the parties as to whether or not Landlord's Substitute Space Work is "substantially complete" shall be submitted to arbitration in accordance with the provisions of Article 36 of the Lease.
EXHIBIT 21.1
1. Green Acquisition, Inc.
2. Triboro Acquisition, Inc.
3. Jamaica Acquisition, Inc.
4. G.T.J. Co., Inc.
5. GTJ Rate Cap LLC
6. Command Bus Company, Inc.
7. Green Bus Holding Corp.
8. Jamaica Buses Holding Corp.
9. Triboro Coach Holding Corp.
10. Jamaica Buses, Inc.
11. 49-19 Rockaway Beach Boulevard, LLC
12. 165-25 147th Avenue, LLC
13. 114-15 Guy Brewer Boulevard, LLC
14. 85-01 24th Avenue, LLC
15. 23-85 87th Street, LLC
16. 612 Wortman Avenue, LLC
17. Varsity Transit, Inc.
18. Varsity Coach, Corp.
19. Varsity Charter Corp.
20. The Bus Depot, Inc.
21. Satellite Transportation of New York Corp.
22. MetroClean Express Corp.
23. Metroclean Express of New Jersey, Inc.
24. Shelter Express Corp.
25. Shelter Electric Maintenance Corp.
26. ShelterCLEAN, Inc.
27. ShelterClean of Arizona, Inc.
28. Transit Facility Management Corp.
29. Transit Facility Claims Corp.
30. Transit Alliance Insurance Co. Ltd.
31. A Limited Sticky Situation
32. The Fourth Limited Sticky Situation Corp.
33. A Very Limited Sticky Situation
34. 8 Farms Springs Rd, LLC
EXHIBIT 31.1
CERTIFICATIONS
I, Jerome Cooper, certify that:
1. I have reviewed this Annual Report on Form 10-K of GTJ REIT, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 30, 2008 /s/ Jerome Cooper
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Jerome Cooper
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATIONS
I, Michael Kessman, certify that:
1. I have reviewed this Annual Report on Form 10-K of GTJ REIT, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 30, 2008 /s/ Michael I. Kessman
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Michael I. Kessman
Chief Accounting Officer
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EXHIBIT 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of GTJ REIT, Inc. (the "Company") on Form
10-K for the year ended December 31, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the "Periodic Report"), I, Jerome
Cooper, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2008 /s/ Jerome Cooper
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Jerome Cooper
Chief Executive Officer
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EXHIBIT 32.2
CERTIFICATIONS OF CHIEF ACCOUNTING OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of GTJ REIT, Inc. (the "Company") on Form
10-K for the year ended December 31, 2007 as filed with the Securities and
Exchange Commission on the date hereof (the "Periodic Report"), I, Michael
Kessman, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2008 /s/ Michael I. Kessman
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Michael I. Kessman
Chief Accounting Officer
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